INTRODUCTION TO FINANCIAL SERVICES SUBMITTED TO MRS NISHA

INTRODUCTION TO FINANCIAL SERVICES SUBMITTED TO : MRS. NISHA AGGARWAL SUBMITTED BY : MANISHA [5163] PREETI [5211] SHILPA [5199] B. COM – III [HONS. ]

FINANCIAL SERVICES : ‘Financial services’ can be defined as “activities , benefits and satisfactions , connected with the sale of money , that offer to users and customers , financial related value”. TYPES OF INSTITUTIONS : • Banks and Financial Institutions • House building Societies • Insurance Companies • Credit Card Issuer Companies • Investment Trusts and Mutual Funds • Stock Exchanges • Leasing Companies • Unit Trusts • Financial Companies

MAIN SECTORS OF FINANCIAL SERVICE INDUSTRY BANKING COMPANIES FINANCIAL INSTITUTIONS NON BANKING FINANCIAL COMPANY

I. BANKING COMPANIES : Section – 5 of Banking Regulation Act , 1949 defines banking as , “ the accepting for the purpose of lending or investments , of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque , draft , order or otherwise. ” Main Functions of Commercial Bank – i. Accepting of deposits ii. Lending of funds iii. Provision of a variety of financial and related services that are indirectly related to the above two main banking functions

II. FINANCIAL INSTITUTIONS : FIs refer to non banking institutions / financial companies engaged in any of the following activities : i. Financing by way of loans , advances and so on ii. Acquisition of shares / stocks / bonds / debentures / securities iii. Hire purchase and consumer credit iv. Any class of insurance , stock broking etc. v. Chit funds vi. Collection of money by way of subscription / sale of units

III. NON – BANKING FINANCIAL COMPANY [NBFC] : It means and includes : a) Financial institution which is a company b) A non – banking institution which is a company and has as its principal business the receiving of deposits or lending. c) Such other non – banking institutions / class of institutions as RBI may specify.

CHARACTERSTICS OF FINANCIAL SERVICES : 1. Intangible 2. Direct Sale 3. Heterogenity 4. Fluctuation in demand 5. Protect customer’s interest 6. Labour intensive 7. Geographical dispersion 8. Lack of special identity 9. Information based 10. Require quality labour

IMPORTANCE OF FINANCIAL SERVICES : 1. Services are provided at the right time , at the right place and at right price by undertaking production and distribution of financial services. 2. The interest of customer’s is protected. 3. Service providing organisations not only provide services locally but also extend them to national and international customers. 4. Efforts are made by the service organisation to make their image and service public. 5. Financial organisations study customer behaviour , their needs and attitudes.

KINDS OF FINANCIAL SERVICES ASSET BASED/FUND BASED SERVICES FEE BASED / ADVISORY SERVICES

A. ASSET / FUND BASED SERVICES 1. EQUIPMENT LEASING / LEASE FINANCING : • In India , leasing is a recent development and equipment leasing was introduced by First Leasing Company of India Limited in 1973. • Leasing is an arrangement that provides a firm with the use and control over assests without buying and owning the same. • It is a form of renting assets. • There is no exclusive law / legislation to govern equipment lease financing.

2. HIRE PURCHASE AND CONSUMER CREDIT : Hire purchase means a transaction where goods are purchased and sold on the terms that • payment will be made in instalments • the possession of the goods is given to the buyer immediately • the property(ownership) in the goods remains with the vendor till the last instalment is paid, • the seller can responses the goods in case of default in payment of any instalment • each instalment is treated as hire charges till the last instalment is paid.

