1. Financial Services

8/10/2019 1. Financial Services

1/40

FINANCIAL SERVICES


2/40

IntroductionFinancial services refer to services provided by the finance

industry. The finance industry encompasses a broad range oforganizations that deal with the management of money. Amongthese organizations are credit unions, banks, credit cardcompanies, insurance companies, consumerfinance companies, stock brokerages, investment funds and

some government sponsored enterprises.

Financial servicesrefer to services provided by the financeindustry. The finance industry encompasses a broad range oforganizations that deal with the management of money. Among

these organizations are banks, credit card companies, insurancecompanies, consumer finance companies, stock brokerages,investment funds and some government sponsored enterprises.


3/40

Financial services refer to services provided bythe finance industry.

Services that are financial in nature.

The finance industry encompasses a broad rangeof organizations that deal with the managementof money.

Among these organizations are banks, credit card

companies, insurance companies, consumerfinance companies, stock brokerages, investmentfunds and some government sponsoredenterprises.

Introduction


4/40

MEANING OF FINANCIAL

SERVICES

Typically, it means mobilizing andallocating SAVINGS.

It includes all activities involved in thetransformation of SAVINGS intoINVESTMENTS.

Financial Services can also be calledFinancial Intermediation.


5/40

FEATURES OF FINANCIAL

SERVICES

INTANGIBILITY

INSEPERABILITY

DYNAMISM

ACT AS LINK

CUSTOMER ORIENTED

PERISHABILITY

DERIVATIVES AND CATALYSTS

DISTRIBUTION OF RISKS


6/40

IMPORTANCE OF FINANCIAL

SERVICES

Provision ofLiquidity

Capitalformation

Promotion ofSavings

EconomicGrowth

FinancialIntermediation

Contribution toGNP

Dominance ofHuman element

Creation ofemploymentopportunities


7/40

OBJECTIVES OF FINANCIAL SERVICES

FUND RAISING

FUNDS DEVELOPMENT

REGULATION

SPECIALIZED SERVICES

ECONOMIC GROWTH


8/40

PLAYERS IN FINANCIAL SERVICES

PLAYERS

INDIVIDUALSMARKET

INTERMEDIARIESREGULATORS

RBI SEBI IRDA

GOVERNMENTFIRMS OR

CORPORTAES


9/40

Classification of Financial Services Industry

The financial intermediaries in India can be traditionally .classified into two :

A. Capital Market intermediaries and

B. Money market intermediaries.

The capital market intermediaries consist of term lendinginstitutions and investing institutions which mainly providelung term funds. On the other hand, money market consists of commercial banks, co-operative banks and other agencieswhich supply only short term funds. Hence, the term 'financialservices industry' includes all kinds of organizations whichintermediate .and facilitate financial transactions of bothindividuals and corporate customers.


10/40

TYPES of Financial Services

Financial services cover a wide range of

activities. They can be broadly classified into

two, namely :

i. Traditional. Activities

ii. Modern activities.


11/40

Traditional Activities

Traditionally, the financial intermediaries have

been rendering a wide range of services

encompassing both capital and money market

activities. They can be grouped under two

heads, viz.

a. Fund based activities and

h. Non-fund based activities.


12/40

Fund based activities : The traditional services

which come

under fund based activities are the following :

i. Underwriting or investment in shares,

debentures, bonds, etc. of new issues

(primary market activities).


13/40

ii. Dealing in secondary market activities.

iii. Participating in money marketinstruments like commercial

papers, certificate of deposits, treasury bills,discounting of bills etc .

Involving in equipment leasing, hire purchase,

venture capital, seed capital, v. Dealing in foreign exchange market

activities. Non fund based activities


14/40

Fund Based Services

The firm raises funds through debt, equity, deposits

and the bank invests the funds in securities or lends to

those who are in need of capital.

The following are some of these fund-based services

such as: Leasing and Hire Purchase

Housing Finance

Credit Cards

Venture Capital

Factoring

Forfeiting

Bill Discounting

Insurance


15/40

Leasing

A lease transaction is a commercial arrangement

whereby an equipment owner or Manufacturer

conveys to the equipment user the right to use

the equipment in return for a rental. In other words, lease is a contract between the

owner of an asset (the lessor) and its user (the

lessee) for the right to use the asset during aspecified period in return for a mutually agreed

periodic payment (the lease rentals).


