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FINANCIAL SERVICES
GOKHALE EDUCATION SOCIETY’S
SHRI BHAUSAHEB VARTAK ARTS, COM. & SC.COLLEGE
SHETH K.V. PAREKH ARTS &COM. Jr. COLLEGE
Gokhale Mahavidyalay Marg, M.H.B. Colony, Borivali (W), Mumbai
(NAAC B+ ACCREDITED & ISO 9001:2000 CERTIFIED)
PROJECT REPORT ON
FINANCIAL SERVICES
SUBMITTED BY
MS. VAISHALI SAWANT
T.Y.B.Com (Banking & Insurance) (Semester V)
SUBMITTED TO
UNIVERSITY OF MUMBAI
PROJECT GUIDE
Mr. AMEY GHATAGE
ACADEMIC YEAR:2009-2010
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DECLARATION
I Ms. VAISHALI MAHADEV SAWANT student ofI Ms. VAISHALI MAHADEV SAWANT student of
Shri Bhausaheb Vartak Arts, Com. & Sc. College ofShri Bhausaheb Vartak Arts, Com. & Sc. College of
T.Y.B.Com. (Banking & Insurance) (Semester V)T.Y.B.Com. (Banking & Insurance) (Semester V)
hereby declare that I have completed my projecthereby declare that I have completed my project
on “FINANCIAL SERVICES” in the academic yearon “FINANCIAL SERVICES” in the academic year
2009-2010. The information submitted is true &2009-2010. The information submitted is true &
original to best of my knowledge.original to best of my knowledge.
Signature of Student
Place: Mumbai
Date:
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ACKNOWLEDGEMENT
I am highly obliged to acknowledge our Principal Dr. Mrs. S.
V. SANT and for giving me an opportunity to conduct a detail study and
analysis of topic relevant to my project.
I would like to thank my Project guide and also our Course Co-
ordinator Prof. Mrs. RAKHI PITKAR for helping me at every stage of
this project, for inspiring me at every stage of this project, for motivating
me and giving me access to such valuable information, without which
my project would be incomplete.
I would like to thank our Library staff for providing
appropriate books on right time. Last but not least all my friends, family
members who support me while preparing my project.
These people have immensely helped me in getting the correct
and up to date information required for the making of this project.
This project report is the combination of the efforts of all the
above mentioned people and myself. I have carried out sincere efforts on
my part to make this project.
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Thanking You…………..
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Executive Summary
The Indian financial services industry has undergone a metamorphosis since
1990. During the late seventies and eighties the Indian financial services industry
was dominated by commercial banks and other financial institution which cater to
the requirements of Indian industry.
In fact capital market played a secondary only. However after economic
liberty to the entire financial sector has under gone a see-saw change and now we
are witnessing the emergence of new financial services almost every day. Financial
services constitute an important component of financial system. Financial services
is a process by which funds are mobilized from a large number of savers and make
them available to all those who is in need and particularly to corporate customers.
The main participants who are playing a major role is providing financial services
to serve the needs of individual, institutions and corporate. They render services
such as mutual fund, merchant banking, hire purchase, leasing, factoring, housing
finance etc. The origination development and delivery of financial services in India
is subject to institutional regulation, prudential regulation, investor regulation,
legislative regulation and self regulation.
In India agencies such as SEBI, RBI and Department of banking and insurance of
the government of India, through a plethora of legislations, regulate the functioning
of financial service. Thus financial services contribute in good measure to speeding
up the process of economic growth and development. This takes place through the
mobilization of savings of a cross section of people; for the purpose of channeling
them into productive investments.
