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Financial Services

Introduction
Financial Services
Unit I (Syllabus)

Unit - I
Financial Services - Meaning, types and their
importance.

Depository - Introduction, Concept, depository


participants, functioning of depository systems, process
of switching over to depository systems, benefits,
depository systems in India,
Dematerialization and Rematerialization.

Role, objectives and functions of SEBI and its guidelines


relating to depository system.
Concepts Underlying the need for
financial services
Capital formation: defined as net addition to the capital stock or the
value of the amount of increase of capital stock that is required for
producing goods & services.
3 sub processes:

Savings- process by which claims to resources are set aside & made available for
other purposes.

Financing- process by which savings are pooled & made available for
investments.

Investments- process by which savings are committed to production of goods &


services

Savings: Public , Corporate & Institutional Savings

Investments: Real and Financial Investment


Savings and real Investments are not undertaken by the same
individuals and organizations

Savers & investors need certain organized (i) Institutions


(ii) instruments
(iii) laws & enforcement
agencies

Transfer of funds from their owners to entrepreneurs takes


place through financial system.
A vibrant financial system encourages high level of savings &
investment & ultimately lead to high rate of economic growth

The Various services that are created and delivered by the


financial system are known as Financial Services
Financial System

A financial system is a set of financial institutions,


financial instruments, & financial markets which
facilitate the transfer of savings from savers to those
who can put those savings for achieving economic
growth.
FUNCTIONS:

Links the savers and investors

Facilitates greater savings and investment rate

Makes optimal allocation and utilization of savings


COMPONENTS OF INDIAN
FNANCIAL SYSTEM
Fourth
Eleme
nt
NBFCs
Asset Finance Companies
Housing Finance Companies
Venture Capital Funds
Merchant Banking Organizations
Credit Rating Agencies
Factoring & Forfaiting cos
Stock Brokering Firms
Depositories
Key Interest Rates

1. Bank Rate
2. Base Rate
3. Repo Rate
4. Reverse Repo Rate
5. Call Money Market Rates: MIBID and MIBOR
NSE
BSE
OTCEI

Trading at OTCEI will be permitted only in respect of the


securities of the listed companies. Listing may be
obtained by (i) Companies with issued equity capital
between Rs. 30 lacs to 25 crores; (ii) Closely held
companies interested in listing; (iii) Venture capital
companies;
Bank Rate

The commercial banks make loans by discounting bills


of exchange presented to them by manufacturers and
traders. Now if commercial banks do not receive
sufficient deposit (with which to make loans), they
approach the central bank for funds and the central
bank re-discounts the bill of exchange held by
commercial (member) banks. The rate at which the
central bank re-discounts the bills of other eligible
papers presented by the commercial banks is known as
the bank (discount) rate. A rise in the bank rate by the
central bank implies that the commercial banks will
have to pay higher interest rates while taking loans
from the central bank. They will, therefore, be forced to
charge higher rates of interest while making loans.
CALL MONEY MARKET

1. Market for short period loans from one day to 15 days.


2. Banks with surplus or deficit funds operate in call money market.
3. Transactions done on phone or through DFHI (Discount & Finance
House of India)
4. No Collateral Security
5. Purely an interbank market. Includes banks & PD (primary dealers)
6. Banks borrow to meet their CRR obligation.
7. Call Rates : MIBID & MIBOR published by FIMMDA-NSE.
8. Repo Instruments:At present Repo is permitted between permitted
64 players against Central & State Government Securities
(including T-Bills) only at Mumbai.

https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?ID=34
http://www.fimmda.org/modules/content/?p=1015#1
PARTICIPANTS IN MONEY MARKET

1. Commercial Banks
2. Stock brokers & Speculators
3. PDs and Money Market Mutual Funds (MMMFs)
4. DFHI to activate call market
5. Individuals of very high status for trade purposes to save high
interest on OD.
Participants a are categorized into-
Lender & Borrowers- Commercial Banks, Co-operative Banks, DFHI
Lenders- LIC, UTI, GIC, IDBI, NABARD, Specified Mutual Funds

. MONEY MARKET INSTRUMENTS

Treasury Bills (repo instruments)


Commercial bills & promissory notes
Commercial Papers
Certificates of Deposits
Inter Bank Participation certificates
In a repo transaction, the Reserve Bank
infuses liquidity into the system by taking securities as
collateral, while in a
reverse repo transaction it absorbs liquidity from the
system with the Reserve
Bank providing securities to the counter parties. The
LAF auctions are also
conducted electronically with the market participants,
such as, banks and
Primary Dealers.
Financial Services??

