bpk5d financial services unit : i-v · • project preparation/appraisal/arranging finance through...

BPK5D

FINANCIAL SERVICES

Unit : I-V

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BPK5D - FINANCIAL SERVICES

UNIT - 1 SYLLABUS

• IMPORTANCE OF FINANCIAL SERVICES

• TYPES OF FINANCIAL SERVICES

• FINANCIAL SERVICES AND ECONOMIC ENVIRONMENT

• PLAYERS IN FIANCIAL SERVICE SECTOR.

• DEBIT CARD

• CREDIT CARD

• SMART CARD

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MEANING OF FINANCIAL SERVICES

• Financial service is part of financial system that provides different

types of finance through various credit instruments, financial

products and services.

Financial instruments : cheque, bills,promissory note etc.,

Financial products : mutual funds ,credit cards, debit cards etc.,

Financial services : leasing , factoring , hire purchase financing etc.,

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Importance of financial services

• Promoting Investment

• Promoting savings

• Minimum risk

• Maximum return

• Ensures greater yield

• Economic growth

• Economic development

• Benefit to government

• Expands activities of financial instruments

• Capital market

• Promotion of domestic and foreign trade

• Balanced regional development

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BPK5D - FINANCIAL SERVICES5

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COMPONENTS

• Factoring

• Leasing

• Forfeiting

• Hire purchase

• Credit card

• Merchant banking

• Book building

• Assert liability management

• Housing finance

• Portfolio financing

• Under writing

• Credit rating

• Interest and credit swap

• Mutual fund

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Non-Fund based activities/services are those where funds are not involved

and financial institution gets income in the form of fee such as:

• Commission on demand draft.

• Guarantee/Letter of credit

• Managing capital issue (pre-issue & post issue management services)

• Advisory/Consultancy services

• Project preparation/appraisal/arranging finance through projects from

• financial institutions

• Assisting in the process of getting clearances from Govt/Govt bodies

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PLAYERS IN FINANCIAL SECTORS

• Financial service sectors(FFS) comes under the tertiary sector in which

bank plays a major role.

• Hire purchase financier also a player in the FSS

• Leasing companies through financial and operating lease ensures the

acquiring of asserts on long team basis at a reasonable charges

• Factoring enables the sellers to 80% value of sale from the financial

companies under financial service

• Underwriters and merchant bankers are additional players

• Credit card another important player in FSS

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• Book builders help companies in allocating shares to different categories

of investors

• Mutual funds ensures investment by the public and also ensures tax

relief to the investor.

• Credit rating plays an important in FSS by rating the companies

• House finance companies and insurance companies also promote

investment in FSS

• Assert liability management are also players in FSS

• Other financial companies and nonbanking companies are also players

in FSS


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Case study On Financial Services

A Financing institution/bank is providing various types of services to its

customers to earn revenue to meet its expenses. In some of the services,

funds of banks are involved, while in others, bank is charging

fee/commission/service charge.

1. How you would distinguish between funds based & fee based services?

2. Give 5 examples each of fee based and fund based services by a bank to

its customers.

3. What considerations are to be kept in mind which extending these

services to customers?

4. Which of the risks need to be avoided while providing these services?

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BPK5D - FINANCIAL SERVICES 12

A payment card that deducts money directly from a consumer’s checking

account to pay for a purchase. Debit cards eliminate the need to carry cash

or physical checks to make purchases. In addition, debit cards, also called

check cards, offer the convenience of credit cards and many of the same

consumer protections when issued by major payment processors like Visa

or MasterCard. Unlike credit cards, they do not allow the user to go into

debt, except perhaps for small negative balances that might be incurred if

the account holder has signed up for overdraft coverage. However, debit

cards usually have daily purchase limits, meaning it may not be possible to

make an especially large purchase with a debit card.