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DETAILED CURRICULUM
Section-I Financial Services
1.1 Introduction of Financial Services……………………...………………1
1.2 Definition and Concept of Financial Services………….……………….3
1.3 History of Financial Services…………………………..……………….4
1.4 Financial Services Regulatory Framework……………………………..5
1.5 Classification of Financial Services Industry ………………………….6
1.6 Participants Involved In Providing Financial Services…………………7
Section-II Overview of Financial Services
2.1 Objectives of Financial Services……………………………………….8
2.2 Structure of Indian Financial System…………………………….……………......9
2.3 Scope of Financial Services…………………………………………..11
2.4 Features of Financial Service ……………………….……………......13
2.5 Growth of Financial Services ……………..…………………………14
2.6 Challenges faced by Financial Services Industry…………………….15
2.7 Development of financial Services in India…………………………..16
2.8 Structure of the Indian Banking Industry……………………………..17
Section-III Bank as a Financial Service Provider
3.1 Introduction of Bank…………………………………………………15
3.2 Nationalisation of Banks in India……………………………………16
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FINANCIAL SERVICES3.3 Functions of a Bank……………………………………………….…..17
3.4 Financial Services by Banks in Rural Sector…………………….………………24
3.5 Banking Services Provided by Through Different channels…………21
Section-IV Financial Services
4.1 Mutual Fund Services
4.1.1 Introduction Mutual Fund……………………….…………………26
4.1.2 Definition of Mutual Fund ………………………………………...27
4.1.3 Types of Mutual Fund…………..…………………………………..28
4.1.4 Benefits of Investing in Mutual Fund……………………………..29
4.1.5 Risks in Involved in Investing in Mutual Fund ………….……….31
4.1.6 Rights of Mutual Fund Holder in India……………………………33
4.2 Venture Capital Services
4.2.1 Introduction of Venture Capital……………..……………………..32
4.2.2 Meaning of Venture Capital………………………………………..33
4.2.3 Features of Venture Capital………………………………………..33
4.2.4 Scope of Venture Capital…………………………………………..34
4.2.5 Venture Capital Regulations in India………………………………36
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Section-V Finance Services
5.1 Derivative
5.1.1 Introduction of Derivative’s…………………………………….....37
5.1.2 Benefits of Derivative’s…………………………………………38
5.1.3 Types of Derivative’s…………………………………………..38
5.2 Merchant Banking
5.2.1 Introduction of Merchant Banking…………………………………42
5.2.2 Mrechant Banking Indian Scenario………………………………..43
5.2.3 Guidelines for Merchant Bankers………………………………..44
5.2.4 Services Rendered by Merchant Banks…………………………..45
Section-VI Financial Services
6.1 Leasing Services
6.1.1 Introduction of Leasing ……….……….……………………………46
6.1.2 Definition of Lease ……………..…………………………………..47
6.1.3 RBI Guidelines to Leasing Companies ……………………………..48
6.1.4 Types of a lease ……………………………………………………....47
6.2 Factoring Services
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FINANCIAL SERVICES6.2.1 Introduction to Factoring…………………………………………..50
6.2.2 How does Factoring Works………………………………………...51
6.2.3 RBI Guidelines for Factorings……………………………………..52
6.2.4 Benefits of Factoring……………………………………………….53
6.2.5 Different types of Factoring……………………………………….54
6.2.6 Bank Finance to Factoring Companies…………………………….55
.
Section-VII Risk and Benefits of Financial Services
7.1 Risks of Outsourcing Financial Services by banks……….………….56
7.2 Pros of Financial Services……………………………….…………..58
7.3 Cons of Financial Services…………………………………………..60
Section-VIII Scenario of Financial Services
8.1 Current Scenario of Financial Services…………..………………….62
8.2 Future of Financial Services………………………………….………63
Case Study of Housing Loan……………………………………………64
TYBCOM (BBI)
FINANCIAL SERVICESConclusion of Financial Services………………………………………..74
Articles.
Abbreviations.
Glossary.
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1.1 Introduction of Financial Services1.1 Introduction of Financial Services
A financial service is a term used to refer to the services provided by the finance industry. A financial service is also the terms used to describe organizations that deal with the management of money. Banks, investment banks, insurance companies, credit card companies and stock brokerages, are examples of the types of firms comprising the industry, which provides a variety of money and investment related services. Financial services are the largest industry (or industry category) in the world, in terms of earnings; as of 2004, the industry represents 20% of the market capitalization.
Finance is the ability of funds management. Finance includes saving money and frequently includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interconnected. Finance also deals with how funds are spent and budgeted. Services which are provided in the finance industry are known as financial services. There are number of services which are included in the category of the financial services and all these services are provided by the financial institutions. There are a number of other financial services which are provided by each financial institution like commercial banks carry out consumer financing and investment banks carry out securities trading. Financial services result in a huge market which is known as financial market.
The programs and services such as planning and management of finances and planning of the banking investments and providing the insurance are all a part of the financial services. These financial services, which are provided by the financial institutions, comprise of the financial transactions. A financial transaction is process that enables a person to either make an investment or clear the debts, or investment in any other form.
TYBCOM (BBI)
FINANCIAL SERVICESThese days the method of transaction between the organizations and the individual
has taken a new form and the concept of electronic. These are the services which
an insurance company provides, which can be taxed.
The retrieval of money in any form through credit cards or the debit cards is all a form of financial transactions. The financial services are all aimed at providing facilities to the public, using which people can invest their money in a safe place. Insurance policies are important to help keep the future safe. These financial services are aimed to make the people financially stable. But any investment that a person makes must be well calculated. Financial services are an important part of any financial organization because only through these financial services does a financial organization grows. The main aim of all of the above mentioned industries is to provide the financial services to the general public.
