divya
TRANSCRIPT
PROJECT REPORT ON
“ FINANCIAL SERVICE ”
SUBMITTED TO:
UNIVERSITY OF MUMBAI
A project report submitted in the partial fulfillment of the
requirements for the award of the degree of Bachelor of
commerce – Banking and Insurance.
Prepared By:
DIVYA P WAGHMARE
T.Y.B.B.I (SEM V)
Under the guidance of
Prof.Sujeet Singh.
1
K.M.AGRAWAL COLLEGE OF ARTS, SCIENCE AND
COMMERCE KALYAN (W) - 421301.
UNIVERSITY OF MUMBAI (2014 – 2015)
SUBMITTED
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR
THE AWARD OF DEGREE T.Y. B.COM – BANKING &
INSURANCE
BY
DIVYA P WAGHMARE.
T.Y.BBI (SEMESTER V)
2
CERTIFICATE
This is to certify that, DIVYA P WAGHMARE of T.Y.B.B.I
Semester V (2014-15),Seat no: has successfully completed
project work on
“ FINANCIAL SERVICE ”
under the guidance of Prof. SUJEET SINGH.
PLACE :- KALYAN
DATE :-
(Signature of Project Guide) (Signature of Principal)
(Signature of Coordinator) (Signature of External)
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GUIDE CERTIFICATE
I Prof. Sujeet Singh hereby certify that Miss. DIVYA P
WAGHMARE
of TYBBI Seat No. has completed the project on
“ FINANCIAL SERVICE ”
for the academic year 2014-2015. The information submitted is true &
original to the best of my knowledge.
Place :- Kalyan .
Date :- (Signature of Project
Guide)
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DECLARATION
I DIVYA P. WAGHMARE the student of B.com Banking and Insurance
semester V (2014-2015). Hereby declare that I have completed the
FINANACIAL SERVICES project on in the academic year 2014-
2015.
This information submitted is true and original to the best of my
knowledge.
Signature of student
(DIVYA P WAGHMARE)
Seat No:
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ACKNOWLEDEMENT
Life is so short that we forget to thank those people who help us in tackling various
hurdles in our life. But I take my privilege in conveying heartiest gratitude to all those
people, whose help enabled me to complete the project.
It gives me pleasure and satisfaction to state that this presentation is not a solo effort;
so many people have contributed their bit to it. It is very difficult to individualize their
gratefulness here, to all whose contributions have blossomed into this presentation.
My foremost gratitude and thanks exist for Prof. SUJEET SINGH who has guided,
assisted or provided me with information or otherwise helped me obtain statistics &
facts.
I also express my grateful thanks to respondents for giving their valuable time to
make this project to success.
Last but not the least; I would like to pay our gratitude to my PARENTS, without
their help and blessing I can’t take a single step in right direction.
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INDEX
SR NO. CONTENTS PAGE NO.
1. INTRODUCTION 09
2. HISTORY 12
3. STRUCTURE 15
4. FEATURES 18
5. BANKING SERVICES 21
6. INSURANCE 26
7. OTHER FINANCIAL SERVICES 30
8. CLASSIFICATION 39
9. FUNDAMENTALS OF FINANCIAL SERVICES 45
10. CAUSES OF FINANACIAL SERVICES 47
11. VARIOUS SERVICES OF FINANACIAL
SERVICES IN MARKETING
49
12. EMERGING FUNCTION IN MARKETING OF
FINANCIAL SERVICES
53
13. CASE STUDY 55
14. CONCLUSION 58
15. BIBLOGRAPHY 59
FINANCIAL SERVICES
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CHAPTER 18
INTRODUCTION
The financial services sector plays a predominant role in stimulating and
sustaining the economic growth of a nation. Till recently, the public sector
institutions have been showing dominance in all the areas of financial services
like banking, insurance, term lending, housing finance, etc in the Indian
financial system.
But after the initiative of economic liberalization by the government, the
private as well as the foreign players are also putting rapid strides in this
sector.
Consequently the financial services sector in India started growing rapidly in
the economy. The competitive climate in the Indian financial services sector
has drastically changed over the last few years.
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MEANING OF FINANCIAL SERVICES
Financial services mean mobilizing and allocating savings. It includes all
activities involved in the transformation of savings into investment. It is also
called as “financial intermediation”.
Financial intermediation is a process by which funds are mobilized from a
large number of savers and make them available to all those who need it and
particularly to corporate customers. Thus, financial services sector is a key
area and it is very vital for industrial developments.
Financial services refer to services provided by the finance industry. The
finance industry encompasses a broad range of organizations that deal with
the management of money. Among these organizations are banks, credit card
companies, insurance companies, consumer finance companies, stock
brokerages, investment funds and some government sponsored enterprises. As
of 2009, the financial services industry represented 40% of the market
capitalization of the S&P 500 in the United States.
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SCOPE OF FINANCIAL SERVICE
Guiding corporate customers in capital restructuring. Dealing in foreign
exchange market activities. Dealing in secondary market activities.
Participating in money market instruments like commercial papers, certificate
of deposits, treasury bills, discounting of bills.
Arrangements of funds from financial institutions for the clients project cost
or his working capital requirements.
Planning for mergers and acquisitions and assisting for their smooth carryout.
Promoting credit rating agencies for the purpose of rating companies which
want to go for public issues of debt instruments
CHAPTER 2
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HISTORY OF FINANCIAL SERVICES
The Indian financial services industry has undergone a drastic change in 1990.
During the late seventies and eighties, the Indian financial services industry
was dominated by commercial banks and other financial institutions which
cater to the requirements of the Indian industry. Infact the capital market has
played a secondary role. The economic Liberlization has brought in a
complete transformation in the Indian financial services industry. Prior to the
economic liberalization, the Indian financial sector was characterized by so
many factors which retarded the growth of financial services sector.
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INDIAN FINANCIAL SERVICE SECTOR
The Indian financial services industry has experienced significant growth in
the last few years. There has been a considerable broadening and deepening of
the Indian financial markets due to various financial market reforms
Undertaken by the regulators, the introduction of innovative financial
instruments in the recent years and the entry of sophisticated domestic and
international players. Sectors such as banking, asset management and
brokerage have been liberalized to allow private sector involvement, which
has contributed to the development and modernization of the financial
services sector. This is particularly evident in the non-banking financial
services sector, such as equities, derivatives and commodities brokerage,
residential mortgage and insurance services, where new products and
expanding delivery channels have helped these sectors achieve high growth
rates
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SOME OF THE SIGNIFICANT FACTORS ARE AS
FOLLOWS:
1. Excessive controls in the form of regulations of interest rates, money
rates.