16/40

Consumer Credit

Consumer credit is basically the amount of credit usedby consumers to purchase non-investment goods or

services that are consumed and whose

value depreciates quickly.

This includes automobiles, recreational vehicles (RVs),education, boat and trailer loans but excludes debts

taken out to purchase real estate or margin on

investment accounts.

For example, a mortgage for purchasing a house is not

consumer credit. However, the 52 inch television you

put on your credit card is consumer credit.


17/40

Hire Purchase

A system by which a buyer pays for a thing inregular installments while enjoying the use of it.

During the repayment period, ownership (title) of

the item does not pass to the buyer. Upon the

full payment of the loan, the title passes to thebuyer.

A method of buying an article by making regular

payments for it over several months or years. Thearticle only belongs to the person who is buying it

when all the payments have been made


18/40

Factoring

Factoring is a financial transactionwhereby a business sells its accounts

receivable (i.e., invoices) to a third

party (called a factor) at a discount.


19/40

Advantages of Factoring

Time Savings. Factoring can save you time and effort that would

otherwise be spent on collecting from customers.

Good Use for Growth. The instant cash to generate growth, maybe

hiring another salesperson who will bring in more business. Or

buying an advertisement that will reach new customers. Or buying a

piece of equipment that will accelerate production.

Doesnt Require security. Unlike traditional bank loans, factoring

doesntrequire to risk your home or other property as collateral.

Qualify for More Funding. Factoring firms will typically give a cash

advance on up to 80% of receivables. That may be more than be able

to get from a bank.


20/40

Forfaiting

It is a form of financing of receivables relating to

international trade. It is a form of supplier credit in which an exporter

surrenders possession of export receivables,which are usually guaranteed by a bank on the

importerscountry. Forfaiting is a mechanism of financing exports:

by discounting export receivables

evidenced by bills of exchanges or promissory notes

without recourse to the seller (viz; exporter) carrying medium to long-term maturities

on a fixed rate basis upto 100% of the contract value.


21/40

Bills Discounting

While discounting , banks buy the bill before it

is due and credit the value of the bill after a

discount charge to the customer's account.

There are two types of bill discounting

Import Bill Discount is a kind of short-term finance

offered by the bank to the importer according to

his demand upon receiving the bills under the

letter of credit and the import collection items. Export Bill Discounting is financing of money in

transit supplied by the bank.


22/40

According to the Indian NegotiableInstruments Act, 1881

The bill of exchange is an instrument in writing

containing an unconditional order, signed by the

maker, directing a certain person to pay a certain

sum of money only to, or to the order of, a certain

person, or to the bearer of that instrument.

Bills Discounting


23/40

Housing finance is what allows for the

production and consumption of housing.

It refers to the money we use to build and

maintain the nationshousing stock.

But it also refers to the money we need to pay

for it, in the form of rents, mortgage loans and

repayments.

Housing Finance


24/40

Venture Capital Financing

It is a fund that is available for investment in

an enterprise which offers the probability of

profit along with the possibility of loss.

Venture is a course of proceeding associated

with risk whose outcome is uncertain.

Capital means the financial resources to start

an enterprise.


25/40

. Non fund based activities

Financial intermediaries provide services on

the basis of non-fund activities also. This can

be called 'fee based' activity. Today customers,

whether individual or corporate, are notsatisfied with mere provisions of finance. They

expect more from financial services

companies. Hence a wide variety of services,are being provided under this head. They

include :


26/40

MERCHANT BANKING

CREDIT RATING

STOCK BROKING

SECURITIZATION OF DEBTS

LETTER OF CREDIT

BANK GUARANTEE


27/40

About Merchant Banking

Bank that deals mostly in international finance, long-term

loans for companies and stock underwriting.

Merchant banking primarily involves financial advice and

services for large corporations and wealthy individuals. Merchant banks do not provide regular banking services to the

general public.

Merchant banks invest their own capital in client companies &

provide services for mergers and acquisitions.


28/40

Stock Broking

The process of investing in the share market,

either individually or through a broker isknown as stock broking.