Concept of Financial servicesConcept of Financial services
The Finance services industry though a highly profitable Industry with respect to earnings does not count for a large share of the market and also employs a lesser number of people as compared to some of the other Industries. Financial services through the network of elements such as financial institution, financial market, and financial instruments serve the individuals, institutions and corporates. Financial services are provided by banks, insurance companies, general financial institution, and stock exchanges
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1.2 Definition of Financial Services1.2 Definition of Financial Services
Financial Service can be defined as the products and services offered by institutions like banks of various kinds for the facilitation of various financial transactions and other related activities in the world of finance like loans, insurance, credit cards, investment opportunities and money management as well as providing information on the stock market and other issues like market trends.
.
1.3 History of Financial Services1.3 History of Financial Services
The term financial services became more prevalent in the United States partly as a result of the Gramm-Leach-Bliley Act of the late 1990s, which enabled different types of companies in the US financial services industry to merge. Critics of this act say the term financial services attempts to make the unison (UNION) of these operations sound natural, ignoring the history of problems that have arisen from combining them, such as conflicts of interest and monopolization . Others, noting that many of the restrictions abolished by the Gramm-Leach-Bliley Act had never existed in other countries or had been abolished earlier than in the US, say the term financial services is a natural one, in long term use, which means nothing more than its constituent words.
Companies usually have two distinct approaches to this new type of business. One approach would be a bank which simply buys an insurance company or an investment bank, keeps the original brands of the acquired firm, and adds the acquisition to its holding company simply to diversify its earnings.
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1.4 Financial Services Regulatory Framework 1.4 Financial Services Regulatory Framework
The growth development of financial system is measured in terms of the width and depth of the range of products offered by it. There has been limited innovation in the realm of financial services products. It is imperative therefore that the financial services sector works to achieve growth and development, by innovating an introducing a wide range of financial products tailor-made to suit the needs of varying entrepreneurs.
For instance, a number of tailors made and imaginatively designed financial packages may be offered by the venture capital fund to satisfy the needs of entrepreneurs.
Similarly leasing firms should be encouraged to provide leasing facilities for a variety of capital equipment, besides ensuring that leasing companies are not created merely to trade in tax shields at government cost.
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1.5 CLASSIFICATION OF FINANCIAL SERVICES INDUSTRY
I) Capital market intermediaries andII) Money market intermediaries.
The capital market intermediaries consist of term lending institution and investing institutions which mainly provide long term funds. On the other hand, money market consists of commercial banks, co-operative banks and other agencies which supply only short term funds. Hence, the term ‘financial services industry’ includes all kinds of organizations which intermediate and facilitate financial transactions of both individuals and corporate customers.
For e.g.
1) Capital Market Intermediaries:-Equity shares, Bonds2) Money Market Intermediaries:-Certificate of deposite, Commercial
Paper, Treasury Bills.
The Difference between Banking and Financial Services
There are various types of financial institutions and they do have different services. Based on the various types of financial institutions, banks are resposible for collcting deposits of the customers as their savings or as investment in the case of investments banks, On the other hand, there are a number of financial services like insurance, mortgage services, loan lending etc (which are provided by other institutions). We can also say that there are many types of financial sercices and
banks provide savings, depository and investment services while other services are
offered by other institutions.
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1.6 Participants Involved in Providing Financial Services
Banks
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FINANCIAL SERVICESIt is one of the biggest financial services companies of the world. There are
different types of banks in the world. Some of these are commercial banks, private banks and many more. There are some banks that work for the capital markets only. Banks provide a number of financial services to the clients. These services include depository services, lending services, credit card facilities and many more. These services are provided for both the individuals and the commercial sector.
Intermediation or Advisory Services Company
These companies are basically involved in providing investment services to the clients. These companies are designed to provide advises to the investors in selecting the right investment options that suit their investment plans and also the risk tolerance capacity. At the same time, the intermediation or advisory services companies are handling the investor's money and investing it according to the client's choice.
Insurance Companies
The insurance companies provide the clients with risk coverage services. These services are designed to cover a number of risks that are related to an individual's life, property and many more. These services are not only designed to provide security but at the same time there are a number of insurance plans that are designed to provide regular income to the clients.
Credit Rating Agencies
The credit rating agencies are those firms that evaluate different types of financial services companies. These ratings are based on a number of factors like the kind of services, risk factor involved with the services, customer facilitation and many more.
Conglomerates
A financial services conglomerate is a financial services firm that is active in more than one sector of the financial services market e.g. life insurance, general insurance, health insurance, asset management, retail banking, wholesale banking, investment banking.
2.1 Financial Services – Objective
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FINANCIAL SERVICES Fund Raising :
Financial Services help to raise the required funds from host of investors, individuals, institutions and corporates. For this purpose various instruments of finance are used. The funds are demanded by the corporates house, individuals, etc.