Consumer credit includes all asset based financing plans offer to individual to help them acquired durable consumer goods • In a consumer credit transaction the individual/consumer/buyer pays a part of the cash purchase price at the time of the delivery of the asset and pays the balance with interest over a specified period of time • There is no specific legislation to regulate consumer in India

3. BILL DISCOUNTING: Discounting of the bills of exchange is an attractive fund based financial service provided by financing companies. • Bill discounting has emerged as a profitable business for finance companies and represent a diversification in their activity. • After the 1992 scam RBI imposed certain restriction on bill discounting on service provided by the banks. • The development of bill discounting as a financial service depends upon the existence of a full fledged bill market. • The financial companies act as bill brokers between the banks and business houses.

VENTURE CAPITAL • The term venture capital represents financial investment in a highly risky project with the objective of earning a high rate of return. • Venture capital financing involves a high degree of risk. • The government of india has been instrumental in setting up of new financial agencies to serve the increasing needs of the enterpreneurs in the area of venture capital. • These include: • Venture capital scheme of IDBI • Venture capital scheme of ICICI • Risk Capital and technology corporation ltd. [RCTC]

HOUSING FINANCE • It emerged as a fund based financial service in the country with the setting up of National Housing Bank [NBH] by RBI in 1988. • NBH is an apex housing finance institution in the country and is fully owned subsidiary of RBI

INSURANCE SERVICES • Insurance is a contract where by the insurer undertakes to make good the loss suffered by the insured against a specified risk such as fire or compensate the beneficiaries on the happening of a specified event such as accident death. • The document containing the terms of contract in black and white is called policy. • The property which is insured is the subject matter of insurance. • The interest which the insured has in the subject matter is called insurable interst. • Insurance services are divided into:

FACTORING • It is a fund based financial service provides resources to finance receivables as well facilitates the collection of receivables. • It is another method of raising short term finance through account receivable credit offered by commercial banks and factors. • A factor is a financial institution which offers services relating to management and financing of debts arising out of credit sales. • At present there are only two factoring organisations operating in the country namely SBI Factors and Commercial Services [SBI FACS and CANBank Factors ltd.

FEE BASED ADVISORY SERVICES 1. MERCHANT BANKING Grindlays bank was the first one to set up Merchant banking division in 1969 in India with the objective of undertaking management of public issue and financial consultancy. Following the recommendations of the banking commission [1972]. The industrial credit and investment corporation of India [ICICI] was the first development finance institution to initiate such service in 1974.

CREDIT RATING • It is the opinion of the rating agency on the relative ability and willingness of the issuer of the debt instrument to meet the debt obligations as and when they arise. • For the investor it is an indicator expressing the underlying credit quality of issue programme. • In India there are three major credit rating agencies namely • -CRISIL [Credit Rating Information Services if India limited. ] • ICRA [Investment information and credit rating agency of India limited] • CARE [Credit Analysis and Research in Equities. ]

STOCK BROKING • Prior to the setting up of SEBI , stock exchanges were been supervised by the ministry of finance under the Securities Contract Regulation Act [SCRA] and were operating more or less self regulatory • SEBI was setup to ensure that stock exchanges perform their self regulatory role properly

FINANCIAL SERVICES AND ECONOMIC ENVIRONMENT The changes in financial system can be studied into three stages : 1. Before independence 2. After independence till 1990 3. After 1990

STAGE 1: BEFORE INDEPENDENCE 1. The system was unorganized. 2. Capital stock exchanges had very few industrial security being traded in secuirities market 3. There was no separate issuing institution 4. Industry access to outside saving was also restricted

STAGE: II AFTER INDEPENDENCE (1948 – 90) • Post independence period stressed on planned economic development under the directive principles of state policy a scheme of planned economic development was evolved in 1951 with a view to achieve the broad economic and social objectives of the sale • The main objective was to retain govt. control over distribution of credit and finance

