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

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

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

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

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

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.

FINANCIAL SERVICES - OBJECTIVES Raise Funds Deploy Funds Economic Growth

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

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

GROWTH Merchant Banking Services Investment Services Modern Services Depositary Services

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

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

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

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

LEASING Financial leasing pioneered in India dr. 1973 – 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

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

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

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

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

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

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 1993-2000 – reopening of insurance sector R.N.Malhotra committee – IRDA in 2000

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

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

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

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

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.

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

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

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)

VENTURE CAPITAL As against conventional security backed lending enables high risk but high promise projects to realize their full potential Recent origin – 1986 - IDBI followed by ICICI in 1988 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

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

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.

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

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.

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

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

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

OTHERS Credit Card Debit Card Smart Card Consumer Finance