2. Too many controls over the prices of securities under the erstwhile
controller of capital issues
3. Non-availability of financial instruments on a large scale as well as on
different varieties.
4. Absence of independent credit rating and credit research agencies.
5. Strict regulation of the foreign exchange market with too many
restrictions on foreign investment in Indian companies.
6. Lack of information about international developments in the financial
sector.
CHAPTER 3
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STRUCTURE OF FINANCIAL SYSTEM
The financial system implies a set of complex and closely connected institutions,
agents, practices and markets. The following is a typical structure of financial system
in any economy.
FINANCIAL SYSTEM
FINANCIAL INSTITUTIONS
Financial institutions are business organizations who act as mobilizes and depositories
of savings, and suppliers of credit or finance. These institutions provide various
financial services to the business organizations and common people. Financial
institutions can be divided into banking and non banking institutions. Banking
institutions deal is financial assets such as deposits, loans, and securities etc
institutions deal in real assets such as machinery, equipments, stock of goods and real
estate. Their activities may be general or special institutions none. These financial
participate in the economy s payment mechanism by providing transaction services,
money supply and credit.
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FINANCIAL MARKETS
FINANCIAL INSTITUTIONS
FINANCIAL INSTRUMENTS
FINANCIAL SERVICES
FINANCIAL MARKETS
Financial markets are the centers which provide facilities for buying and selling of
financial claims and services. the participants in the financial markets are financial
institutions, brokers, dealers, borrowers and investors. They are interlinked by the
laws, contracts, and communication networks. Financial markets can be divided into
two parts. The primary markets which deals in new financial claims or instruments. it
is also called as new issue market. The secondary market deals in securities which are
already issued but the companies and investors in providing liquidity however, stock
exchanges are both primary and secondary markets segments, units and insurance
policies deposits. Differ from each the financial instruments other in respect of their
investments characteristics. The important characteristics are liquidity, transferability,
volatility, maturity, risk, and return.
FINANCIAL SERVICES
A financial service is any kind of service of a financial nature offered by a financial
service provider. All banking and insurance related services are included in this
concept. These services are intangible and invisible. There should Financial markets
are also classified as capital markets and money market. The money market deals in
the short term claims with maturity period of less than a year and capital markets
deals in long term claims or securities. The capital market is co extensive not only
with the stock market but it is much wider than the stock market. The financial
markets may be classified as organized or unorganized, formals or informal and
domestic or foreign markets.
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FINANCIAL INSTRUMENTS
Financial instruments are claims to the payment of money in future or a periodic
interval. For e.g. the important financial instruments are shares, debentures, bonds,
fixed deposits etc. regular payment in the form of interest or dividend is paid by the
company to the investors. Directly to the ultimate savers such as equity shares,
debentures secondary instruments are issued by intermediaries to the ultimate savers
as bank e proximity between the service provider and the consumer in order to
complete a service transaction. These services cover a wide range of economic
activities. Financial services have developed to meet the needs of companies. Banking
and insurance are traditional financial services. The modern financial services include
over the counter services. Share transfer, pledging of shares, mutual funds, factoring,
discounting, venture capital and credit cards. Financial services have started long back
in western countries. In India, these services have started long back in western
countries. in India, these services have started during 1980s. These services play a
significant role in the changed business services.
CHAPTER 4
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FEATURE OF FINANCIAL INSTRUMENT:
Membership management member :
Members and customers
Membership registration
Membership exit
Membership transfer
Minimum membership period
Financial management :
Account payable
Fixed assets
Reporting system :
Deregulatory reports e.g. central bank user customized reports service
managementfosa (front office services activités) on-the-counter transactions
(banking services) such as savings deposits, withdrawals, loans repayment,
salary payments teller functions – tellers, head tellers, cash drawer and strong
room cash management bosa (back office services activities) behind the scene
activities such as salary processing, loans processing, journals processing, etc
DIFFERENT TYPES OF FINANCIAL SERVICES
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The finance industry provides a number of services to the clients. There are
different types of financial services company to provide these services to
different commercial sectors as well as to the individuals. There are different
types of financial services like lending money for different purposes,
insurances, depository services, mortgage services, investment services, credit
rating services and many more. The different types of financial services
company jointly create one of the largest industries of the world. There are a
number of financial services companies in the world.
Some of these companies are the following:
Investment services company
Bank
Insurance company
Intermediation or advisory services company
Conglomerates
Credit Rating Agencies
1. INVESTMENT SERVICE COMPANY
The investment services companies provide services like asset management,
hedge funds, custody services and many more.
Asset management - the term usually given to describe companies which run
collective investment funds.
Hedge fund management - Hedge funds often employ the services of "prime
brokerage" divisions at major investment banks to execute their trades.
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Custody services - Custody services and securities processing is a kind of 'back-
office' administration for financial services. Assets under custody in the India was
estimated to $65 trillion at the end of 2008.
2. BANKS
It is one of the biggest financial services companies of the world. There are
different types of banks in the world. Some of these are commercial banks,
private banks and many more. There are some banks that work for the capital
markets only. Banks provide a number of financial services to the clients.
These services include depository services, lending services, credit card
facilities and many more.
A "commercial bank" is what is commonly referred to as simply a "bank". The term
"commercial" is used to distinguish it from an "investment bank", a type of financial
services entity which, instead of lending money directly to a business, helps
businesses raise money from other firms in the form of bonds (debt) or stock (equity).
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CHAPTER 5
BANKING SERVICES
The primary operations of banks include:
Keeping money safe while also allowing withdrawals when needed
Issuance of checkbooks so that bills can be paid and other kinds of payments
can be delivered by post
Provide personal loans, commercial loans, and mortgage loans (typically loans
to purchase a home, property or business)
Issuance of credit cards and processing of credit card transactions and billing
Issuance of debit cards for use as a substitute for checks
Allow financial transactions at branches or by using Automatic Teller
Machines (ATMs)
Provide wire transfers of funds and Electronic fund transfers between banks
Facilitation of standing orders and direct debits, so payments for bills can be
made automatically
Provide overdraft agreements for the temporary advancement of the Bank's
own money to meet monthly spending commitments of a customer in their
current account.