Various services that are created &


delivered by the financial system are
known as financial services
Financial Services

Services required for


mobilizing and
channelizing savings
to productive activities
for producing final
goods & services
Financial Services

Includes various
services created and
delivered by the
financial system-not
only helps raise funds
but ensure their
efficient deployment.
Financial Services

Most significant
element of a
financial system
interlinking all
other elements.
Functions of Financial Services

Mobilization of funds
Effective Deployment of funds
Provision of need based services
Provision of regulated service
Enhancement of Economic
Development
Categories of Financial
Services
Categories of Financial
Services.
Ownership
&
Utilization of Fund

FEES BASED
FUND BASED
Fin. Services Co.s
Fin. Services
Help others raise
Co.s
Own the fund by funds
Do not own the
directly raising it
fund raised
from the market
Provide advisory
Lend it to those
services for
who need them
effective
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
Fee Based Services
The services wherein financial institutions
operate in specialized fields to earn a
substantial income in the form of fees or
dividends or brokerage on operations.
The major fee based financial services are as
follows:
Issue Management
Corporate Advisory Services
Credit Rating
Mutual Funds
Asset Securitization
Stock Broking Services
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 view of the importance, these
activities have been in brief under the head 'New financial products
and services'. However, some of the modern services provided by
them are given in brief hereunder.

i. Rendering project advisory services right from the preparation


of the project report rill the raising of funds for starting the project
with necessary Government approvals.
ii. Planning for M&A and assisting for their smooth carry out.
iii. Guiding corporate customers in capital restructuring
iv. Acting as trustees to the debenture holders.
v. Recommending suitable changes in the management
structure and management style with a view to achieving better
results.
vi. Structuring the financial collaborations / joint ventures by
identifying suitable joint venture partners and preparing joint venture
agreements,
vii. Rehabilitating and restructuring sick companies through
appropriate scheme of reconstruction and facilitating the
implementation of the scheme.
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-back options etc.
xi. Advising the clients on the questions of selecting the best source
of funds taking into consideration the quantum of funds required,
their cost, lending period etc.
xii,. guiding the clients in the minimization of the cost of debt and in
the determination of the optimum debt-equity mix.
xiii. Undertaking services relating to the capital market, such as
a. 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 debt
instrument;*.
A Glimpse of the
variety of
Financial Services
LEASING
Means for financing
capital equipments

Contractual agreement
by which a firm acquires
the right to use an asset
for a definite period by
paying rentals
Leasing Cos in India
Shriram Trans
M&M Financial
Bajaj Finance
Shriram City
Magnum Fincap8.850.354.12-0.01Cubical Fin Ser27.75-0.70-2.46-
Sundaram Fin 0.03SP Capital Fin20.000.000.00-0.11Guj Lease Fin3.170.072.26-
0.13Transpek Financ8.00-0.15-1.84-0.15India Lease Dev6.59-
Cholamandalam 0.34-4.91-0.18Margo Finance6.810.314.77-0.59Visagar Fin
2.200.104.76-0.76Autoriders Fin2.09-0.10-4.57-0.77
Manappuram Fin Aadi Industries

Magma Fincorp 2.90-0.05-1.69-1.38Mahan Ind0.86-0.06-6.52-2.09


Mefcom Agro Ind1.550.000.00-2.26Nu Tech Corpn0.53-0.02-3.64-
2.49Roselabs Fin36.401.153.26-3.62Pioneer Invest14.51-1.42-
SREI Infra 8.91-12.41DFL Infra3.89-0.20-4.89-13.10CFL Capital3.30-0.05-
1.49-49.2

Optiemus Infra38.50-0.05-
Intec Capital
Sakthi Finance22.051.055.00
FACTORING
FS designed to manage
the receivables of a firm

An arrangement for
obtaining funds by selling
receivables to a
specialized financing
agency (factor) .
BILL DISCOUNTING &
SECURITIZATION
Bill discounting is a
practice of lending
against the commercial
bills of a trader.