Funds deployment :
Arrays of financial services are available in financial markets which help the players to ensure an effective deployment of funds raised. Financial Services help in decision making regarding financing mix.
Specialized services :
The financial services sector provides specialized services such as merchant banking, mutual funds, factoring, housing finance,hire purchase, leasing etc. besides banking and insurance. Institutions and agencies such as stock exchanges specialized and general financial institutions, non-banking finance companies, also provide these services.
Regulation :
In India, agencies such as Securities and Exchange Board of India (SEBI), Reserve Bank of India and the Department of Banking and Insurance, Government of India, through a plethora of legislations, regulate the functioning of the financial service institutions.
Economic growth :
TYBCOM (BBI)
FINANCIAL SERVICESFinancial Services contribute, in good manner, to speeding up the
process of economic growth and development. This takes place through the mobilization of the savings of a cross section of people, for the purpose of channeling them into productive investments.
2.2 Structure of Indian Financial System
TYBCOM (BBI)
FINANCIAL SERVICESThe financial system implies a set of complex and closely connected
institutions, agent’s practices and markets. The following is the typically structure
of financial system in any economy.
Financial System
A financial service is any kind of service of financial nature offered by a
financial service provider. All banking and insurance related services are included
in this concept. These services are intangible and invisible. There should be
proximity between service provider and consumer in order to complete a service
transaction. These services cover a wide range of activities. A financial service has
developed to meet the needs of companies. Banking and Insurance are traditional
services. The modern financial services are mutual funds, factoring venture capital,
credit cards, leasing, hire purchase, etc.
Financial services have started long back in western countries. In India, the
services have started during 1980s. These services play a significant and important
role in the changed business services.
2.3 Scope of financial services 2.3 Scope of financial services
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Financial Institutions
Financial Markets
Financial Instruments
Financial Services
FINANCIAL SERVICES
1. Traditional Activities1. Traditional Activities
i) i) Fund based activitiesFund based activitiesii)ii) Non fund based activities Non fund based activities
2. Morden Activities2. Morden Activities
1. Traditional activities
Traditionally, the financial intermediaries have been rendering a wide range of
services encompassing both capital and money market activities. They can be
grouped under two heads viz;
i) Fund based activities andii)ii) Non-fund based activities
i)Fund based activities
The traditional services which come under fund based activities are the following:
a) Underwriting of or investment in shares, debentures, bonds etc. of new issues (primary market activities)
b) Dealing in secondary market activities.c) Participating in money market instruments like commercial papers,
certificate of deposits, treasury bills, discounting of bills etc.d) Involving in equipment leasing, hire purchase, venture capital, seed capital
etc.e) Dealing in foreign market activities.
ii)Non-fund based activities
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FINANCIAL SERVICESFinancial intermediaries provide services on the basis of non-fund activities also. This can also be called “fee based” activity. Today, customers whether individual or corporate are not satisfied with mere provision of finance. They expect more from financial service companies. Hence, a wide variety of services, are being provided under this head. They include the following:
a) 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.
b) Making arrangements for the placement of capital and debt instruments with investment institutions.
c) Arrangement of funds from financial institutions for the clients project cost or his working capital requirements.
d) Assisting in the process of getting all Government and other clearances.
2.Modern Activities2.Modern Activities
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FINANCIAL SERVICESBesides the above traditional services, the financial intermediaries of render innumerable services in recent times. Most of them are in the nature of non-fund based activity. In view of the importance, these activities have been discussed in brief under the head ‘New financial products and services’. However, some of the modern services provided by them are given in brief here under:
a) Rendering project advisory services right from the preparation of the project report till the raising of funds for starting the project with necessary Government approval.
b) Planning for mergers and acquisitions and assisting for their smooth carry out.
c) Guiding corporate customers in capital restructuring.d) Acting as Trustees to the debenture-holders.e) Hedging of risks due to exchange rate risk, interest rate risk, economic risk
and political risk by using swaps and other derivative products.f) Managing the portfolio of large Public Sector Corporations.g) Guiding the clients in minimization of the cost of debt and the determination
of the optimum debt equity mix.h) Undertaking risk management services like insurance services, buy-back
options etc.i) Undertaking services relating to the capital market such as:
Clearing services, Registration and transfers, Safe-custody of securities, Collection of income on securities.
j) Promoting credit rating agencies for the purpose of rating companies which want to go public by the issue of debt instruments.
k) Recommending the financial collaboration / joint ventures by identifying suitable joint venture partner and preparing joint venture agreement.
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2.4 Financial Services –Features
Like any other services financial services are characterized by the following __
Intangibility: The basic features of financial services are that they are
intangible in nature. For financial service to be successfully created and
marketed, the institution of provided them must have a good image and
the confidence of its clients. Quality and innovativeness of services are
the focal points for building credibility and gaining the trust of the
clients.