Provide Charge card advances of the Bank's own money for customers
wishing to settle credit advances monthly.
Provide a check guaranteed by the Bank itself and prepaid by the customer,
such as a cashier's check or certified check.
Notary service for financial and other documents.
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OTHER TYPES OF BANK SERVICES
Private banking - Private
banks provide banking
services exclusively to high
net worth individuals. Many
financial services firms
require a person or family to
have a certain minimum net
worth to qualify for private banking services. Private banks often provide more
personal services, such as wealth management and tax planning, than normal retail
banks.
Capital market bank - bank that underwrite debt and equity, assist company deals
(advisory services, underwriting and advisory fees), and restructure debt into
structured finance products.
Bank cards - include both credit cards and debit cards. ICICI bank is the largest
issuer of bank cards.
Credit card machine services and networks - Companies which provide credit card
machine and payment networks call themselves "merchant card providers".
BANK CARDS
Bank cards include both credit cards and debit cards . In India ICICI bank is
the largest issuer of bank cards :
American express
Master card
Visa
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BANKING SURVEY REPORT RNCOS
The Indian banking sector, despite the global crisis, is still fuelling the economy.
A report 'Opportunities in Indian Banking Sector', by market research company,
RNCOS forecasts that the Indian banking sector will grow at a healthy compound
annual growth rate (CAGR) of around 23.3 per cent till 2011.
The total asset base of the 77 scheduled commercial banks (SCBs) added up to 91.8
per cent of India’s GDP (at current market prices) through the financial year 2008.
According to a study report by Dun and Bradstreet, around 80 per cent of the overall
assets of SCBs were accounted for by 22 leading banks with a balance sheet size of
above US$ 11.83 billion each. This included 16 Public Sector Banks (PSBs), 3 Private
Sector Banks and 3 Foreign Banks.
Deposits of private sector banks increased at a CAGR of 26 per cent during fiscal year
2004–2008, compared to the total CAGR growth of 20.5 per cent by all SCBs.
Advances of private sector banks increased at a CAGR of 32 per cent against a CAGR
of 30.1 per cent by all SCBs for the same period.
Public sector banks accounted for above 66 per cent of the collective total income
(including interest income and non-interest income) of all SCBs.
Retail banking accounted for a 41 per cent share of the overall revenue generated by
PSU banks while it was 36 per cent for private sector banks, and for foreign banks the
share of retail banking also stood at around 36 per cent.
As per figures released by the Reserve Bank of India (RBI), bank credit increased by
24 per cent till January 2, 2009, compared to the 21 per cent growth in the previous
year. Credit to industry increased by 30.2 per cent till December 19, 2008, against
24.9 per cent in the same period in the previous year.
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Further, according to RBI data, lending by
banks increased by more than 76 per cent
during April-November 2008, as compared to
the same period a year ago.
With the credit growth, leading Indian banks
are likely to increase their earnings by around
40 per cent y-o-y in the December 2008
quarter.
Public sector banks are going in for a major image overhaul. With global banks
getting pressurized under the economic downturn, several companies and individuals
are digressing from private banks to state-owned banks. To make the most of this
situation, they are adopting new strategies and technologies to attract more customers.
State-owned banks are now offering services like Internet banking and personalized
cheque books, and evaluation of loan proposals within a specific period. Many such
banks run processing centers and back offices. The State Bank of India has even
introduced two-faced ATMs.
Whereas, the Indian Bank has introduced wealth management services for its high net
worth (HNI) clients providing various types of financial advisory and wealth
management services.
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HSBC BANK HISTORY
HSBC Bank was founded in 1865 to serve the needs of the merchants of the
China coast and finance the growing trade between China, Europe and the
United States. The origins of HSBC Bank in India can be traced back to
October 1853 when the Mercantile Bank of India, London and China was
founded in Bombay.
In 1959, The Hong Kong and Shanghai Banking Corporation (HSBC)
acquired the Mercantile Bank of India and the head office of the HSBC Bank
was established in Bombay (Mumbai). In 1987, HSBC Bank gave India its
first ATM.
Through the 1990s, HSBC Bank blossomed into one of the leading
banking and financial services organizations of the world. As on June 30
2004, the Bank has over 110 million customers worldwide with assets over
US$1,154 billion. HSBC Bank has about 10,000 offices in 76 countries and
territories in Europe, the Asia Pacific region, the Americas, the Middle East
and Africa.
Foreign exchange services
Foreign exchange services are provided by many banks around the world. Foreign
exchange services include:
Currency Exchange - where clients can purchase and sell foreign currency bank notes
Wire transfer - where clients can send funds to international banks abroad from India.
Foreign Currency Banking - banking transactions are done in foreign currency
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CHAPTER 6
INSURANCE
The insurance companies
provide the clients with risk coverage services. These services are designed to
cover a number of risks that are related to an individual's life, property and
many more. These services are not only designed to provide security but at
the same time there are a number of insurance plans that are designed to
provide regular income to the clients. The insurance policies can be divided in
several types like general insurance, life insurance, commercial insurances
and a lot more.
Insurance brokerage - Insurance brokers shop for insurance (generally
corporate property and casualty insurance) on behalf of customers. Recently a number
of websites have been created to give consumers basic price comparisons for services
such as insurance, causing controversy within the industry.
Insurance underwriting - Personal lines insurance underwriters actually underwrite
insurance for individuals, a service still offered primarily through agents, insurance
brokers, and stock brokers. Underwriters may also offer similar commercial lines of
coverage for businesses. Activities include insurance and annuities, life insurance,
retirement insurance, health insurance, and property & casualty insurance.
Reinsurance - Reinsurance is insurance sold to insurers themselves, to protect them
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Insurance survey report by ASSOCHAM
The insurance sector is one of the most promising sectors in India today.
