Some of the important challenges are briefly mentioned here under:
Lack of qualified personnel
The financial services sector is fully geared to the task of financial creativity’. However, this sector has to face many challenges. In fact, the dearth of qualified and trained personnel is an important impediment in its growth. Hence, it is very vital that a proper and a comprehensive training must be given to the various financial intermediaries.
Lack of investor awareness
The introduction of new financial products and instruments will be of no use unless the investor is aware of the advantages and uses of the new and innovative products and instruments. Hence, the financial intermediaries should educate prospective investors/ users of the advantages of the innovative instruments through literature, seminars, workshops, advertisements and even through audio-visual aids.
Lack of transparency
The whole financial system is undergoing a phenomenal change in accordance with the requirements of the national and global environments. It is high time that this sector gives up its orthodox attitude of keeping accounts in a highly secret manner. Hence, this sector should opt for better levels of transparency. In other words, the disclosure requirements and the accounting practices have to be in line with the international standards.
Lack of specialization
In the Indian scene, each financial intermediary seems to deal in different financial service lines without specializing in one or two areas. In other words, each intermediary is acting as a financial super market delivering so many financial products and dealing in different varieties of instruments. In other countries, financial intermediaries specialize in one or two areas only. This helps them to achieve high levels of efficiency and excellence. Hence, in India also, financial intermediaries can go for specialization.
Lack of recent data
Most of the intermediaries’ do not spend more on research. It is very vital that one should build up a proper data base on the basis of which one could embark upon `financial creativity’. Moreover, a proper data base would keep oneself abreast of the recent developments in other parts of the whole world and above all, it would enable the fund managers to take sound financial decisions.
Lack of efficient risk management system
With the opening of the economy to multinational and the exposure of Indian companies to international competition, much importance is given to foreign profits flows. It involves the utilization of multi currency transactions which exposes the client to exchange rate risk, interest risk and economic and political risk.
Process of liberalization
The interest rates have been deregulated. The private sector has been permitted to participate in banking and mutual funds and the public sector undertakings are being privatized.