Debit card

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A credit card is a card issued by a financial company giving the

holder an option to borrow funds, usually at point of sale. Credit

cards charge interest and are primarily used for short-

term financing. Interest usually begins one month after a purchase

is made, and borrowing limits are pre-set according to the

individual's credit rating.

Credit card

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A smart card, chip card, or integrated circuit card (ICC), is any

pocket-sized card that has embedded integrated circuits. Smart cards

are made of plastic, generally polyvinyl chloride.

SMART CARD

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VIDEO LINK FOR FINANCIAL SERVICES• https://www.youtube.com/watch?v=-JMLdhbUbzE

• https://www.youtube.com/watch?v=W-1uebUJq4E

• http://slideplayer.com/slide/6299136/62/video/DEBIT+CARD%2C+C

REDIT+CARD+%26+SMART+CARD.mp4


https://www.youtube.com/watch?v=-JMLdhbUbzE



https://www.youtube.com/watch?v=W-1uebUJq4E



http://slideplayer.com/slide/6299136/62/video/DEBIT+CARD%2C+CREDIT+CARD+%26+SMART+CARD.mp4

http://slideplayer.com/slide/6299136/62/video/DEBIT+CARD%2C+CREDIT+CARD+%26+SMART+CARD.mp4

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UNIT-II SYLLABUS

o CREDIT RATING

oCOMMERCIAL BILL FINANCING

oCONSUMER FINANCE

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CREDIT RATING

• an estimate of the ability of a person or organization to fulfill their

financial commitments, based on previous dealings.• Different kinds of credit rating are listed below:

• Bond/debenture rating

• Equity rating

• Preference share rating

• Commercial paper rating

• Fixed deposits rating

• Sovereign rating

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CREDIT RATING AGENCIES

• CRISIL- Credit Rating Information Services of India Limited

• CARE-Credit Analysis and Research limited

• ICRA- corporate investment information and credit rating and

advisory agency,

• SMERA-Small and Medium Enterprises Rating Agency of India

• https://www.youtube.com/watch?v=kXZm351aXL8

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The commercial bill market is an important channel for providing

short-term finance to business. However, the instrument did not

become popular because of two factors:

Cash credit scheme is still the main form of bank lending, and

Big buyers in the corporate sector are still unwilling to the payment

mode of commercial bills.

COMMERCIAL BILL

FINANCING

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CONSUMER FINANCE

The division of retail banking that deals with lending money to

consumers. This includes a wide variety of loans, including credit cards,

mortgage loans, and auto loans, and can also be used to refer to loans

taken out at either the prime rate or the subprime rate.

https://www.youtube.com/watch?v=bSJMhxIwIuk

https://www.youtube.com/watch?v=BHMUVfjffhA

https://www.youtube.com/watch?v=bNpx7g

pSqbY

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https://www.youtube.com/watch?v=bNpx7gpSqbY

https://www.youtube.com/watch?v=bNpx7gpSqbY

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•INSURANCE

•FACTORING

•LEASING

UNIT III SYLLABUS

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INSURANCE

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FACTORING

https://www.youtube.com/watch?v=W1136

Ojzjk4

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https://www.youtube.com/watch?v=W1136Ojzjk4

https://www.youtube.com/watch?v=W1136Ojzjk4

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FACTORING

• This may be with or without

recourse factoring

• Notice or right is given by the

client to the factor .

• Factor collects the bill on his

own

• It is both service as well as

financing agreement

BILLS DISCOUNTING

• All bills are with recourse

factoring

• No notice of agreement given

to the drawee

• Drawee of the bill makes

payment

• It is a financing agreement

DIFFERENCE BETWEEN

FACTORING AND BILL

DISCOUNTING

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LEASING

Terms used in lease agreement :

• Lesser

• Lessee

• Lease property

• Term of lease

• Lease rentals

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https://www.youtube.com/watch?v=