In an ASSOCHAM report— 'Insurance Sector Futuristic Growth'— stated that India's
insurance sector is likely to reach US$ 46.25 billion by 2010. The report said, "The
total insurance business will reach a level of US$ 46.25 billion in the next two years
from the current level of US$ 1.15 billion." Private insurance business is likely to see
a 140 per cent growth rate due to the aggressive marketing techniques used by them.
Conversely, state-owned insurance companies would see a 35–40 per cent growth
rate.
India is the fifth largest life insurance market in the emerging insurance economies
globally and the segment is growing at a healthy 32–34 per cent annually. According
to a report by research firm RNCOS—'Booming Insurance Market in India (2008–
2011)'—the total life insurance premium in India is projected to grow to US$ 259.72
billion by 2010–11. The general insurance sector is likely to grow at a rate of 18 per
cent in 2008, compared to 13 per cent in 2007. The 17 major non-life insurers
collected a total of US$ 840.27 million as premium in April 2008.
Life Insurance Corporation (LIC) is bullish on growth and is targetting business in
excess of US$ 59.14 billion by 2011–12.
The government is planning to ease restrictions on foreign investments in insurance,
banking and pensions, and allow foreign direct investment (FDI) of 49 per cent from
the present 26 per cent.
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INSURANCE
UNDERWRITING
Personal lines insurance underwriters actually underwrite insurance for
individuals, a service still offered primarily through agents, insurance
brokers, and stock brokers. Underwriters may also offer similar commercial
lines of coverage for businesses. Activities include insurance and annuities,
life insurance, retirement insurance, health insurance, and property & casualty
insurance. Some Well Known Insurers Includes:
A. GOVT. COMPANIES IN GENERAL INSURANCE IN INDIA
The new India assurance co. Ltd
The oriental Insurnce co. Ltd
The national insurance ltd
United India insurance ltd
B. PRIVATE COMPANIES IN GENERAL INSURANCE LTD
Bajaj Allianz general insurance ltd
Icici Lombard general insurance ltd
Bharti axa general insurance ltd
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Ing vysya general insurance ltd
cholamandalam general insurance ltd
C. GOVT. COMPANIES IN LIFE INSURANCE
Life insurance corporation of India (LIC)
D. PRIVATE COMPAINES IN LIFE INSURANCE
Max new York life co. Ltd
Icici prudential co. Ltd
Tata aig
Met life insurance co. Ltd
Birla sunlife insurance co. Ltd
Aviva life insurance co. Ltd
Bajaj Allianz life insurance co.ltd
Hsbc canara life insurance co. Ltd
CHAPTER 7
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OTHER FINANCIAL SERVICES
Intermediation or advisory services - These services involve stock brokers (private
client services) and discount brokers. Stock brokers assist investors in buying or
selling shares. Primarily internet-based companies are often referred to as discount
brokerages, although many now have branch offices to assist clients. These
brokerages primarily target individual investors. Full service and private client firms
primarily assist execute trades and execute trades for clients with large amounts of
capital to invest, such as large companies, wealthy individuals, and investment
management funds.
Private equity - Private equity funds are typically closed-end funds, which usually
take controlling equity stakes in businesses that are either private, or taken private
once acquired. Private equity funds often use leveraged buyouts (LBOs) to acquire the
firms in which they invest. The most successful private equity funds can generate
returns significantly higher than provided by the equity markets
Venture capital - Venture capital is a type of private equity capital typically provided
by professional, outside investors to new, high-potential-growth companies in the
interest of taking the company to an IPO or trade sale of the business.
Angel investment - An angel investor or angel (known as a business angel or informal
investor in Europe), is an affluent individual who provides capital for a business start-
up, usually in exchange for convertible debt or ownership equity. A small but
increasing number of angel investors organize themselves into angel groups or angel
networks to share research and pool their investment capital.
Conglomerates - A financial services conglomerate is a financial services firm that is
active in more than one sector of the financial services market e.g. life insurance,
general insurance, health insurance, asset management, retail banking, wholesale
banking, investment banking, etc. A key rationale for the existence of such businesses
is the existence of diversification benefits that are present when different types of
businesses are aggregated i.e. bad things don't always happen at the same time. As a
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consequence, economic capital for a conglomerate is usually substantially less than
economic capital is for the sum of its parts.
STOCK MARKETS
Fund raisinng by India Inc through initial public offers (IPOs) rose by a whopping 62
per cent since the beginning of 2008 to 29 May, 2008 to US$ 4.2 billion, against US$
2.6 billion during the same period in 2006, according to global deal data provider,
Dealogic. Significantly, fund mobilisation during the first quarter of 2008 was the
second highest for a quarter in the Indian capital's history.
In recent months, the Indian stock market has slowed down due to the global
economic turmoil. However, expectations of it rebounding soon are also high.
Further, according to global consultancy firm, Deloitte Haskins & Sells, the Indian
economy and capital markets are expected to witness a turnaround within six to nine
months.
According to the initial public offering (IPO) estimates for 2009, by Thomson
Reuters study, India Inc is likely to raise four times the proceeds it garnered from the
primary market in 2008. As per the study, India Inc is targetting to raise a massive
US$ 15.28 billion through public issues.
31
Furthermore, SEBI will be making it easier for companies to raise money from the
stock market, by relaxing eligibility rules to facilitate faster raising of funds from
existing shareholders. Presently, only companies having had a market capitalisation of
above US$ 1.97 billion in the last one year are entitled to this route. SEBI plans to
bring down this figure.
PRIVATE
EQUITY
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In finance, private equity is an asset class consisting of equity securities in operating
companies that are not publicly traded on a stock exchange. Investments in private
equity most often involve either an investment of capital into an operating company
or the acquisition of an operating company. Capital for private equity is raised
primarily from institutional investors. There is a wide array of types and styles of
private equity and the term private equity has different connotations in different
countries.
Among the most common investment strategies in private equity include leveraged
buyouts, venture capital, growth capital, distressed investments and mezzanine
capital. In a typical leveraged buyout transaction, the private equity firm buys
majority control of an existing or mature firm. This is distinct from a venture capital
or growth capital investment, in which the private equity firm typically invests in
young or emerging companies, and rarely obtain majority control.
According to a report by global research firm Preqin, private equity investments are
likely to perk up in the second-half of 2009 and fuel the global economic recovery.
"With approximately US$ 1 trillion of dry powder (term used to denote capital
available for deals) available, private equity is poised to play a major role in the
coming economic recovery," the report revealed.
