Documente Academic
Documente Profesional
Documente Cultură
FINANCIAL
SERVICES
Mr.LALIT TANK
Asst. Professors, MBA Department,
Bhagawan Mahavir College of Management,
Surat
Email id: lalittank@gmail.com
FINANCE
COURSE CONTENTS
Module No.1
Introduction to Indian Financial system
Reserve bank and financial system.
structure of banking and non-banking
companies.
Introduction to different markets- Capital,
Money, Primary, Secondary Markets.
Module No.2
Asset/Fund based financial services
Leasing, hire purchase
Module No.3
Consumer credit, factoring and
forfeiting , Bill
discounting, Housing finance, Insurance
services, venture capital financing,
Mutual fund services
Module No.4
Merchant banking services :
all services related to issue management
Module No.5
Credit rating, Stock broking, depositories,
custodial services and short selling and
securities lending and borrowing
services, Credit cards.
CHAPTER -1
INTRODUCTION TO
INDIAN FINANCIAL
SYSTEM
INDIAN FINANCIAL
SYSTEM
The economic development of a nation is
reflected by the progress of the various
economic units, broadly classified into
corporate sector, government and
household sector. While performing their
activities these units will be placed in a
surplus/deficit/balanced budgetary
situations.
Constituents of a Financial
System
Financial System
An institutional framework existing in a
country to enable financial transactions.
Three main parts
Financial assets (loans, deposits, bonds, equities,
etc.)
Financial institutions (banks, mutual funds,
insurance companies, etc.)
Financial markets (money market, capital market,
forex market, etc.)
Financial assets/Instruments
Enable channelizing funds from surplus units to
deficit units
There are instruments for savers such as
deposits, equities, mutual fund units, etc.
There are instruments for borrowers such as
loans, overdrafts, etc.
Like businesses, governments too raise funds
through issuing of bonds, Treasury bills, etc.
Instruments like PPF, KVP, etc. are available to
savers who wish to lend money to the
government
Financial Institutions
Includes institutions and mechanisms which
Affect generation of savings by the community
Mobilization of savings
Effective distribution of savings
Financial Markets
Money Market- for short-term funds
(less than a year)
Organised (Banks)
Unorganised (money lenders, chit funds,
etc.)
Establishment of RBI
The reserve bank of India was established on
April 1,1935 in accordance with the provisions
of the reserve bank of India Act, 1934.
The central office of the reserve bank was
initially in Calcutta but was permanently
moved to Mumbai in 1937. the central office
is where the governor sits and where policies
are formulated.
Objectives of RBI
To maintain the internal value of the
nations currency.
To preserve the external value of the
currency
To secure reasonable price stability.
To promote economic growth with
rising levels of employment, out and
real income
Functions of a RBI
Supervisory/regulatory
function of RBI
Licensing of banks
Approval of capital, reserves and liquid
assets of banks
Branch licensing policy
Inspection of banks
Control over management
Audit
Credit information service
Deposit insurance
Training and banking education
RBI ORGANISATION
STRUCTURE
Introduction to
different Markets
Capital Market, Money
Market,
Primary Market, Secondary
Market
Money Market
The market for dealing with financial
assets and sec. which have a maturity
period of up to one year.
RBI defines the money market as A
market for short term financial assets
that are close substitutes for money,
facilitates the exchange of money for
new financial claims in primary market
as also for financial claims, already
issued, in the secondary market
Certificates of Deposit
Commercial Paper
Inter-bank participation certificates
Inter-bank term money
Treasury Bills
Bill rediscounting
Call/notice/term money
Obligation)
Market Repo
Objectives of money
market
To provide a parking place to employ
short-term surplus
To provide room for overcoming shortterm deficits.
To enable the central bank to influence
and regulate liquidity in the economy
through its intervention in this market.
To provide reasonable access to the users
of short-term funds to meet requirements.
Characteristics of a
Developed Money
Market
Highly organized banking system
Presence of a central bank
Availability of proper credit
instrument
Existence of sub-brokers
Sufficient resources
Existence of secondary markets
Demand and supply of funds
Importance of Money
Market
Development of money market
Development of capital market
Smooth functioning of commercial
banks
Effective central bank control
Formulation of suitable monetary policy
Non-inflation source of finance to
government
Composition of Money
Market
The money market consist of following
sub market.
Types of bills
Many types of bills are in
circulation in a bill market
Demand bills are also called sight bills.
these bills are payable immediately as
soon as they are presented to the drawer
no time of payment is specified and hence
they are payable at sight.
Documentary bill
when bills have to be
accompanied by document of title to
goods like railway receipt, lorry receipt, bill
of lading etc.the bills are called doc.bills.
Importance of TB
Safety
Liquidity
Ideal short-term investment
Ideal fund management
Statutory liquidity
Source of sort term funds
Non-inflationary monetary tool
Hedging facility
Defects of TB
poor yield
Certificate of deposit
CD are short term deposits instruments
issued by bank and financial institutions t
raise large sums of money.
Repo instrument.
Repurchase transaction the borrower
parts with securities to the lender with an
agreement to repurchase them at the end
of the fixed period at a specified price.
At the end of the period the borrower will
repurchase the securities at the
predetermined price.
Capital Markets
What is Capital Market
It is an organized market mechanism for effective
and efficient transfer of money capital or financial
resources from the investing class to the entrepreneur
class in the private and public sector of the economy.
Capital market for long term funds.
The capital market provides long term debt and equity
finance for govt. and corporate.
Capital market facilitates the dispersion of business
ownership and reallocation of financial resources among
corporate and industries.
Dimensions of capital
market
The capital market is directly responsible
for the following activities.
Mobilization or concentration of national
saving for economic development.
