BPK5D
FINANCIAL SERVICES
Unit : I-V
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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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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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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
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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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•INSURANCE
•FACTORING
•LEASING
UNIT III SYLLABUS
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INSURANCE
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INSURANCE
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INSURANCE
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INSURANCE
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INSURANCE
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INSURANCE
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FACTORING
https://www.youtube.com/watch?v=W1136
Ojzjk4
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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
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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
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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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• 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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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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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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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
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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
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BOOK BUILDING
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BOOK BUILDING
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BOOK BUILDING