Private equity (PE) players see are bullish on investing in India as a profitable
destination, expecting the inflows to be around US$ 5 billion-US$ 8 billion in the
coming year.
Industry experts feel that long-term investing in India is a profitable option.
According to a survey by Deloitte during the last six months, sectors driven by
domestic consumption and infrastructure are expected to witness a lot of activity.
Sandeep Gill, managing director of Deloitte corporate finance, said, "We have
observed two key points, the competitive environment for investment opportunities
for PE houses is expected to ease during 2009, as smaller PE firms and hedge funds
exit the market. Second, the volume of PE deals in the market will be dependent on
how quickly promoters are willing to accept lower valuations."
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The total number of PE deals during the first five months of 2008 stood at 170, with
an announced value of US$ 6.39 billion as against 159 deals amounting to US$ 4.97
billion during the corresponding period in 2008. India is among the top 10 countries
in terms of value of private equity deals across the world, according to the global deal
tracking firm, Zephyr. The sector is going to see a flurry of activity and investments
in the coming months.
Many companies have ambitious plans to enter the private equity (PE) business and
raise funds.
Indivision India Partners is planning to raise another fund-Indivision II, with a corpus
in excess of US$ 425 million raised through Indivision I.
Other bigwigs planning fund raisings are the Tata and Aditya Birla groups with plans
to raise US$ 350 million and US$ 250 million, respectively. In August 2008, Reliance
Capital had announced setting up a US$ 1 billion PE fund.
Private equity firm, Actis has raised a US$ 2.9 billion private equity fund ‘Actis
Emerging Markets 3 (AEM3)’ for the emerging markets of China, India, Africa, Latin
America and South-east Asia. The fund will be pumping in US$ 1 billion as
investments in India over the next 3-4 years.
US-based Apollo Management, with an asset base of more than US$ 20 billion, will
be soon setting up shop in India. The PE firm has plans to spend around US$ 800
million in investments in Indian and the US markets.
Tata Capital Ltd is planning to float a US$ 350 million private equity (PE) fund.
EMERGENCE OF PRIMARY EQUITY MARKETS
Now, we are also witnessing the emergence of many private sector financial
services. The capital market, which was very sluggish, has become a popular
source of raising finance. The primary equity market has emerged as an
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important vehicle to channelise the savings of the individuals and corporates
for productive purposes and thus to promote the industrial and economic
growth of the country.
MUTUAL FUNDS
A mutual fund is a professionally managed type of collective investment scheme that
pools money from many investors and invests it in stocks, bonds, short-term money
market instruments, and/or other securities. The mutual fund will have a fund manager
that trades the pooled money on a regular basis. The net proceeds or losses are then
typically distributed to the investors annually.
Since 1940, there have been three basic types of investment companies in the United
States: open-end funds, also known in the U.S. as mutual funds; unit investment trusts
(UITs); and closed-end funds. Similar funds also operate in Canada. However, in the
rest of the world, mutual fund is used as a generic term for various types of collective
investment vehicles, such as unit trusts, open-ended investment companies (OEICs),
unitized insurance funds, and undertakings for collective investments in transferable
securities (UCITS).
According to a report by research firm RNCOS, the Indian mutual funds
retail market is presently growing at a CAGR of around 30 per cent, and is likely to
touch US$ 300 billion by 2015.
The growth momentum of the mutual fund industry continues in the new fiscal year
(2008–09). Fund mobilisation has increased by a whopping 77.4 per cent to US$
327.93 billion during April–June 2008, compared to US$ 184.81 billion in April–June
2007. Consequently, average Assets Under Management (AUM) of the mutual fund
industry has increased to US$ 132.33 billion for June 2008, against US$ 99.86 billion
in the corresponding period in 2007.
Further, at approx. US$ 96 billion–US$ 98 billion in assets for February 2009, the
mutual funds (MF) industry has seen a sharp increase of about 8.7 per cent in AUM 35
since the previous month. This is also the third consecutive monthly rise in assets for
the industry as a whole.
As per SEBI, the mutual fund industry made an overall investment of US$ 2.14
billion in equities between January-September 2008. According to market sources, the
mutual funds industry has mustered an estimated US$ 1.24 billion during the same
period. In September 2008, the AUM totalled to US$ 1.10 trillion.
To improve the capital market, the government is likely to remove the restriction on
profit-making Navratna and mini-Ratna public sector undertakings (PSUs) from
investing in mutual funds.
Life Insurance Corporation of India (LIC) has put in over US$ 2.75 billion into liquid
funds of different fund houses. The amount was more than three times its similar
investments made in 2008.
Looking ahead, the Indian mutual funds market is estimated to grow at a CAGR of 18
per cent in the next five years, with the country's mutual funds assets expected to
more than double to US$ 298.73 billion by 2012, according to a report by US-based
financial services research and consulting firm, Cerulli Associates.
HSBC Mutual Fund
HSBC is one of the world's leading banking giants and boasts of a 140-year
history in banking services. HSBC operates in more than 70 countries across
the globe and has assets of over $1.2 trillion on the consolidated group
balance sheet. The investment banking and fund management businesses of
the group is handled by HSBC Investments. HSBC Asset Management India
Private Limited acts as the Asset Management Company to the HSBC Mutual
Fund.
36
HSBC Securities and Capital Markets India Private Limited, an affiliate of the
HSBC group, is the sponsor of the fund and owns 75 percent stake. Preferred
shares can be considered part of debt or equity. Attributing preferred shares to one or
the other is partially a subjective decision but will also take into account the specific
features of the preferred shares.
When used to calculate a company's financial leverage, the debt usually includes only
the Long Term Debt (LTD). Quoted ratios can even exclude the current portion of the
LTD. The composition of equity and debt and its influence on the value of the firm is
much debated and also described in the Modigliani-Miller theorem.
Financial analysts and stock market quotes will generally not include other types of
liabilities, such as accounts payable, although some will make adjustments to include
or exclude certain items from the formal financial statements. Adjustments are
sometimes also made to, for example, exclude intangible assets, and this will affect
the formal equity; debt to equity (dequity) will therefore also be affected.