2njmwSpX4l0

https://www.youtube.com/watch?v=2njmwSpX4l0

https://www.youtube.com/watch?v=2njmwSpX4l0

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LEGAL ASPECTS INVOLVED

IN LEASING

Details of contracting parties

Details of lease property

Terms of lease

Rent as part of lease

Termination of lease

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https://www.youtube.com/watch?v=c

tDfQU_3FsY

https://www.youtube.com/watch?v=ctDfQU_3FsY

https://www.youtube.com/watch?v=ctDfQU_3FsY

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ADVANTAGES & DIS- ADVANTAGES OF

LEASING

ADVANTAGES

Flexibility

Obsolesce

Low cost financing

Tax advantages

Better debt equity ratio

Benefits to small scale

industries & technocrats

Cheap and fast way of

acquiring asserts

DIS- ADVANTAGES

• Opportunity cost of rent

• Subleasing is difficult

• No appreciation of asset

• Limited operational control

• Ownership changes/Instability

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FINANCIAL LEASING

• Risk and benefit of the asset is

passed to the lessee

• Obsolesce is the risk of lessee

• Lessor is concerned with the rental

• It is Mostly a single lease

OPERATING LEASING

• Risk and benefit of the asset is

born with the lessor

• Obsolesce is the risk of lessor

• Lessor is not concerned with

the rental

• It is Mostly a non payout lease

DIFFERENCE BETWEEN

FINANCIAL LEASING AND OPERATING

LEASING

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•MERCHANT BANKING

•MUTUAL FUND

UNIT IV SYLLABUS

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MERCHANT BANKING

The Notification of Ministry of Finance defines Merchant banker as

“any person who is engaged in the business of issue management

either by making arrangements regarding selling, buying or subscribing

to the securities as Manager, Consultant, Advisor or rendering

corporate advisory services in relation to such issue management”

https://www.youtube.com/watch?v=KcFlnELhj0w

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FUNCTIONS OF MERCHANT BANKING

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https://www.youtube.com/watch?v=HaWIA8WhNRs

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• The services provided by Merchant Bankers include:

• Project counseling.

• Market survey and forecasting.

• Estimating the amount of funds required.

• Raising funds from capital market.

• Raising of funds through new instruments.

• Bought out deals.

• OTC market operations.

• Mergers and amalgamations.

FUNCTIONS OF MERCHANT BANKING

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BENEFITS OF MUTUAL FUND

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BENEFITS OF MUTUAL FUNDS

• https://www.youtube.com/watch?v=deaU-eVM5xs

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https://www.youtube.com/watch?v=deaU-eVM5xs



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TYPES OF MUTUAL FUNDS

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TYPES OF MUTUAL FUNDS

• https://www.youtube.com/watch?v=lsiX3c6qWWM

• https://www.youtube.com/watch?v=U8363dfQkFU

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https://www.youtube.com/watch?v=lsiX3c6qWWM

https://www.youtube.com/watch?v=lsiX3c6qWWM

https://www.youtube.com/watch?v=U8363dfQkFU

https://www.youtube.com/watch?v=U8363dfQkFU

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INSTITUTIONS

INVOLVEDIN MUTUAL

FUNDS• HDFC Mutual Fund

• Unit Trust of India(UTI)

• SBI Mutual Fund (SBI MF)

• Quantum Asset Management Company

• LIC Mutual Fund

• Reliance Mutual Funds

• JM Financial Mutual Fund

• Birla Sun Life Mutual Fund

• Kotak Mahindra Mutual Fund

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http://www.zonkerala.com/HDFC-Mutual-Fund-629.html

http://www.zonkerala.com/Unit-Trust-of-IndiaUTI-628.html

http://www.zonkerala.com/SBI-Mutual-Fund-SBI-MF-2091.html

http://www.zonkerala.com/Quantum-Asset-Management-Company-2101.html

http://www.zonkerala.com/LIC-Mutual-Fund-2094.html

http://www.zonkerala.com/Reliance-Mutual-Funds-2092.html

http://www.zonkerala.com/JM-Financial-Mutual-Fund-2098.html

http://www.zonkerala.com/Birla-Sun-Life-Mutual-Fund-2099.html

http://www.zonkerala.com/Kotak-Mahindra-Mutual-Fund-2095.html

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UNIT TRUST OF INDIA

• Establishment

• The Unit Trust of India or UTI was established on 1st February, 1964

under the Unit Trust of India Act, 1963 by the government of India.