Securitization is a
process of pooling &
packaging homogenous
illiquid asset (receivables-
MUTUAL FUNDS
Are financial
intermediaries that
collect the savings of
small investors and
invests them in a
diversified portfolio of
securities to minimize
risk and maximize
MERCHANT BANKERS
Provide specialized
services as managing
new issues,
underwriting, portfolio
mgt., financial
restructuring, advisory
services for M&A..
Institutes offering Merchant Banking

Public Sector
SBI capital markets ltd
Punjab national bank Private Sector
Bank of Maharashtra ICICI Securities Ltd
Karur Vysya bank ltd Axis Bank Ltd
State Bank of Bikaner Bajaj Capital Ltd
and Jaipur. Reliance Securities
IFCI financial services Limited
ltd. Kotak Mahindra Capital
Company Ltd
Yes Bank Ltd
Key Foreign Players

Goldman Sachs (India) Securities Pvt. Ltd.


Morgan Stanley India Company Pvt. Ltd.
Barclays Securities (India) Pvt. Ltd.
Bank Of America
Citigroup Global Markets India Pvt. Ltd.
DSP Merrill Lynch Ltd.
VENTURE CAPITAL
FINANCING

Provide a form of equity


financing designed
especially for funding
high risk and return
projects
(new
Major
Major Venture
Venture Capital
Capital Firms
Firms

IFCI Venture Capital Fund Ltd. (IVCF) :


IFCI established Risk Capital Foundation as a society in 1975.
1988- RCF was converted into RCTC ( Risk Capital & Technology
Finance Corporation Ltd.) for financing indigenous technology.
2000- RCTC was renamed IVCF.

Since its inception IFCI Venture has provided the start-up capital and
venture funding to over 400 entrepreneurs.
Green India Venture Fund
India Enterprise Development Fund
India Automotive Components Manufacturers Private Equity Fund
SIDBI VENTURE CAPITAL LTD.
ICICI Ventures: A subsidiary of ICICI bank. Its focus is Private equity,
buyouts, mezzanine financing.

(top 10 VC firms in News file)


CREDIT RATING
A specialized form of
financial services
involved in the
assessment of the
credit record, integrity,
and capability of a
prospective borrower to
meet its debt
Salient Features of Financial Services

Highly Customer Oriented


Intangibility
Inseparability
Perish ability
People-based service
Dynamism
List of top 10 financial services

companies in India
SBI Capital Markets Limited:
This happens to be the oldest organizations in the sphere of capital markets in India. Established
in 1986 in the form of an ancillary of SBI, they have ranked second in Asia's Project Advisory
services. The company is a traiblazer in privatization and securitization. The subsidiaries of SBI
Capital Markets are SBICAPs Ventures Ltd., SBICAP Trustee Co.Ltd. and many others.

Bajaj Capital Limited:


One of the major financial services companies in India, Bajaj Capital offers best investment
advisory and financial planning services. The services are meted out to the institutional
investors, NRIs, corporate houses, individual investors, high network clients as well.

DSP Merrill Lynch Limited:


A major player in the equity and debt market in India, DSP Merrill Lynch offers financial advises
to varied corporations and institutions. With an array of wealth management and investor
services, their services are customized in a manner that they meet every investor requirement.

Birla Global Finance Limited:


The subsidiary of Aditya Birla Nuvo Ltd., this company has operations in the corporate finance
and capital market arena. An alliance with Sun Life Financial of Canada, they have given birth to
Birla Sun Life Insurance Co Ltd., Birla Sun Life Distribution Co. and alike.

Housing Development Finance Corporation:


A best financial solution for home loans, NRI loans, HDFC is the one stop destination for personal
finance. With overseas branches in Singapore, Kuwait, Qatar, Saudi Arabia and many others,
HDFC has been going great guns every year.
List of top 10 financial services
companies in India
PNB Housing Finance Limited:
This company offers premium solutions for relieving the borrower segment. The Home Loan
Life Insurance Plan of this has come in conjunction with TATA AIG, with the lowest premium
when compared to the peers.