Financial economists and academic papers will usually refer to all liabilities as debt,
and the statement that equity plus liabilities equals assets is therefore an accounting
identity (it is, by definition, true). Other definitions of debt to equity may not respect
this accounting identity, and should be carefully compared.
Due to the high volatility in the equity markets, Indian investors are choosing debt
market and mutual funds over equities.
37
According to an ASSOCHAM report, around US$ 333.27 million was invested in the
debt market against US$ 249.89 million in equities, as on the third week of June 2008.
The report revealed that investors favoured corporate bonds, particularly debentures
issued by leading companies. The debt market in India included segments like
government securities, corporate bond market, PSU (public sector undertaking)
bonds, and fixed deposits among others.
According to a report by Goldman Sachs, with insurance, mutual funds and pension
sector experiencing rapid growth, India's debt market is estimated to grow four-fold,
from about US$ 400 billion (45 per cent of GDP) in 2006 to about US$ 1.5 trillion
(about 55 per cent of GDP) by 2016.
Significantly, the non-government sector is expected to grow from US$ 100 billion in
2006 to US$ 575 billion in 2016, increasing its share in GDP from 10 per cent to 22
per cent.
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CHAPTER 8
CLASSIFICATION OF FINANCIAL SERVICES INDUSTRY
The financial intermediaries in India can be traditionally classified into two:
CAPITAL MARKET INTERMEDIARIES
MONEY MARKET INTERMEDIARIES
1. CAPITAL MARKET INTERMEDIARIES
The capital market intermediaries consist of term lending institutions and
investing institutions which mainly provide long term funds.
2. MONEY MARKET INTERMEDIARIES
The money market intermediary consists of commercial banks, co-operative
banks and other agencies which supply only short term funds.
Hence the term “financial services industry” includes all kinds of
organizations which intermediate and facilitate financial transactions of both
individuals and corporate customers.
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INNOVATIVE FINANCIAL INSTRUMENTS
In recent years, innovation has been the key word behind the phenomenal
success of many of the financial service companies and it forms an integral
part of all planning and policy decisions. This has helped them to keep in tune
with the changing times and changing customer needs. Accordingly, many
innovative financial instruments have come into the financial market in recent
times.
SOME OF THEM HAVE BEEN BRIEFLY DISCUSSED BELOW:
COMMERCIAL PAPER
TREASURY BILL
CERTIFICATE OF DEPOSIT
BILLS OF EXCHANGE
PROMISSORY NOTE
COMMERCIAL PAPER
A commercial paper is a short term negotiable money market instrument. It
has the character of an unsecured promissory note with a fixed maturity of 3
to 6 months. Banking and non-banking companies can issue this for raising
their short term debt. It also carries an attractive rate of interest. Commercial
papers are sold at a discount from their face value and redeemed at their face
value. Since its denomination is very high. It is suitable only to institutional
investors and companies.
40
TREASURY BILL
A treasury bill is also a money market instrument issued by the central
government. It is also issued at a discount and redeemed at par. Recently, the
government has come out with the short term treasury bills of 182 days bills
and 364 days bills.
CERTIFICATE OF DEPOSIT
The scheduled commercial banks have been permitted to issue certificate of
deposit without any regulations on interest rates. This is also a money market
instrument and unlike a fixed deposit receipt. It is a negotiable instrument and
hence it offers maximum liquidity. As such, it has a secondary market. Since
41
the denomination is very high, it is suitable to mainly institutional investors
and companies.
PROMISSORY NOTE
A promissory note is a written promise by the maker to pay money to the payee. Bank
note is frequently transferred as a promissory note, a promissory note made by a bank
and payable to bearer on demand. A maker of a promissory note promises to
unconditionally pay the payee (beneficiary) a specific amount on a specified date.
A promissory note is an unconditional promise to pay a specific amount to bearer or
to the order of a named person, on demand or on a specified date.
A negotiable promissory note is unconditional promise in writing made by one person
to another, signed by the maker, engaging to pay on demand, or at fixed or
determinable future time, sum certain in money to order or to bearer. (see Sec.194)
A promissory note, briefly stated, is a promise to pay a sum of money.Original parties
to a promissory note. There are originally two parties in a promissory note. The one
who makes the promise and signs the instrument is called the "maker" and the party to
whom the promise is made or the instrument is payable is called the "payee"
BILLS OF EXCHANGE
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A bill of exchange or "draft" is a written order by the drawer to the drawee to pay
money to the payee. A common type of bill of exchange is the cheque (check in
American English), defined as a bill of exchange drawn on a banker and payable on
demand. Bills of exchange are used primarily in international trade, and are written
orders by one person to his bank to pay the bearer a specific sum on a specific date.
Prior to the advent of paper currency, bills of exchange were a common means of
exchange. They are not used as often today.
A bill of exchange is an unconditional order in writing addressed by one person to
another, signed by the person giving it, requiring the person to whom it is addressed
to pay on demand or at fixed or determinable future time a sum certain in money to
order or to bearer. (Sec.126)
It is essentially an order made by one person to another to pay money to a third
person.
A bill of exchange requires in its inception three parties--the drawer, the drawee, and
the payee.
The person who draws the bill is called the drawer. He gives the order to pay money
to third party. The party upon whom the bill is drawn is called the drawee. He is the
person to whom the bill is addressed and who is ordered to pay. he becomes an
acceptor when he indicates his willingness to pay the bill. (Sec.62) The party in
whose favor the bill is drawn or is payable is called the payee.
The parties’ need not all be distinct persons. Thus, the drawer may draw on himself
payable to his own order.
A bill of exchange may be endorsed by the payee in favour of a third party, who may
in turn endorse it to a fourth, and so on indefinitely. The "holder in due course" may
claim the amount of the bill against the drawee and all previous endorsers, regardless
of any counterclaims that may have disabled the previous payee or endorser from
doing so. This is what is meant by saying that a bill is negotiable.
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In some cases a bill is marked "not negotiable". In that case it can still be transferred
to a third party, but the third party can have no better right than the transferor.
CONGLOMERATES
A financial services conglomerate is a financial services firm that is active in
more than one sector of the financial services market e.g. life insurance,
general insurance, health insurance, asset management, retail banking,
wholesale banking, investment banking, etc. A key rationale for the existence
of such businesses is the existence of diversification benefits that are present
when different types of businesses are aggregated i.e. bad things don't always
happen at the same time. As a consequence, economic capital for a
conglomerate is usually substantially less than economic capital is for the sum
of its parts.
