1. INDIAN FINANCIAL SYSTEM
funds
funds
loans
deposits/shares
FINANCIAL
INSTITUTIONS
securities
funds
DEMANDERS
OF FUNDS
SUPPLIERS OF FUNDS
PRIVATE
PLACEMENT
FINANCIAL
MARKETS
funds
funds
securities
securities

2. FINANCIAL SERVICE – AN OVERVIEW
Financial System
Financial Institutions / Intermediaries
Banking Institutions
Non Banking Institutions 1 2

3. 1 RBI Scheduled Bank Non-Scheduled Bank State Co-Operative
Commercial Banks
Central Co-Operative & Primary Credit Societies
Commercial Banks
Indian
Foreign
Public Sector
Private Sector
SBI & its Subsidiaries
Other Nationalized Bank
Reg. And Rural Bank

4. NON BANKING FINANCIAL COMPANIES
Fee / Service Based Activity
Asset / Fund based service
Issue Management
Leasing
HP Finance & Consumer Credit
Portfolio Management
Corporate Counselling
Factoring
Loan / Lease Syndicate
Housing Finance
Mergers & Acquisition
Insurance
Venture Capital

5. Indian Financial System Informal/Unorganized FS
Formal/Organized FS
Informal/Unorganized FS
Regulators
MOF
SEBI
RBI
IRDA
Financial
Markets
Capital Market
Debt Market
Money Market
Financial Services
Depositaries
Custodians
Credit Rating
Factoring
Merchant Banking
Leasing
Hire purchase
Portfolio Management
Underwriting
Financial
Institutions
Banking
NBIs
Mutual Funds
Insurance &
Housing FC
Financial Instruments
A. Term
ST, LT
B.Type
Primary
Equity, Pref
Debt,Combinations
Secondary
Time Deposits
MF Units
Insurance policies

6. FINANCIAL SERVICES MEANING
Services that are offered by Financial Companies
DEFINITION
Any activity that facilitates individual economic agents to exchange resources to be available at different points of time and firms to acquire invest able resources can be called financial services.

7. FINANCIAL SERVICES - OBJECTIVES
Raise Funds
Deploy Funds
Economic Growth

8. CONSTITUENTS
Institutions – Comm. Banks, NBFC, FI, MF, MB, Stock Brokers..
Instruments – innovative , wide and deep
Regulatory Bodies – SEBI, RBI, Department of Banking and Institutions

9. ROLE OF FINANCIAL SERVICE SECTOR
Changing economic scenario – financial deregulation, industrial liberalization
New institutions that provide a range of financial services.
Financial innovations at the disposal of commercial banks and investment financing institutions in India

10. GROWTH Merchant Banking Services Investment Services Modern Services
Depositary Services

11. PROBLEMS Lack of Expertise Concentrated Low level of Technology
Quality of Services
Subsidiaries
Restrictions
Limited Innovations
Institutional mechanisms

12. BANKS
Commercial Banks
Central Govt, RBI
New Branch, Prudential norms, Liquidity, CRR, SLR
Appointment of officers
Inspection and Disclosure Norms

13. NON BANKING COMPANIES NBFC
RBI, Banking Laws, NBFC Directions 1977, Residuary Directions 1987
Who can Raise funds, limit, deployment of funds
Reporting, Inspection
Cancellation

14. LEASING
Use of an asset of a company (lessor) by a company (lessee) without owning it against commitment for payment of rent for use.
Divorce between ownership and economic use of asset
Financial Vs Operating Lease

15. LEASING
Financial leasing pioneered in India dr – Private companies like 20 th century leasing co, Sundaram Finance, MGF Ltd, Goodwill Ltd….
Diversified their finance and hire purchase business by starting leasing activities
Recently several commercial banks and financial institutions are in to leasing

16. LEASING
Financial Institution – Industrial reconstruction bank of India, Industrial credit and Investment Corp. of India, IDBI, IFCI.
Commercial banks – into leasing through their subsidiaries or by making portfolio investment in existing or newly set up private leasing companies - SBI, CANFINA, PNB…..
High profitability and attractive tax concessions

17. HIRE PURCHASE Mode of financing goods Goods are let on hire
Purchase price is paid in installments
Option to purchase the goods by paying all installments

18. LEASING VS HP Ownership Depreciation Magnitude of funds
Extent of financing
Tax Benefits

19. HOUSING FINANCE NHB set up as an apex body in 1988 for housing finance
NHB Fully owned Subsidiary of RBI
Facilitate middle and low income group to purchase or construct houses

20. HOUSING FINANCE
Commercial banks set up subsidiaries for housing finance
- Canfin Homes , PNB Housing Fin, SBI home Fin
GIC – 1990 GIC Grih Vitsa
LIC – 1991 LIC housing finance
HDFC
HDFC + LIC controls around 82 % of the market

