FINANCIAL SERVICES

By:-SrujanVenu Gopal Nithin kishore

INTRODUCTION

The financial Services mobilizing and allocating savings and all activities in the transformation of savings into investment. It is otherwise called as financial intermediation.

Financial Services refers to those services rendered by banks, Financial Institutions, Insurance Companies, Banks and other intermediaries in the financial market intermediaries.

OBJECTIVES

1)Fund raising: Financial services help to raise the required funds from a host of investors, individuals, institution and corporate. For this purpose, various instruments of finance are used.

2)Funds deployment: An array of financial services is available in the financial markets which help the players to ensure an effective deployment of funds raised.

3)Specialized services: The financial service sector provides specialized services such as credit rating, venture capital financing , lease financing, mutual funds, credit cards, housing finance, etc… besides banking and insurance..

4)Economic growth: Financial services contribute, in good measure, to speeding up the process of economic growth & development.

CHARACTERISTICS

1)Intangibility-Not visible in nature2)Inseparability-Unique feature of service3)Heterogeneity-Financial services can’t

be uniform for all. Vary from one customer to the other. 

4)Customer Orientation5)Link-between banks and investors6)Perishability-cannot be stored

CLASSIFICATION OF FINANCIAL SERVICES

1) Traditional Activities2) Modern activities

Traditional Activities

Fund based activities Fee based activities

 1)Leasing

1)Merchant Banking 2)Hire Purchase 2)Credit Rating3)Bills discouting 3)Loan syndication4)Venture Capital 4) Bank Guarantees5)Housing Finance 5)Stock Broking6)Insurance7)Factoring

LEASING

 A Lease is a contractual agreement. In which a party is owning an

asset( lessor). Provide the asset for use to the

another party(lessee). For an agreed period of time

HIRE PURCHASE

A method of buying goods through making installment payments over time. Under a hire purchase contract, the buyer is leasing the goods and does not obtain ownership until the full amount of the contract is paid.

BILLS DISCOUNTING

Bank takes the bill drawn by borrower on his (borrower's) customer and pays him immediately deducting some amount as discount/commission. The Bank then presents the Bill to the borrower's customer on the due date of the Bill and collects the total amount.

VENTURE CAPITAL Money provided by investors to

startup firms and small businesses with perceived long-term growth potential.

This is a very important source of funding for startups that do not have access to capital markets.

It typically entails high risk for the investor, but it has the potential for above-average returns.

HOUSING FINANCE

Financial Support provided by the banks and housing financial institutions for the purchase or construction or renovation of the house to the ultimate borrower.

National housing Board (NHB) will be the regulating authority for housing finance under monitoring by RBI.

INSURANCE

 Insurance is a form of contract or agreement under one party agrees in return of a consideration to pay an agreed amount of money to another party to make goods for a loss, damage, injury to something of value.

FACTORING

This is a financial transaction whereby a business job sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business.

MUTUAL FUNDS

A mutual fund is a professionally managed type of collective investment that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities

CREDIT RATING

 A credit rating estimates the credit worthiness of an individual, corporation, or even a country. It is an evaluation made by credit bureaus of a borrower’s overall credit history.

A credit rating is also known as an evaluation of a potential borrower's ability to repay debt, prepared by a credit bureau at the request of the lender

MERCHANT BANKING

A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to.

Both commercial banks and investment banks may engage in merchant banking activities.

Merchant banks' original purpose was to facilitate and/or finance production and trade of commodities.

LOAN SYNDICATION

This 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 themselve

Financial Services includes Money Management Portfolio management Stock broking Custodial Services Equipment leasing Retail financing Credit Card services Credit rating services Factoring services

 

MODERN ACTIVITIES

Acting as trustees to the debenture holders.

Undertaking risk management services like insurance services, buy-hack options etc.

Guiding corporate customers in capital restructuring.

Managing In- portfolio of large Public Sector Corporations.

IMPORTANCE

1)Economic Growth2) Promotion of Savings3) Capital Formation4) Provision of Liquidity

FUNCTIONS

 Mechanism for mobilizing savings Mechanism for storing wealth Liquidity Credit mechanism Payment system Risk Management Policy implementation Information provider

1)Supplies a well-developed infrastructure.2)Availability to open commercial and industrial parks.3)Furnishes substantial tax incentives for businesses4)Offers moderate operating costs.