This is primarily done by opening a Demat

account. If done through a broker, he opens an

account, helping to operate through online

stock broking facility.


29/40

Stock broker

Licensed agent who has to pass certain qualifying

tests to be certified to offer securities investment

advice to investors.

He or she may

counsel what and when to buy

counsel whether to hold or sell securities,

execute buy-sell orders on behalf of the investors, and

charge a percentage of the transaction amountantsbrokerage fee for the services rendered.


30/40

Credit Rating

It is an opinion on the future ability and legal

obligation of an issuer to make timely

payments of principal and interest on a

specific fixed income security.

As per credit rating agencies regulations 1999

rating means

An opinion regarding securities

Expressed in the form of standard symbols

Assigned by a credit rating agency

Used by an issuer of such securities


31/40

CRISIL rates a wide range of entities, including

Industrial companies

Banks

Non-banking financial companies (NBFCs)

Infrastructure entities Microfinance institutions

Insurance companies

Mutual funds

State governments

Urban local bodies

CRISIL: Credit Rating and Information Services of India Limited.


32/40

Modern Activities

Beside the above traditional services, the

financial intermediaries render innumerable

services in recent times. Most of them are in

the nature of non-fund based activity. In viewof the importance, these activities have been

in brief under the head 'New financial

products and services'. However, some of themodern services provided by them are given

in brief hereunder.


33/40

i. Rendering project advisory services rightfrom the

preparation of the project report rill the

raising of funds for starting the project withnecessary Government approvals.

ii. Planning for M&A and assisting for their

smooth carry out. iii. Guiding corporate customers in capital

restructuring


34/40

iv. Acting as trustees to the debenture holders.

v. Recommending suitable changes in themanagement structure and management style with aview to achieving better results.

vi. Structuring the financial collaborations / jointventures by identifying suitable joint venturepartners and preparing joint venture agreements,

Rehabilitating and restructuring sick companiesthrough appropriate scheme of reconstruction andfacilitating the implementation of the scheme.


35/40

viii. Hedging of risks due to exchange rate risk,

interest rate risk, economic risk, and political

risk by using swaps and other derivative

products.

Managing [In- portfolio of large Public Sector

Corporations.

x. Undertaking risk management services

like insurance services, buy-hack options etc.


36/40

. Advising the clients on the questions of selecting the bestsource of funds taking into consideration the quantum offunds required, their cost, lending period etc.

xii, guiding the clients in the minimization of the cost of debtand in the determination of the optimum debt-equity mix.

Undertaking services relating to the capital market, such as

:-.. Clearing services

b. Registration and transfers,

c. Safe custody of securities

d. Collection of income on securities xiv. Promoting credit rating agencies for the purpose of rating

companies which want to go public by the issue of debtinstrument;*.


37/40

Fund based income

Fund based income comes mainly from interest spread (thedifference between the interest earned and interest paid),lease rentals, income from investments in capital market andreal estate. On the other hand, fee based income has itssources in merchant banking, advisory services, custodial

services, loan syndication, etc. In fact, a major part of theincome is earned through fund-based activities. At the sametime, it involves a large share of expenditure also in the formof interest and brokerage. In recent times, a number ofprivate financial companies have started accepting depositsby offering a very high rate of interest. When the cost ofdeposit resources goes up, tin" (ending rate should also go up.It means that such companies have to compromise the qualityof its investments.


38/40

Fee based income

Fee based income, on the other hand, does

not involve much risk. But, it requires a lot of

expertise on the part of a financial company to

offer such fee-based services.


39/40

CAUSES FOR FINANCIAL

INNOVATION


40/40

FINANCIAL SERVICES AND ECONOMIC

ENVIRONMENT Increase the output of the economy Emergence of primary equity market

Evaluating assets, increasing liquidity and producing and spreadinginformation

Stability and resilience

Conservation to dynamism Process of globalization

Accelerate the volume and rate of savings

Makes innovation

Risk management services

Disciplining and guiding the management companies

Concept of credit rating

Process of liberalization

Accelerates the rate of economic growth

Date post:	02-Jun-2018
Category:	Documents
Upload:	isha-chandok
View:	217 times
Download:	0 times

1. Financial Services

Documents