Customer Orientation: The institution providing the financial services
study the needs of the customer in detail. Based on the results of the
study, they come out with innovative financial strategies that give due
regard to the costs, liquidity and maturity considerations for various
financial products. This way, financial services are customer-oriented.
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Inseparability: The functions of producing and supplying financial
services have to be carried out simultaneously. This calls for a perfect
understanding between the financial service firms and their clients.
Perishability: Financial services have to be created and delivered to the
target clients. They cannot be stored. They have to be supplied
according to the requirement of customers. Hence, it is imperative that
the providers of the financial services ensure a match between demand
and supply.
Dynamism: Financial services institutions must be proactive in nature,
and evolve new services by visualizing the expectations of the
market .The financial services have to be constantly refined on the basis
of socio-economic changes occurring in the economy, such as
disposable income, standard of living, level of education, etc.
2.5 GROWTH OF FINANCIAL SERVICES
TYBCOM (BBI)
FINANCIAL SERVICESThe growth of financial sector in India at present is nearly 8.5% per year. The
rise in the growth rate suggests the growth of the economy. The financial
policies and the monetary policies are able to sustain a stable growth rate. The
reforms’ pertaining to the monetary policies and the macro economic policies
over the last few years has influenced the Indian economic to the core. The
major step towards opening up of the financial market further was the
nullification of the regulations restricting the growth of the financial sector in
India. To maintain such a growth for a long term the inflation has to come down
further.
The financial sector in India has an overall growth of 15%, which has
exhibited stability over the last few years although several other markets across
the Asian region were going through a turmoil. The development of the system
pertaining to the financial sector was the key to the growth of the same. With
the opening of the financial market variety of products and services were
introduced to suit the need of the customer. The Reserve Bank of India (RBI)
played a dynamic role in the growth of the financial sector of India.
A)Growth of the banking sector in India:
The banking system in India is the most extensive.
TYBCOM (BBI)
FINANCIAL SERVICES The total asset value of the entire banking sector in India is nearly
US$270 billion
The total deposits is nearlyUS$220 billion. Banking sector in India has
been transformed completely.
B)Growth of the Capital Market in India
The ratio of the transaction was increased with the share ratio and deposit
system
The removal of the pliable but ill-used forward trading mechanism
The introduction of infotech systems in the National Stock Exchange
(NSE) in order to cater to the various investors in different locations
Privatization of stock exchanges
C)Growth in the Insurance sector in India
With the opening of the market, foreign and private Indian players are
keen to convert untapped market potential into opportunity by providing
tailor-made products:
The insurance market is filled up with new players which has led to the
introduction of several innovative insurance based products value add-
ons, and services. Many foreign companies have also entered the arena
such as Tokio Marine, Aviva, Allianz, Lombart General, AMP, New
York Life, Standard Life, AIG, and Sun Life
The competition among the companies has led to aggressive marketing,
and distribution techniques
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FINANCIAL SERVICESD)Growth of the Venture Capital market in India
The venture capital sector in India is one of the most active in the
financial sector inspite of the hindrances by the external set up
Presently in India there are around 34 national and 2 international SEBI
registered venture capital funds.
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2.6 Challenges faced by Financial Service Companies
Market issue
In an increasingly competitive marketplace, successful players are focused on customer retention. Improvements in retention levels can often be achieved by improving the approach to customer management and customer segmentation. There is also a need to address increasing customer expectations for price and service.
Regulatory issues
Regulation has reached such a level that many organisations are focused almost
entirely on meeting regulatory requirements. This is causing businesses to put at
risk other initiatives required to maintain a competitive position in the market
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FINANCIAL SERVICES Operational issues
Globalisation, consolidation, convergence and the increasing focus on
competitiveness are all driving the need to improve the efficiency and effectiveness
of operations. Cost control remains a management imperative. Operational risk
systems and controls (driven by regulation) are necessities not options.
Technology issues
All of this change – in the marketplace, in the regulatory environment and in
operations – means that there is very often a need to replace and upgrade
infrastructure, hardware and software.
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2.7 Development of Financial Services in India
In last few years, India gas emerged as the one of the most rapidly growing
economies in the world. India has been categorized with nations like Brazil, Russia
and China (BRIC Nations) who are going to be the prime drivers of world
economy in next few decades. Since the time, India first opened its gates to foreign
investment (FDI & FII), there has been a complete turnaround. Now the traditional
Hindu rate of growth is a thing of past and clocking 8%-9% GDP growth rate is the
common norm. India along with other Asian powerhouse China makes for the
fastest growing nations in the entire world. In the recent time world economy has
developed certain serious economic difficulties, in the first instance failing of
banking & financial institutions and secondly the global economy has been badly
affected by falling demand in major economies.
