financial sevices regulation
TRANSCRIPT
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FINANCIAL SEVICES
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TOPICS
Intro Financial services
Regulation
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FINANCIAL SERVICES
It involves all activities involved in the transformation of savings into
investment
It can also be called financial intermediation which is a process by
which funds are mobilized by large number of sectors and make them
available to all those who are in need particularly corporate customers.
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FEATURES OF FINANCIALSERVICES
Customer Oriented
Intangibility
Perishability.
Promotion of Savings
Provision of Liquidity Creation of Employment Opportunities
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SCOPE OF FINANCIAL SERVICES
Fee based
Fund based
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FEE BASED /NON-FUND BASED ACTIVITIES
Financial intermediaries provide services on the basis of non-fund
activities also. This can also be called fee based activity. A wide variety
of services, are being provided under this head. They include the
following:
i. Managing the capital issues, i.e., management of pre-issue and post-
issue activities relating to the capital issue in accordance with the SEBI
guidelines and thus enabling the promoters to market their issues.
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FEE /NON-FUND BASED ACTIVITIES
Credit Rating.(Credit Rating Information service of India Ltd.)
Corporate Advisory Services.
Mutual Fund.
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FUND BASED
Leasing
Hire Purchase
Credit Cards.
Housing Finance
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MODERN ACTIVITIES
Besides the above traditional services, the financial intermediaries
render innumerable services in recent times. Most of them are in the
nature of non-fund based activity.
i. Rendering project advisory services right from the preparation of the
project report till the raising of funds for starting the project withnecessary government approval.
ii. Planning for mergers and acquisitions and assisting for their smooth
carry out.
iii. Guiding corporate customers in capital restructuring.
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MODERN ACTIVITIES
v. Structuring the financial collaboration/joint ventures by identifying
suitable joint venture partner and preparing joint venture agreement.
vi. Rehabilitating and reconstructing sick companies through appropriate
scheme of reconstruction and facilitating the implementation of the
scheme.vii. Hedging risks due to exchange rate risk, interest rate risk, economic
risk and political risk by using swaps and other derivative products.
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MODERN ACTIVITIES
viii. Managing the portfolio of large public sector corporations.
ix. Undertaking risk management services like insurance services.
x. Promoting credit rating agencies for the purpose of rating companies
which want to go public by the issue of debt instruments.
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NEW FINANCIAL PRODUCTS AND SERIVES
Merchant Banking :- is a financial intermediary who has to transfer funds
from those who posses it to those who need it. MB includes activities
such as management of customers securities, portfolio management,
project counseling et.
Loan Syndication :- It refers to a loan arranged by a bank called lead
manager for a borrower who is usually a large corporate customer or a
government department. It also enables the members of the syndicate
to share the credit risk associated with a particular loan among
themselves
Leasing :- A lease is an agreement under which a company
or a firm acquires a right to make use of a capital asset like
machinery, on payment of a prescribed fee called rental
charges.
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NEW FINANCIAL PRODUCTS AND SERIVES
Mutual Funds :- A mutual fund refers to a fund raised by a financial
service company by pooling the savings of the public. It is invested in a
diversified portfolio with a view to spreading and minimizing the risk.
Factoring : Factoring refers to the process of managing the salesregister of a client by a financial services company. The entire
responsibility of collecting the book debts passes on to the factor.
Forfaiting : Forfaiting is a technique by which a forfaitor (financing
agency) discounts an export bill and pays ready cash to the exporterwho can concentrate on the export front without bothering about
collection of export bills.
E-banking
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NEW FINANCIAL PRODUCTS AND SERIVES
Corporate Advisory Services
New products in Forex Markets : New products have also emerged
in the forex markets of developed countries. Some of these products are
yet to make full entry in Indian markets. Among them are :
a. Forward contract : A forward transaction is one where thedelivery of foreign currency takes place at a specified future date for a
specified price.
Options : As the very name implies, it is a contract where in
the buyer of options has a right to buy or sell a fixed amount of
currency against another currency at a fixed rate on a future date
according to his options.
.
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NEW FINANCIAL PRODUCTS AND SERIVES
Futures : It is a contract wherein there is an agreement
to buy or sell a stated quantity of foreign currency at a
future date at a price agreed to between the parties on
the stated exchange.
Swaps : A swap refers to a transaction wherein a financial intermediary buys and sells a specified foreign
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CHALLENGES FACED IN THEFINANCIAL SECTOR
Lack of qualified personnel
Lack of investor awareness
Lack of transparency
Lack of specialization
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REGULATORY FRAMEWORK
Financial Services have thus become indispensable in
running the economy but such an important faces two
problems .: -
Cheating .
Instability.
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THE NEED FOR FINANCIAL SERVICES ARISES
BECAUSE
Financial services cannot be consumed or serviced at the
same time . E.g. Mutual Fund .
The ultimate investor does not have much knowledge about
the financial system.
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TY SOF REGULATION Structural Regulation:- determines the type of activities
that different form of institution are engaged in.
E.g. RBI has prescribed the activities that commercial bank
can provide to the Investors.
Prudential Regulation :- It covers the internal management
of the financial institution in relation to capital adequacy ,
liquidity and solvencythat the absence of prud regul in
some key areas can lead to bank failures . ensure the safetyof depositors' funds
E.g. SEBI has prescribed minimum net worth requirement
for various financial services firms.
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Investors Protection Regulation :-For protecting the
investors.
E.g. Banking Regulation Act , Securities Contract Regulation
Act.
Self Regulation
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REGULATION ON BANKING SERVICES
Banking Institution :- RBI Regulates , Banking Regulation
Act 1949.
Licenses authority .
Minimum capital , reserves.
Inspect working of banks.
Has the power to control the appointment of
chairman and CEO.
Power to cancel the license
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NON-BANKING FINANCIAL COMPANIES
Non banking Financial Companies :- banking law
(Miscellaneous provision )Act , 1963 .RBI.
Register with RBI and periodical statement of their working .
Extent to which the funds can be raised.
Maintain reserve fund.
Can collect report on the functioning of NBFC.
Impose penalty or cancel license
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REGULATION OF INVESTMENT SERVICES
Securities contracts (Regulation ) Act (SCRA)1956, SEBI and
RBI.
SEBI
Regulate the business of stock exchange,
Register and Regulate the working of stock brokers , sub brokers
, merchant bankers mutual funds and other financial
intermediaries. Prohibit fraudulent and unfair trade practices.
Levying fees
Regulation of Mutual Fund.
Promotes investor education
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REGULATION ON INSURANCE SERVICES
IRDA
To regulate and promote growth of insurance business .
To protect the interest of shareholder. To adjudicate disputes between insurer and intermediaries.
To control and regulates the rate , advantages , terms and
conditions that may be offered by the insurer.