ICICI Group:
Wide arena of financial products and services, ICICI Group has solutions like InstaBanking,
Online Trading, Insta Insure, ICICI Bank imobile etc. Providing high class financial services in
all segments of the society, ICICI Group deals with Mutual Fund, Private Equity, Securities,
and Life Insurance etc.

LIC Finance Limited:


It is the biggest Housing Finance Company in India, providing finance to individuals for repair
or construction or renovation of any old or new apartment or house.

L & T Finance Limited:


Established in 1994 by the Larsen and Turbo group, this has become a significant name in the
financial sector. Funds for automobiles, Agricultural Instruments, secured loans; they have all
types of loans for a long tenure.

Karvy Group:
With Mutual Funds Services, Depository Services, Debt Market Services, Investment Banking
and many others, Karvy Group has spanned across the domestic financial sector as well as
abroad.
T-Bills are issued at discount in primary auction
conducted by Reserve Bank of India (RBI)

Negotiated Dealing System - Order Matching (NDS-OM)


is a platform provided by RBI to trade T-Bills in
secondary market

http://www.reddognetworks.com/assets/firstdata-
__inside_the_mobile_wallet.pdf
file:///C:/Users/HP/Downloads/CODE-OF-CONDUCT-FOR-THE-
%20USAGE-OF-NDS-OM.pdf
The Negotiated Dealing SystemOrder Matching System (NDS-OM),
hereinafter referred to as the System is an anonymous electronic
order matching platform, owned by RBI. The System was launched on
August 1, 2005. The system facilitates secondary market trading in all
kinds of Central Government Securities, State Government Securities,
Special Securities and Treasury Bills. The system is hosted and
maintained by the Clearing Corporation of India Limited (CCIL) for and
on behalf of RBI. The System users place their bids and offers on the
NDS-OM screen. The system matches all bids and offers on price/time
priority or yield/time priority that is, within the orders of the same
price or yield (as applicable), it matches the oldest order first. For
example, if, for 7.80 % Government Security 2021, there are two bids
of Rs. 5 crore each at price Rs 96.50, one put at 9.30 am, and another
at 9.45 am, the bid at 9.30 am will get priority for matching or for
executing the trade of a seller who wants to sell at the bid price. As
soon as the order placed at 9.30 am has been filled/executed/dealt
upon/ matched, the bid placed at 9.45 am gets the priority. In case
there is a bid for a price higher than Rs 96.50 at 9.45 am, the higher
price, though put at a later time, would get priority. Similar time
priority logic applies for offers /sell orders with the lowest price/yield
offered always getting the highest priority.
http://www.nseindia.com/products/content/debt/w
dm/about_wdm.htm
About Negotiated Trade Reporting Platform- NSE
The Negotiated Trade Reporting Platform deals in fixed income securities and is
fast gaining ground in an environment that has largely focussed on equities.
The erstwhile Wholesale Debt Market (WDM) segment of the Exchange
commenced operations on June 30, 1994. This provided the first formal screen-
based trading facility for the debt market in the country. It has now been merged
under the New Debt Market as the Negotiated Trade Reporting Platform.
The Debt segment provides trading facilities for a variety of debt instruments
including Government Securities, Treasury Bills and Bonds issued by Public
Sector Undertakings/ Corporates/ Banks like Floating Rate Bonds, Zero Coupon
Bonds, Commercial Papers, Certificate of Deposits, Corporate Debentures, State
Government loans, SLR and Non-SLR Bonds issued by Financial Institutions,
Units of Mutual Funds and Securitized debt by banks, financial institutions,
corporate bodies, trusts and others.
Large investors and a high average trade value characterize this segment. Till
recently, the market was purely an informal market with most of the trades
directly negotiated and struck between various participants. The
commencement of this segment by NSE has brought about transparency and
efficiency to the debt market.
About the auction of government
securities
Auction for Sale (Re-issue) of 8.08 per cent Government Stock, 2022Government of India
Ministry of Finance
Department of Economic Affairs
Budget Division
New Delhi, dated December 22, 2014
NOTIFICATION
Auction for Sale (Re-issue) of 8.08 per cent Government Stock, 2022
F. No.4 (4) W&M/2014: Government of India hereby notifies sale (Re-issue) of 8.08 per cent Government Stock 2022 for an aggregate
amount of Rs. 2,000 crore (nominal). The sale will be subject to the terms and conditions spelt out in this notification (called Specific
Notification) as also the terms and conditions specified in the General Notification F. No. 4 (13)W&M/2008, dated October 8, 2008
issued by Government of India.
Method of Issue
2. The Stock will be sold through Reserve Bank of India, Mumbai Office, Fort, Mumbai- 400 001 in the manner as prescribed in
paragraph 5.1 of the General Notification F. No. 4 (13)W&M/2008, dated October 8, 2008 by aprice based auction using multiple
price auction method.
Allotment to Non-competitive Bidders
3. The Government Stock up to 5% of the notified amount of the sale will be allotted to eligible individuals and institutions as per the
enclosed Scheme for Non-competitive Bidding Facility in the Auctions of Government Securities (Annex).
Place and date of auction
4. The auction will be conducted by Reserve Bank of India, Mumbai Office, Fort, Mumbai-400 001 onDecember 26, 2014. Bids for
the auction should be submitted in electronic format on Reserve Bank of India Core Banking Solution (E-Kuber) system onDecember
26, 2014. The non-competitive bids should be submitted between 10.30 a.m. and 11.30 a.m. and the competitive bids should be
submitted between 10.30 a.m. and 12.00 noon.
When Issued Trading
5. The Stock will be eligible for When Issued trading in accordance with the guidelines issued by the Reserve Bank of India.
Tenure
6. The Stock will be of fifteen years tenure commencing fromAugust 2, 2007. The Stock will be repaid at par onAugust 2, 2022.
Date of issue and payment for the stock
7. The result of the auction shall be displayed by the Reserve Bank of India at its Fort, Mumbai Office onDecember 26, 2014. The
payment by successful bidders will be onDecember 29, 2014i.e. the date of re-issue.The payment for the Stock will include
accrued interest on the nominal value of the Stock allotted in the auction from the date of last coupon payment i.e.August 2, 2014
to December 28, 2014
Interest
8. Interest at the rate of 8.08 per cent per annum will accrue on the nominal value of the Stock from the date of last coupon payment
and will be paid half yearly on February 2 and August 2.
Notes
Pension fund means an intermediary which has been granted a Certificate Of Registration by the
Authority as a Pension Fund for receiving contributions, accumulating them and making payments
to the subscriber in the manner as may be specified by the Authority.
A. Pension Funds (PFs) for Government Sector