The need for today is to build trust among the Financial Services Industry
supported by effective policy measure taken by the regulatory authority which will
raise standards of living. The Associated Chambers of Commerce and Industry of
India (ASSOCHAM), the apex body of the Chambers of Commerce of India, has
taken initiative by organizing a “Banking & Financial Services Industry (BFSI)”
Summit 2009 where analysts and consultants from global industry can elaborate in
more detail on issues and solutions affecting the BFSI sector & industries dealing
with them.
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2.8 Structure of the Indian Banking Industry
Classification of Banks
(2007)
Number of
Banks
Total Assets
(US$ billions)
Public Sector Banks 28 575
Indian Private Banks 25 175
Foreign Banks 29 48
Total 82 65
OPPORTUNITY
Foreign banks gaining prominence in India has a highly developed Financial
Services sector and popularity in India.
OVERVIEW
Total banking assets expected to grow to US$1 trillion by 2010 – a CAGR
of 11% .Over US$70 billion additional equity needed for growth plus Basel II
compliance. Consolidation in the banking space likely to be driven by private
players. Mutual funds: Assets Under Management (AUM) are expected to grow by
15% till 2010 .Retail finance is expected to grow at an annual rate of 18%, from
TYBCOM (BBI)
FINANCIAL SERVICESUS$27.6 billion in 2003-04 to over US$75 billion by 2010.Demand for credit
likely to grow at 25% p.a. with rapid GDP growth.
3.1 INTRODUCTION OF BANK
In any economy Banks play a pivotal role. Without a sound and
effective banking system in India it cannot have a healthy economy. The past three
decades India’s banking system has several outstanding achievements to its credit.
Indian banking system has reached even to the remote corners of the country. This
is one of the main reasons of India’s growth process.
The name bank derives from the Italian word banco "desk/bench", used
during the Renaissance by Florentines bankers. Banks perform activities such as
accepting deposits and lendings. Banks' activities can be divided into retail
banking, dealing directly with individuals; business banking, providing services to
mid-size business; corporate banking dealing with large business entities; private
banking, providing wealth management services to High Net Worth Individuals;
and investment banking, relates to helping customers raise funds in the Capital
Markets and advising on mergers and acquisitions The first bank in India, though
conservative, was established in 1786 till today, the journey of Indian Banking
System can be segregated into three distinct phases. They are as mentioned below:
Early phase from 1786 to1969 of India banks
Nationalization of Indian bank and up to 1991prior to Indian banking
sector reforms.
New phase of Indian Banking System with the advent of Indian Financial
and Banking sector reform after 1991.
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Definition of bank
Banking Regulation Act of India,
1949 defines Banking as "accepting,
for the purpose of lending or
investment of deposits of money from
the public, repayable on demand or
otherwise and withdrawable by
cheques, draft, and order or
otherwise."
Other Definition of bank
According to Oxford English Dictionary, Bank is, “An establishment for custody
of money received from or on behalf of, its customers. Its essential duty is the
payment of the orders given on it by the customers, its profit mainly from the
investment of money left unused by them”.
Banks are now moving towards Universal Banking, which is a combination of
commercial banking, investment banking and various other activities including
insurance.
The evolution of IT services outsourcing in the Indian banks has presently
moved on to the level of Facilities Management (FM). Banks now looking at
business process management (BPM) to increase returns on investment improve
customer relationship management (CRM) and employee productivity.
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3.2 NATIONALISATION OF BANKS IN INDIA
The nationalization of banks in India took place in 1969 by Mrs. Indira
Gandhi the then prime minister. It nationalized 14 banks then. These banks were
mostly owned by businessmen and even managed by them.
Central Bank of India
Bank of Maharashtra
Dena Bank
Punjab National Bank
Syndicate Bank
Canara Bank
Indian Bank
Indian Overseas Bank
Bank of Baroda
Union Bank
Allahabad Bank
United Bank of India
UCO Bank
Bank of India
Before the steps of nationalization of Indian Banks, only State Bank
of India (SBI) was established. It took place in July 1955 under the SBI Act of
1955. The State Bank of India is India’s largest commercial bank.
SCHEDULED BANKS
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list of Banks which are described as “Scheduled Banks”. A bank in order to be
designated as a Scheduled bank should have a paid up capital and reserved as
prescribed by the Act. In terms of section 42(6) of RBI Act, 1934, the required
amount is only Rs. 5 lakh. However, presently to start a Commercial Bank the RBI
prescribed a minimum capital of Rs. 100 crore and its business must be managed in
a manner which, in the opinion of Reserve Bank of India. The scheduled Banks are
also required to maintain with the Reserve Bank of India a deposit in the form of
Cash Reserve Ratio, based on its demand and time liabilities, at a prescribed rate.