• Its establishment has been a landmark in the history of investment

trusts in India. It completed 35 years on 30th June, 1999.

• The UTI started the sale of units to the public from the July,1964.

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https://www.youtube.com/watch?v=1OslgD_lPJM

https://www.youtube.com/watch?v=1OslgD_lPJM

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OBJEVTIVES OF UTI

The basic objective of the UTI is to offer both small and large investors

the means of acquiring shares inn the widening prosperity resulting

from the steady, industrial growth of the country. There are two primary

objectives of UTI, i.e.,

(i) to promote and pool the small savings from the lower and middle

income people who cannot have direct access to the stock

exchange

(ii) to give them an opportunity to share the benefits and fruits of

prosperity resulting from rapid industrialization in India.

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FUNCTIONS OF UTI

• To encourage savings of lower and middle-class people.

• To sell units to investors in different parts of the country.

• To covert the small savings into industrial finance.

• To give them an opportunity to share the benefits and fruits of

industrialization in the country.

• To provide liquidity to units.

• To buy or sell or deal in foreign exchange dealings.

• To formulate unit scheme or insurance plan in association with or as

agent of GIC.

• To invest in any security floated by the Central Government, RBI or

foreign bank.

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SCHEMES IN UTI

• Unit scheme—1964.

• Unit Linked Insurance Plan—1971.

• Children Gift Growth Fund Unit Scheme—1986.

• Rajyalakhmi Unit Scheme—1992.

• Senior Citizen’s Unit Plan—1993.

• Monthly Income Unit Scheme.

• Master Equity Plan—1995.

• Money Market Mutual Fund—1997.

• UTI Growth Sector Fund—1999.

• Growth and Income Unit Schemes.

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MUTUAL FUND

A mutual fund is a professionally-managed investment scheme, usually

run by an asset management company that brings together a group of

people and invests their money in stocks, bonds and other securities.

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SECURITIZATION

Securitization is the financial practice of pooling various types of

contractual debt such as residential mortgages, commercial mortgages,

auto loans or credit card debt obligations (or other non-debt assets which

generate receivables) and selling their related cash flows to third party

investors as securities, which may be described as bonds, pass-through

securities, or collateralized debt obligations (CDOs). Investors are repaid

from the principal and interest cash flows collected from the underlying

debt and redistributed through the capital structure of the new financing.

Securities backed by mortgage receivables are called mortgage-backed

securities (MBS), while those backed by other types of receivables

are asset-backed securities (ABS).

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A stock is a type of security that signifies ownership in

a corporation and represents a claim on part of the corporation's

assets and earnings.

There are two main types of stock: common and

preferred. Common stock usually entitles the owner to vote at

shareholders' meetings and to receive dividends. Preferred

stock generally does not have voting rights, but has a higher claim

on assets and earnings than the common shares. For example,

owners of preferred stock receive dividends before common

shareholders and have priority in the event that a company goes

bankrupt and is liquidated. Also known as "shares" or "equity."

STOCK INVEST

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BOOK BUILDING

Book building is a systematic process of generating, capturing,

and recording investor demand for shares during an initial public

offering (IPO), or other securities during their issuance process, in

order to support efficient price discovery. Usually,

the issuer appoints a major investment bank to act as a

major securities underwriter or book runner.

Book Building is an alternative method of making a public issue in

which applications are accepted from large buyers such as financial

institutions, corporations or high net-worth individual, almost on firm

allotment basis, instead of asking them to apply in public offer.

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BOOK BUILDING

bpk5d financial services unit : i-v · • project preparation/appraisal/arranging finance through...

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