CHAPTER 944
FUNDAMENTALS OF FINANCIAL SERVICE SECTOR
A detailed study on the fundamentals of financial concepts is sure to give
some idea on the concepts of finance. The investors need to go through some
theories of finance that will help them to understand the behavior of market in
a better way. There are a number of factors that influence the functioning of
the investment market. The individual investor's choice of investment may
vary from one person to another. While some investors go for investing in the
risky securities, some investors tend to play safe in the market by investing in
the less risky security. Arbitrage is one of the most important fundamentals of
financial concepts. It typically defines the process of taking advantage of the
price different between two or more markets. A clear concept on the arbitrage
practicing may be beneficial for the investors. The cash flow is another
fundamental of the financial concept that refers to the process of cash being
transferred by a business or an organization. Understanding of the cash flow
management may be useful to evaluate a particular business or in determining
the problems with liquidity. Money market makes an important part in the
concept of finance. Investment in currencies is getting popular with the
passage of time. A study on the forex market is crucial for all those who are
investing in the money market. The forex market handles the trading of one
currency with another country's currency and it is the largest financial market
in the world in terms of transaction volume. The various types of risks that
come under the domain of financial concepts are - systemic risk, credit risk,
consumer credit risk, settlement risk, liquidity risk and market risk.
FINANCIAL SERVICES THEORIES
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The prime concept of finance theory is to study the various ways by which a
business or an individual raises money. Allocating money into projects while
considering the risk factors attached to them also fall under the canopy of
finance theory fundamentals. The concept of finance may also be integrated
with the concepts such as: study of money and other assets, managing and
profiling project risks, control and management of assets and also. In simple
understanding, 'financing' also means provision and allocation of fund for a
particular business module or project. Number of finance theories that offer
separate approaches to the finance hypotheses. Some of the major and popular
finance theories of the world are: arbitrage pricing theory, rational choice
theory, prospect theory, cumulative prospect theory, and Monte Carlo option
model, binomial options pricing model, Black model and legal origins theory.
The Arb i t r age Pricing Theory for example talks about the general theory of
asset pricing. The proper asset pricing is necessary for the proper pricing of
shares. The Arbitrage Pricing Theory states that the return that is expected
from a financial asset can be presented as a linear function of various
theoretical market indices and macro-economic factors. Here it is assumed
that the factors considered are sensitive to changes and that is represented by
a factor-specific beta coefficient. The Prospect theory of finance, on the other
hand, discusses the alternatives involving risks. It takes into consideration the
alternatives that come with uncertain outcomes. The model is descriptive by
nature and it tries to represent the real-life choices but not optimal decisions.
This theory proposes how the investors should use diversification in order to
optimize their portfolios.
CHAPTER 10
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CAUSES FOR FINANCIAL INNOVATION
FOLLOWING ARE THE CAUSES OF FINANCIAL INNOVATIONS:
Economic Liberalization
Investor Awareness
Low Profitability
Customer Service
Keen Competition
Improved Communication Technology
Global Impact
ECONOMIC LIBERALISATION
Reform of the financial sector constitutes the most important component of
India’s programmed towards economic liberalization. The recent economic
liberalization measures have opened the door to foreign competitors to enter
into our domestic market.
INVESTOR AWARENESS
With a growing awareness amongst the investing public, there has been a
distinct shift from investing the savings in physical assets like gold, silver,
land, etc. to financial assets like shares, debentures, mutual funds, etc.
LOW PROFITABILITY
47
The profitability of the major financial intermediary, namely the banks has
been very much affected to recent times. There is a decline in the profitability
of traditional banking products.
CUSTOMER SERVICE
Now-a-days the customer’s expectations are very great. They want newer
products at lower cost or at lower credit risk to replace the existing one.
KEEN COMPETITION
The entry of many financial intermediaries in the financial sector market has
led to severe competition among themselves. This keen competition has paved
the way for the entry of varied nature of innovative financial products so as to
meet the varied requirements of the investors .
IMPROVED COMMUNICATION TECHNOLOGY
The communication technology has become so advanced that even the world’s
issuers can be linked with the investors in the global financial market without
any difficulty by means of offering so many options and opportunities.
GLOBAL IMPACT
Many of the providers and users of capital have changed their roles all over
the world.
CHAPTER 11
48
VARIOUS ELEMENTS OF FINANCIAL SERVICES
MARKETING:
In the formulation of overall marketing strategies in the financial services
industry, the following decisions are considered important in the present
liberalized environment
Product Planning
Pricing Policy
Branding
Customer Service
Distribution Policy
Promotion Policy Market Segmentation
PRODUCT PLANNING
The financial companies should aim at creating new generic products as per
the needs of the customers. Attractive schemes have to be created with
efficient delivery in order to optimize customer satisfaction. It is always
better to bring modification in the existing products by adding some new
features and elimination of outdated products.
In the competitive market, the task of selling a product is tougher since the
core products are the same. This necessitates product differentiation. There
should be different products in the arrays of the company, so that the
company can cater to the needs of the different groups of investors or
customers.
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In order to design and develop new products one should take the help of
market research to asses the needs of the customers, availability of existing
product and future growth in demand.
PRICING POLICY
The potential customers generally frame their investment strategies in the
background of pricing decisions. The prices take different dimension
depending upon the type of financial services. The price of financial services
is always linked with returns.For an insurance company the price means the
premium, for the banks it is the net asset value. However, while deciding
pricing, incentives, brokerage and agency commission is also to be decided in
advance because the expenses towards these items will affect the ultimate
returns to the investors. After all in all cases only the competitive price and
the promised return catch the sentiment of the customers.
BRANDING
Brand name very often signifies the market segments, inherent benefits and
investment objectives and also the customer’s loyalty. This process consists
of product name, designing brand policy like individual family or corporate
brand.