NON-SCHEDULED BANKS
The commercial banks, not included in the Second Schedule of
the RBI Act are known as Non-Scheduled Banks. They are not entitled to facilities
like refinance and rediscounting of bills, etc. from RBI. They do not get the
prestige as do scheduled banks.
BANKS IN INDIA
In India the banks are being segregated in different groups. Each
group has their own benefits and limitations in operating in India. Each has their
own dedicated target market. Few of them only work in rural sector while others in
both rural as well as urban. The RBI has shown certain interest to involve more of
foreign banks than the existing one recently.
3.3 Functions of a Bank
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countries regulate this sector rather stringently. In India, the regulation traditionally
has been very strict and in the opinion of certain quarters, responsible for the
present condition of banks, where NPAs are of a very high order. Banks essentially
perform the following functions:
A) Accepting Deposits from public/others (Deposits):
Banks are also called custodians of public money. Basically, the money is
accepted as deposit for safe keeping. Type of deposit accounts (Domestic
Customers)
Fixed Deposit Accounts : The term 'fixed' here
denotes tenure. Fixed Deposit, therefore,
presupposes a length of time for which the
depositor decides to keep the money with the Bank
and the rate of interest payable to the depositor is
decided by this tenure. Rate of interest differs from Bank to Bank.
Savings Account: As the name denotes, this
account is ideal for parking your temporary
savings. This account gives you a nominal rate of
interest and you can withdraw money as and when
the need arises.
Current Account: Banks accept deposits in
current account and allow unlimit withdrawals
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Opening of a current account is indicated in the case of a business enterprise
or high worth individuals.
Recurring Deposit Account: Under a
Recurring Deposit account (RD account), a specific
amount is invested in bank on monthly basis for a
fixed rate of return. The deposit has a fixed tenure, at
the end of which the principal sum as well as the
interest earned during that period is returned to the investor.Loan/overdraft
facility is also available against Recurring Bank Deposits.
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B) Lending money to the public
Lending money is one of the two major activities of any Bank. Banks
accept deposit from public for safe-keeping and pay interest to them. They then
lend this money to earn interest on this money. In a way, the Banks act as
intermediaries between the people who have the money to lend and those who
have the need for money to carry out business transactions. The difference
between the rate at which the interest is paid on deposits and is charged on
loans, is called the "spread".Bank lends funds in following ways.
Overdraft: This type of advances are given to current account holders.
All entries are made in the current account. The word overdraft means the
act of overdrawing from a Bank account. In other words, the account
holder withdraws more money from a Bank Account than has been
deposited in it. It is sanctioned to sole trading partnership firms,and joint
stock companies.
Cash Credit: It can be given to current account holders as well as to the
others who do not have any account with the bank. Separate cash credit
account is maintained. In the case of Cash Credit, a proper limit is
sanctioned which normally is a certain percentage of the value of the
commodities/debts pledged by the account holder with the Bank. The cash
credit is given against the security of tangible assets and| or guarantees.
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Bill Discounting: When the seller (drawer) deposits genuine commercial
bills and obtains financial accommodation from a bank or financial
institution, it is known as ‘bill discounting’. The seller, instead of
discounting the bill immediately may choose to wait till the date of
maturity. The bank can get the bill rediscounted with the All India
Financial Institution such as Industrial Development Bank of India (IDBI)
Export Import Bank of India (EXIM Bank), etc.
Term Loans: Lumpsum amounts are given. It is normally for short
term,say a period of one year of medium term say a period of five
years.This type of loan is normally given to the borrowers for acquiring
long term assets i.e. assets which will benefit the borrower over a long
period (exceeding at least one year). Purchases of plant and machinery,
constructing building for factory, setting up new projects real estate fall in
this category. Loans are normally secured against security of assets.
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3.4 Financial Services by Banks in Rural Sector
Recently,several policy initiatives have been taken
to advance rural banking. These include additional capital contribution to
NABARD by the RBI and the Government of India, recapitalisation and
restructuring of RRBs, simplification oflending procedures as per the Gupta
Committee recommendations, preparation of a special credit plans by public
sector banks andlaunching of Kisan Credit Cards. Finally, a scheme linking
self-help groups with banks has been launched under the aegis of NABARD
to augment the resources of micro credit institutions. A Committee has gone
into various measures for developing micro credit, and has submitted its
report, which is under the consideration of the RBI.
In a phase in the international development
endeavour in which ideology is out of fashion, the search is on for practical,
workable solutions to the deep-seated challenges of poverty. Micro-credit
seems to provide just such a solution. By delivering financial services at a
scale, and by mechanisms, appropriate to poor people, micro-credit can
reach them. By providing poor people with credit for microenterprise it can
help them work their own way out of poverty. And by providing loans rather
than grants the micro-credit provider can become sustainable by recycling
resources over and over again. In other words microcredit appears to deliver
the 'holy trinity' of outreach, impact and sustainability.
