Source: E-mail dt. 2.4.2012


Changing Paradigms in Financial Sector: Current issues in Financial Sector


Prof. S. Parthiban


Prof. K. Rajaendran

Asst.Professors, Dept. of Management, Gobi Arts and Science College, Gobi 638 453, Erode (dt)., Tamilnadu, India.




Finance is considered as the lifeblood of all organizations as well as the nation. So collection of such financial resources are very much important. But maintanence of finance and optimum utilization of such resources is more important than collecting it. If an organization have a sound finance plan it could lastlong. Knowing this the world had started concentrating in the efficient optimization of financial resources. And engagement of many had resulted in lots of new ideas in financial sector.


Financial System


The Global Financial System (GFS) is a financial system consisting of institutions and regulations that act on the international level, as opposed to those that act on a national or regional level.


Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance), as well as by a wide variety of organizations including schools and non-profit organizations. Two important kinds of finance are as follows:


  1. Personal finance - Personal financial decisions may involve paying for education, financing durable goods, buying insurance, investing, for loan and for retirement.
  2. Corporate finance - Managerial or corporate finance is the task of providing the funds for a corporation's activities. For example, finance for SME.

Note: The field of finance refers to the concepts of time, money and risk and how they are interrelated.


The main techniques and sectors of the financial industry (Banks):


  • The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary pockets the difference.
  • A bank accepts deposits from lenders, on which it pays the interest.
  • A bank accepts deposits from lenders, on which it pays the interest.
  • Banks allow borrowers and lenders, of different sizes, to coordinate their activity.

The main players are the global institutions, such as IMF and Bank for International Settlements, national agencies and government departments, e.g., central banks and finance ministries, and private institutions acting on the global scale. Credit policy helps many organisation to move forward.


Advantages of credit trade


  Results in more customers than cash trade & Can charge more for goods.

  Gain goodwill and loyalty of customers & Can be used as a promotional tool.

  Farmers can buy seeds and implements, and pay for them only after the harvest.

  Stimulates agricultural and industrial production and commerce.

  People can buy goods and pay for them at a later date & Increase the sales.


Disadvantages of credit trade


  Risk of bad debt, High administration expenses & More working capital needed.

  People can buy more than they can afford.

  Risk of Bankruptcy.


Once Banking all over the world was done under a great concern and risk. It was thought as the riskier proces to save money, password, confidential details, etc., eventhough it was well regulated it was highly riskier, time consuming, etc.


But Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory and competitive reasons have led to increasing importance of total banking automation in the Indian Banking Industry.


New Technologies in Finance sector:


  • Quantitative behavioral finance


Quantitative Behavioral Finance is a new discipline that uses mathematical and statistical methodology to understand behavioral biases in conjunction with valuation. Many had demonstrated significant behavioral effects in stocks and exchange traded funds.


  • Baltimore UniCERT


Using Baltimore UniCERT and a Polish language version of MailSecure, the bank will initially issue digital certificates to over 800 employees, enabling secure authenticated exchange of data via email. These digital certificates will act as 'digital passports' or 'digital IDs' and attest to the identity of users for all email messages and attachments. PKO BP's plan is to role out MailSecure to over 5000 users.


  • Mobile banking


Mobile banking is a genuinely compelling mobile data service, with clear reasons for all stakeholders to benefit from the service, creating a win-win situation.


  • Biometrics


Banks and others who have tested biometric-based security on their clientele, however, say consumers overwhelmingly have a pragmatic response to the technology. Anything that saves the information-overloaded citizen from having to remember another password or personal identification number comes as a welcome respite. Adding a statistical footing to this anecdotal evidence, a nationwide survey by Columbia University reported that 83% of people approve of the use of finger imaging, and don't feel it treats people as criminals.


  • Voice biometrics


The product combines Vocent technology, acquired through its takeover of PassMark, with a voiceprint engine from speech recognition specialist Nuance Communications. The product is designed to help fight telephone banking fraud. The product generates a risk score by looking at the voiceprint as well as other parameters, such as the phone number and user behaviour profiles.


  • ATM


An automated teller machine (ATM) is a computerized telecommunications device that provides the customers of a financial institution with access to financial transactions in a public space without the need for a human clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smartcard with a chip, that contains a unique card number and some security information, such as an expiration date or CVC (CVV). Security is provided by the customer entering a personal identification number (PIN). They are sometimes referred to as "ATM machines", a technically redundant term.


Thus these are some of the technolgies that are frequently used and the credits of inserting technology in finance sector are as follows:


o   Convenient,

o   Cost effective

o   less time incurring,

o   Highly confidential,

o   A kind of solace will be there in the minds of each customer,

o   Easy for getting consolidated reports, Less investment,

o   Easy for the accessors,


o   Sometimes it feels to be riskier during access,

o   They are still under suspicsion for the illeterate,

o   The error in automation cannot be predicted.

Recent Cases in Finance:


a)      United States housing bubble:


It is an economic bubble in many parts of the U.S. housing market including areas of California, Florida, New York, Michigan, the Northeast Corridor, and the Southwest markets. On a national level, housing prices peaked in early 2005, began declining in 2006 and have not yet bottomed. Increased foreclosure rates in 20062007 by U.S. homeowners led to a crisis in August 2007 for the subprime, Alt-A, CDO, CDX, mortgage, credit, hedge fund, and foreign bank markets. The U.S. Treasury Secretary called the bursting housing bubble "the most significant risk to our economy


b)     Stock market downturn of 2002:


It is the sharp drop in stock prices during 2002 in stock exchanges across the United States, Canada, Asia, and Europe. The dollar declined steadily against the euro, reaching a 1-to-1 valuation not seen since the euro's introduction. After falling for 11 days and reaching a low below Dow 8000 on July 23, 2002, the market rallied, rising 15% over the next four trading days rising to over Dow 9000 during August.


c)      The "dot-com bubble":


It was a speculative bubble covering roughly 19952001 during which stock markets in Western nations saw their value increase rapidly from growth in the new Internet sector and related fields. The period was marked by the founding of a group of new Internet-based companies commonly referred to as dot-coms. The bursting of the dot-com bubble marked the beginning of a relatively mild yet rather lengthy early 2000s recession in the developed world. This uncertainty was abnormally high during the late 1990s and led prices to be unusually high as well.




Finance is one of the most important aspects of business management. Without proper financial planning a new enterprise is unlikely to be successful. Managing money (a liquid asset) is essential to ensure a secure future, both for the individual and an organization. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments, with consideration to their institutional setting.