LIC Pension Fund Limited
SBI Pension Funds Pvt. Ltd
UTI Retirement Solutions Ltd

B. Pension Funds (PFs) for Private Sector



HDFC Pension Management Co. Ltd.
ICICI Prudential Pension Fund Management Co. Ltd.
Kotak Mahindra Pension Fund Ltd.
LIC Pension Fund Ltd.
Reliance Capital Pension Fund Ltd.
SBI Pension Funds Pvt. Ltd
UTI Retirement Solutions Ltd
Birla Sun Life Pension Management Ltd(Yet to commence Business)Subsrciber has a PRAN no.
Savings accumulate in his PRA (permanent retirement a/c) maintained by registered pension funds
of PFRDA.
After accumulation period, subscriber has to buy annuity plan from empanelled life insurance
company for receiving the pension amount.. Tier I and Tier II accounts.


Notes
Pension fund
Which are the Annuity Service Providers (ASPs) empaneled by PFRDA?
The following Insurance companies providing annuity services have
been empanelled by PFRDA as Annuity Service Providers (ASPs):
1. Bajaj Allianz Life Insurance Co. Ltd. 2.
HDFC Standard Life Insurance Co. Ltd.
3. ICICI Prudential Life Insurance Co. Ltd.
4. Life Insurance Corporation of India
5. Reliance Life Insurance Co. Ltd.
6. SBI Life Insurance Co. Ltd.
7. Star Union Dai-ichi Life Insurance Co. Ltd.
TIER I: Corporate Debt PlansHDFC Pension Fund12.643.5013.21----
21ICICI Prudential Pension
Fund19.414.4314.2411.2611.472.144.02103

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