CUSTOMER SERVICES
Marketing of services is significantly influenced by the quality of service and
interpersonal relationship between the customers and service organizations. In
order to motivate the potential customers, the service should be offered in the
best possible manner. In the competitive world of financial services, market
orientation of product and customer orientation of service are the two key
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factors. Prompt and timely service as per the needs of customer would make
difference. The personal touch in services has shown a positive result in the
recent times. The quality of services offered in turn helps to develop loyalty
among the customers. Services can be provided either directly by the
company through the service the service department or through intermediaries
like registrars or external agencies. Customers are involved in a very real
relationship with the company and even one weak link can significantly
damage their trust.
MARKET SEGMENTATION
The financial service industries are expected to satisfy both rural and urban
customers, small and large-scale entrepreneurs, high and low earning
customers, retail and institutional customers. The segmentation of market
based on the changing needs of customers is considered to be the most
appropriate solution. Identification of market segment is crucial to take
further action regarding promotion and distribution of the product. Market
segment will be identified in the basis of nature of the product, direct and
indirect benefits of the product on the one hand and behavior or attitude of the
customers, etc.
DISTRIBUTION POLICY
The determination of proper channel for selling the product is also a key issue
in the marketing of financial products. Before launching a product, there
should be a clear-cut idea about the channel of distribution of the product so
as to make it accessible to the ultimate customers. The channels which
directly link to the cudtomers or through the intermediaries like agents,
brokers, franchisees should be determined based on the internal marketing
strength of the organization.
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PROMOTION POLICY
The promotion of sale may be through advertisement, road shows, personal
finance shows, contest, etc. the various promotional tools used by the major
players are personal and impersonal promotions
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CHAPTER 12
EMERGING FUNCTIONS IN MARKETING OF FINANCIAL
SERVICES
The following are the emerging functions of financial service industries and
having greater significance in this competitive market.
Product Development
Channel Management
Appraisal Management
Territory Sales Management
Branch Management
Brand Management
PRODUCT MANAGEMENT
To monitor profitability for each product line. To Asses the potential of retail
asset business based on market feedback and to enhance existing products and
develop new products.
CHANNEL MANAGEMENT
To identify third-party agencies such as direct sales agents, verification
agencies and to finalize terms and conditions, responsibilities and pricing of
each agency. To monitor the performance of these agencies on an ongoing
basis and ensure a high-quality channel operation.
APPRAISAL MANAGEMENT53
To scrutinize and recommend and approval or rejection of retail loan
proposals received from branches by way of credit scoring system and sound
judgment.
TERRITORY SALES MANAGEMENT
To build the retail asset business in liaison with direct selling agents and branch head
in order to achieve the business targets for the region. To identify and recommend
suitable third-party agencies for marketing, collection and verification of operations
as well as to ensure quality of credit portfolio and flow-up default cases.
BRANCH MANAGEMENT
To achieve the business target of the branch with a predominantly retail
business.
BRAND MANAGEMENT
To develop strong brand name for the product and corporate image for the
company through various innovative devices.
Today’s financial services industry requires new strategies to survive and
continue to operate. They have to adopt new marketing strategies and tactics
which will enable them to capture the maximum opportunities with lowest
risk in order to enable them to survive and to meet the tough competition from
global players of the domestic and foreign origin.
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CASE STUDIES
ICICI BANK
I have a account with ICICI bank because it’s our salary account, and we are
kind of forced to use ICICI Bank. And since we have a salary account, we get
a decent service. But yes, the credit card department, and the call centre sucks
big time. That’s my personal experience.
They put you on hold for 5 to 10 mins. (just imagine listening to the same
junk music/tone/adverts continuously), and then there is no guarantee that you
will get to speak to someone or your problem would be solved. Infact, today I
was put on hold for around 7 mins, and after that the call as abruptly
disconnected! Next time I call the call center, I get to speak to a totally new
person, and start from scrap describing the problem. The people at the call
center just promise to do things, and nothing actually happens. If it happens,
then you are really your luck.
Hope K V Kamath reads this
My advice to all - Avoid ICICI as far as possible. Many people predict that
the bank would collapse in a few years from now. Have an account with any
nationalized bank.
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HSBC BANK
HSBC bank recovery agents bash up 58-year-old professor
Two days back RBI had put on its website guidelines for the bank’s recovery
agents and in it has warned the banks about strict actions would be taken
against them and even penalize the license of the bank but it seems still the
warning is falling on deaf ears. Again an incident of unruliness by recovery
agent of the bank has come into limelight. It is HSBC bank in news. This time
the victim is a professor of a reputed engineering college, Prof J.S. Kalra. He
has charged a multinational bank which allegedly sent a pack of intimidating
loan recovery agents to hound him. Kalra had taken a loan of Rs 4.5 lakh to
buy a Santro from the Noida branch of HSBC last year. The incident took
place in September but the 58-year-old professor. He is hopeful of justice,
encouraged by the recent strict guidelines issued by the RBI against banks
intimidating customers to recover loan. Even the Finance Minister Pranab
Mukherjee too has iterated that “strictest action” will be taken against banks
stooping to strong-arm methods.Prof J.S. Kalra of the Delhi College of
Engineering has filed his complaint against the bank. In his complaint he told
the police that the agents abused and beat him up outside the Indraprashta
University campus in north Delhi for delaying monthly installments of a loan.
They did not care to stop even after he told them that he was a heart patient
and that he had developed chest pain. “They even threatened to kill me,”
Kalra said in his complaint. Police have registered a case of criminal
intimidation against the loan recovery agents, allegedly hired by HSBC bank.
56
Devesh Chandra Srivasatava, deputy commissioner of police (north) told the
press “They got into Kalra’s car and refused to leave till he paid the loan
installments immediately. They hurled abuses, and beat him up. When they
saw Kalra developing heart problem, they left him”
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CONCLUSION OF FINANCIAL SERVICES
Financial services comprises of assisting in sourcing of funds, funding,
advising and procedural assistance in deployment of funds. Financial services
are the integral part in the modern business world.
Many of the financial services are provided by the employees of the firm
itself i.e. it becomes an internal or finance manager’s function. Otherwise
the firm would source it from an external agency.
Commercial banks, merchant banks, investment banks, mutual funds, venture
capital funds, rating agencies, non-banking finance companies (NBFC),
leasing and hire purchase companies, are some of the entities that provide
financial services.
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BIBLIOGRAPHY
WWW.HSBC.CO.IN
WWW.ICICI.COM
WWW.GOOGLE.COM
WWW.WIKIPEDIA.COM
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