Mobilization and import of foreign capital
and foreign investment capital plus skill
to fill up the deficit in the required
financial resources to maintain the
expected rate of economic growth.
Productive utilization of resources
Directing the flow to funds of high yields
and also strive for balanced and
diversified industrialization.
Individuals
Institution
s
Governme
nt
Investors
Lenders
Sellers of money
capital
Middlemen
Capital
Market
Stock exchange
New issue
market
Finance and
Entrepreneurs
investment
Borrowers corp.
Clearing house
for long term or
permanent
Demand
for funds
Individuals
Institution
s
Governme
nt
Buyers of
money capital
Govt.
securities
Corporate
securities
PSUs
Bonds
UTI
Mutual
Funds
New Issues
Market
players
original
Stock
market
intermediari
es
New Issues
Market
players for
Issues
Non-Marketable
Securities
Bank
Deposits
Deposits
with
Companie
s
Loans and
advances
of banks
and FIs.
POC and
deposits
Equity shares
Preference shares
Non-voting equity shares
Cumulative convertible preference
shares
Company fixed deposits
Debentures/ bonds
Global depository receipts
Secondary Markets
Securities issued
a)Preference Shares
b)Equity Shares
c)Debentures
History of Commodity
Market
Modern Commodity Market have their roots in the
trading of agricultural products.
Wheat and corn, cattle and pigs, were widely
traded using standard instruments in the 19th
century in the United States.
Historically, in ancient times Sumerian use of sheep
or goats, or other peoples using pigs, rare
seashells, or
other items as commodity money, have traded
contracts in the delivery of such items, to render
trade
itself more smooth and predictable.
Commodity Exchanges
Abuja Securities and Commodities
Exchange
Bhatinda Om & Oil Exchange Bathinda
Brazilian Mercantile and Futures
Exchange
Chicago Board of Trade
Chicago Mercantile Exchange
Commodity Exchange Bratislava, JSC
Dalian Commodity Exchange
Dubai Mercantile Exchange
Intercontinental Exchange
Assignment -1
Q-1 Write in detail about
Commodities market
LAST DATE OF SUBMISSION :
8/10/2010
LEASING
Meaning of Leasing
Lease may be define as a contractual arrangement/
transaction
in
which
a
party
owning
an
asset/equipment provides the asset for use to
another /transfer the right to use the equipment to
the user over certain/ for an agreed period of time for
consideration in form of /in return for periodic payment
(rental) with or without a further payment (premium).
Lease is a contract whereby the owner of an asset
grants to another party the exclusive right to use the
asset usually for an agreed period of time in return for
the payment of rent.
PARTIES IN LEASING
Leasing essentially involves the
divorce of ownership from the
economic use of an asset/equipment.
LESSOR: Lessor is the owner of the
asset that is being leased.
LESSEE: Lessee is the receiver of
the services of the asset under a
lease contact.
Essential elements of
leasing
Classification of Lease
1. Financial lease and operating lease
2. Sales and lease back and direct
lease
3. Single investor lease and leveraged
lease
4. Domestic lease and international
lease
Operating lease
An operating lease is one which is not a
finance lease. In an operating lease, the
lessor does not transfer all the risks and
rewards incidental to the ownership of the
asset and the cost of the asset is not fully
amortised during the primary lease period.
The lessor provides services attached to
the leased asset, such as repair and
technical advice. for this reason it called
service lease
Direct lease
In direct lease, the lessee, and the owner of the equipment are
two different entities. A direct lease can be two types.
Bipartite:
1.Equipment supplier cum lessor.
2. Lessee such a type of lease is typically structured as an operating
lease with in-built facilities. like upgradition of equipment
(upgrade lease).addition to the original equipment configuration.
The lessor maintains the asset and if necessary, replace, it with a
similar equipment in working condition (swap lease).
Tripartite: such type of lease involves 3 different parties in the
lease agreement: equipment, supplier, lessor, lessee.
an innovative variant of tripartite lease is the sales-aid lease under
which the equipment supplier arranges for lease finance in various
form.
Leveraged lease
There are three parties to the transaction
1. Lessor (equity investor)
2. Lender (loan participant)
3. Lessee.
Aleveraged leaseis aleasein which thelessorputs up some of the
money required to purchase theassetand borrows the rest from
alender. The lender is given a senior secured interest on the asset and
an assignment of the lease and lease payments. The lessee makes
payments to the lessor, who makes payments to the lender.
The term may also refer to a lease agreement wherein the lessor, by
borrowing funds from a lending institution, finances the purchase of the
asset being leased.
The lessor pays the lending institution back by way of the lease
payments received from the lessee. Under the loan agreement,
thelenderhas rights to the asset and the lease payments if the lessor
defaults.
Profile/structure of leasing
Major players can be categorized into 6 groups
Independent leasing cos.: a major part of their
income is derived from leasing. Some of them have
financial/technical collaboration with overseas
partners. They offer their services through direct
advertisement, personal contacts, lease brokers
including foreign banks and merchant banks.
Other finance cos:
Manufacturer- lessors:
Financial institutions:
In-house lessors
Commercial banks
Advantages of leasing
To the lessee.
1.Financing of capital goods.
2.Additional source of finance.
3.Less costly
4.Ownership preserved
5.Avoids conditionality
6.Flexibility in structuring of rentals
7.Simplicity
8.Tax benefits
9.Obsolescence risk is averted.
Full security
Tax benefit
High profitability
Trading on equity
High growth potential
Limitations of leasing
Repairs and
maintenance
Alteration
Peaceful possession
Charges
Indemnity clause
Inspection
Prohibition of sub
leasing
Events of default and
remedies
Applicable law