21. INSURANCE Device to reduce / eliminate risk
1950 – 154 Indian, 16 Foreign, 75 provident societies in life insurance business
(Scams, irregularities and dubious investment practices - Govt nationalized Life assurance business)
1956 – LIC ( 245 cos)
1972 – GIC - Monopoly
– reopening of insurance sector R.N.Malhotra committee – IRDA in 2000

22. Function of IRDA Promote growth Protect the policy holders
Bring in Professionalism
Investor Protection
Disseminate Information

23. Application of Funds Mutual funds
Equity of Pvt & Public sector undertakings
Approved Govt Securities
Loans to HUDCO….
Loans to banks through certificates, bills discounting schemes

24. As per IRDA Publication -2002
Type
Public
Sector
Private
Total
Life
Insurance 1 12 13
General 4 9
Reinsurance -

25. ISSUE MANAGEMENT Merchant Bankers / Lead Managers Underwriters
Bankers to an Issue
Brokers to an Issue
Registrars to an Issue
Debenture Trustees
Portfolio Managers

26. MERCHANT BANKING SERVICES
Fin Intermediaries , provide whole range of services with finance like
Technical and managerial, knowledge and competence and expert advice on legal and industrial matters needed by users of funds
For establishing a new unit
Diversify/ modernize
M&A another unit
Enter into foreign collaboration or launching a JV abroad.

27. MERCHANT BANKING SERVICES
1967 – Grind lay's bank opened the first division
Followed by SBI, Bank of Baroda, Canara Bank, ICICI and some leading broking firms and financial consultants.
Subsidiaries like SBI Capital Markets, Can fin, Ind Bank Fin, BOI Fin, PNB CAPS..
Development banks like IDBI, IFCI and ICICI are actively involved in the primary securities GIC, LIC and UTI are active in the secondary market

28. MUTUAL FUNDS
Are portfolios that pool the savings of a large number of individuals into a large diversified investment portfolio.
Ideal alternative for small savers - inadequate resources - expertise for diversified portfolio, lack of time, and market knowledge.
Can own a share of the fund, share costs, profits and losses of the fund.
First MF in India – UTI in 1964, gained momentum in 80’s

29. By Fin institutions, commercial banks – can bank MF, LIC MF, Bank of Baroda, PNB, Canbank MF and GIC MF
BY Private sector – 20th century, Tata MF, Birla MF, JM MF
Foreign tie –ups for inland schemes – Alliance capital MF of USA, ICICI MF with JP Morgan Invst. Mgt. of USA
Money market Mutual funds - Governed by RBI and SEBI (MF)

30. VENTURE CAPITAL
As against conventional security backed lending enables high risk but high promise projects to realize their full potential
Recent origin – IDBI followed by ICICI in and IFCI
Development fin corpn. , state level fin. Corpn., public sector bank – can bank fin service, SBI capital markets and private sector units also set up venture capital finance

31. FACTORING
Factoring is a business activity where in the factor (a bank) purchases the receivables of the sellers of goods (clients) and reimbursement is obtained latter on from the buyer of goods.
Factoring Vs Bills Discounting

32. FACTORING
Provides critical input of credit to both buyers and sellers of SSI and MSI
First factoring in India-SBI commercial and factoring services followed by canbank and PNB factoring.

33. SECURITISATION
Process of pooling and repacking homogeneous illiquid assets financial assets into marketable securities that can be sold to investors
Parties
Originator
SPV
Investors
Obligor
Rating Agency
Structurer
Ancillary service provider

34. CREDIT RATING
Important in the process of financial reforms is establishment of credit rating agencies.
CRISIL ( Credit Rating Information Services of India ltd) Promoted by ICICI in 1987 and UTI. SH include ADB, LIC, SBI, HDFC, GIC and 20 other banks.
ICRA (The investment information and credit rating agency of India limited)– Promoted in 1991 by IFCI, LIC, SBI an 17 other banks.

35. CREDIT RATING
CARE ( Credit Rating and Information Services) Promoted by IDBI, FI, Pub/Pvt sector Banks and Pvt finance cos in 1993
DCR ( Duff and Phelps credit Rating (India) Private Ltd) JV between international credit agency D & P, JM Financial and Alliance group
Rates debentures, bonds, preference shares, fixed deposits, ST instruments like commercial paper..etc

36. STOCK BROKING
Stock Broker is a member of a recognized stock exchange who buys, sells or deals in securities.
Certificate of Registration Mandatory from SEBI - Fee
Capital adequacy Norms – 5-2 lakh; how it is to be maintained; Capital Vs Volume of business

37. TRADING AND CLEARING MEMBERS
Trading member is a member of a derivatives exchange/segment of a stock exchange . Who settles the trade in the clearing corpn through a clearing member
Self Clearing Member is a member of clearing corporation who may clear and settle transaction on its own account or on accounts of its clients. (not for any other member)
TM- Min NW – 3Cr, Deposit – 50 Lakhs
SCM – additional NW – 1Cr, Deposit – 50 Lakh
TM in WDM Segment

38. OTHERS
Credit Card
Debit Card
Smart Card
Consumer Finance