NO OF DEVELOPMENTS TOOK PLACE IN THE FINANCIAL SYSTEM LISTED BELOW 1. TRANSFER OF OWNERSHIP FROM PRIVATE TO PUBLIC SECTOR 2. NATIONALIZATION OF RBI 3. SETTING UP OF STATE BANK OF INDIA 4. NATIONALIZATION OF LIFE INSURANCE BUSINESS 5. NATIONALIZATION OF COMMERCIAL BANKS 6. NATIONALIZATION OF OF GENRAL INSURANCE BUSINESS 7. SETTING UP OF FINACIAL INSTITUIONS 8. DEVEPOMNET FINANCE INSTITUIONS • INVESTING INSTITUIONS • OTHER INSTITUTIONS

STAGE III: AFTER 1990’s 1. Indian financial system has undergone massive changes since the announcement of new economic policy in 1991. 2. Liberalization Globalization has transformed Indian economy from closed to open economy. 3. Financial system is focusing more attention towards the development of capital market.

MAJOR DEVELOPMENTS OF INDIAN FINANCIAL SYSTEM Entry of private sector : 1. Financial institutions have been converted into companies, allowing them to issue equitybonds to the public. 2. Govt. has allowed private sector to enter into banking and insurance sector.

CHANGING ROLE OF DEVELOPMENT FINANCE INSTITUTIONS [DFIs] 1. DFIs performed the role of term-lending institutions extending loans for project finance, underwriting, direct subscription etc. 2. They receives funds from the govt. and RBI There is remarkable shift in the activities of DFIs 3. DFIs are engaged in non-fund based financial activities. 4. DFIs raise funds through issue of bonds carrying floating rate of interest or bonds without govt. guarantee. 5. DFIs sponsored infrastructural institutions.

EMERGENCE OF NON-BANKING FINANCIAL COMPANIES[NBFCs] : In the unorganized non banking sector , number of non banking financial companies have emerged providing financial services partly fee based and partly asset /fund based. GROWTH OF MUTUAL FUNDS INDUSTRY UTI was the single organisation issuing the mutual fund units. But presently , the mutual funds are sponsored not only by UTI but also by banks , insurance organisation, private sector.

Securities and Exchange Board of India (SEBI ) The Securities and Exchange board of India was established under the SEBI act, 1992 with following purposes: 1. to protect the interest of investors in securities; 2. to promote the development of the securities market; 3. to regulate the securities market

DEVELOPMENTS IN SECONDARY MARKET/STOCK MARKET Capital market has undergone tremendous change over the years. Number of developments have taken place. It includes: 1. issuance of regulations by SEBI in respect of brokers/sub brokers 2. more transparency in trading and settlement practices. 3. Regulation of badla trading 4. setting up of National stock exchange (NSE) and over

SIGNIFICANT CHANGES IN FINANCIAL SYSTEM 1. The Unit Trust of India , the leading mutual fund organization has been split into two parts as a consequence of the repeal of the UTI Act. 2. Private sector has been allowed in the insurance sector thus breaking the monopoly of Life insurance Corporation[ LIC] and General Insurance Corporation[GIC]. 3. The merger of the ICICI Ltd. And IDBI into ICICI Bank and IDBI Bank respectively and the proposed merger of Industrial Finance Corporation of India [IFCI] into Punjab National Bank.

PLAYERS IN FINANCIAL SERVICES SECTOR BANKING INSTITUTIONS The Indian banking institutions can be broadly classified into two categories: 1. Organised sector 2. Unorganised sector Organised sector : - The organised banking sector consist of commercial banks, cooperative banks and the regional rural banks.

Commercial Banks the commercial banks may be scheduled banks or non-scheduled banks. At present only one bank is a nonscheduled bank. All other banks are scheduled banks. The commercial banks consist of 27 public sectors banks, private sector banks and foreign banks.

Function of Commercial Banks 1. Primary Functions ACCEPTING DEPOSITS

2. LENDING OR ADVACING LOANS (a) Money at call. (b) Overdraft. (c) Cash credit. (d) Discounting of bills. (e) Term loans. (F) Credit to govt

3. CREDIT CREATION

4. CHEQUE SYSTEM OF PAYMENT AND FUNDS

THANK YOU