Disadvantages 1)Operational inefficiency.2) Political interference.3) Traditional sector financing.4) Higher provisioning for non-performing assets

ADVANTAGES

PHASE 2

Articles published in journals and magazines

ARTICLE 1

Retail banking in china Chinese banking faces a dramatic transformation over the next ten years. While we expect the overall profits of the sector to grow at an annual rate of about 10 percent, the source of its earnings will change significantly.Three main forces will propel these developments. The first is strong and increasingly consumption-driven GDP

growth, ranging from 7 to 9 percent in recent years. Second, demand for traditional corporate-banking products,

particularly deposits and loans, will fall. Third, over the next five to seven years, we believe that the

Chinese government will gradually deregulate interest rates. That will significantly reduce margins on both deposits and corporate lending.

CONT’D

The shift in the profit mix from corporate to retail gives foreign banks a golden opportunity to tap into the Chinese banking market by targeting affluent customers, much the most attractive segment. Partnerships with Chinese institutions will probably be necessary for foreign banks that wish to compete for the affluent market. Working with a Chinese bank thus not only helps a foreign one circumvent regulatory hurdles but also gives it instant access to an established body of customers.

Banking behind the scenesDuring 2001 and early 2002, we studied the relative efficiency of the back-office operations of 13 European banks as well as how 20 banks in Europe and North America handled such operations. We found that the world-class banks manage their back-office and IT operations as a portfolio of individual factories, each demanding a unique solution depending on its characteristics. Our first study, on the relative efficiency of the back-office operations of different banks, showed that unit-processing costs for the same product can vary a good deal. The second study, on the way banks run their back offices, found that the wide range of options fall into five "smart-sourcing" categories:1)Internal upgrades2)Outsourcing3)External co-sourcing4)Internal co-sourcing (shared service centers)5)Insourcing

ARTICLE 2

Phase 3Indian &International financial services in

Banking SectorIndian banking is a branch banking model. We compared this with US banking which is unit banking model.

Branch Banking Unit Banking

Deposits and assets Deposits and assets are diversified,scattered and hence risk is spead at various places.

Deposits and assets are nt diversified and are at one place,hence risk is not spread.

Operational freedom:

Less Operational freedom.

More Operational freedom.

Loans and advances:

Loans and advances are based onmerit,irrespective of the status .

Loans and advances can be influenced by authority and power.

Financial resources: Larger financial resources in each branch.

Larger financial resources in one branch

Decision-making: Delay in Decision-making as they have to depend on the head office.

Time is saved as Decision-making is in the same branch.

Cost of supervision High Less

Mismanagement: Exists as improper use of power and authority exist

Proper checks are taken up.no misuse of Mismanagement

Concentration of power in the hand of few people

Yes No

Specialisation: Division of labour is possible and hence specialisation possible

Specialisation not possible due to lack of trained staff and knowledge

Distribution of Capital:

Proper distribution of capital and power.

No proper distribution of capital and power.

Rate of interest: Rate of interest is uniformed and specified by the head office or based on instructions from RBI.

Rate of interest is not uniformed as the bank has own policies and rates.

Competition: High competiton with the branches

Less competition within the bank

PHASE 4

Industrial Practises

At SBI Mutual Fund we know that every investor has unique financial goals and requires a different set of products. Which is why, we have a wide range of schemes that fulfill every kind of investors’ requirements. Each scheme is managed by devising a different strategy which is reflective of the investors profile and carries with it different risks and rewards.  Every investor is

unique

SBI MUTUAL FUNDS

There are six basic asset classes, which we manage, and variations of these six asset classes form various products:

1)Equity Schemes2)Hybrid Schemes3)Debt income Schemes4)Fixed Maturity Schemes5)Liquid6)Exchange trade schemes

SBI BANK Personal banking NRI services (Bank Deposits, Loans

and Remittances to Investments) Agriculture Corporate banking(Working Capital

Financing , Term Loans, Deferred Payment Guarantees, Corporate Loans ) 

Domestic banking services International banking

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