The micro-credit industry has sought to resolve
the tensions between a focus on poverty and a commitment to sustainability
by integrating them within a matrix defined by two axes, of outreach (or
access) and financial sustainability.
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Micro Financial Services to Rural Sector
Basic Banking Services: Basic banking services that include savings and
withdrawal facilities meet the demand for liquidity whether it be for
enterprise purposes or for emergencies. The availability of savings
products, the design of which takes into account the cash flows of the poor,
would be very crucial to the effective mobilization of savings. There is also
a need to innovate for micro-investment products that enable the poor to
maximize returns on their surplus.
Insurance Including Life, Disability, Health and Assets: The
vulnerability of the poor points to insurance being a crucial product.
Existing ways of informal insurance among the poor are: drawing down on
savings, reciprocal need-based gift exchange, selling physical assets and
diversifying income sources. There is a need for a mechanism to pool,
price and trade the risks of the poor and the means to do this would be an
insurance product that is able to bring under its fold the poor with varying
risk profiles.
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3.5 Banking Services Provided by Through Different channels
ATMs
An automated teller machine (ATM) is a computerised
telecommunications device that offers many banking services
such as deposit and withdrawl of cash, balance enquiry, transfer
of funds, pin change, request for cheque book, and statement of
accounts.
Debit Cards
Debit card offers direct withdrawl of funds
from a customers bank account electronically.
Under this system cardholders accounts are
immediately debited against the amount of
goods purchase.
Credit Card
A plastic card, with a magnetic strip or an
embedded microchip, connected to a credit
account that may be used repeatedly to borrow
money or buy products and services on credit.
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Demat Account
In India, a demat account, the abbreviation for
dematerialised account, is a type of banking
account which dematerializes paper-based physical
stock shares into electronic form. The
dematerialised account is used to avoid holding physical shares,no stamp duty on
transfer of securities, elimination of risks associated with physical certificates such
as bad delivery, fake securities, delays, thefts etc.
Telephone Banking or Phone Banking
Telephone banking is a service provided by a
financial institution which allows its customers to
perform transactions over the telephone. It offers
virtually all the features of an automated teller
machine like account balance information and list of
latest transactions, electronic bill payments, funds transfers between a customer's
accounts, etc.
Mobile Banking
Mobile banking (also known SMS Banking) is
a term used for performing balance checks, account
transactions, payments etc. via a mobile device such
as a mobile phone.
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Online Banking
Online banking (or Internet banking) allows
customers to conduct financial transactions on a
secure website operated by their retail or virtual
bank.Through this, one can pay electric a bill,
apply for a loan, new account, funds transfer etc.
Video Banking
Video banking is a term used for performing banking
transactions or professional banking consultations via a
remote video connection.The functions are Cash Deposits,
Check Deposits, Cash Withdrawal, Coin Withdrawals, Bill Payments, Account
inquiries, Process New Accounts, Account Transfers etc.
Electronic funds transfer
Electronic funds transfer or EFT refers to the
computer-based systems used to perform financial
transactions electronically. EFTPOS (Electronic Funds
Transfer at Point of Sale) also allows users of the system
to withdraw cash at the time of purchasing a product or service through the
merchant's EFTPOS terminal.
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Mail is part of the postal system which itself is a
system wherein written documents typically enclosed in
envelopes, and also small packages containing other
matter, are delivered to destinations around the world.
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4.1.1 Mutual funds
Mutual funds are supposed to be the best mode of
investment in the capital market since they are very
cost beneficial and simple, and do not require an
investor to figure out which securities to invest into.
A mutual fund could simply be described as a financial medium used by a group of
investors to increase their money with a predetermined investment. The
responsibility for investing the pooled money into specific investment channels lies
with the fund manager of said mutual fund.
Therefore investment in a mutual fund means that the investor has bought the
shares of the mutual fund and has become a shareholder of that fund.
Diversification of investment Investors are able to purchase securities with
much lower trading costs by pooling money together in a mutual fund rather
than try to do it on their own. However the biggest advantage that mutual funds
offer is diversification which allows the investor to spread out his money across
a wide spectrum of investments. Therefore when one investment is not doing
well, another may be doing taking off, thereby balancing the risk to profit ratio
and considerably covering the overall investment. The best form of
diversification is to invest in multiple securities rather than in just one security.
Mutual funds are set up with the precise objective of investing in multiple
securities that can run into hundreds. It could take week for an investor to
investigate on this kind of scale, but with investment in mutual funds all this
could be done in a matter of hours.
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4.1.2 Definition of Mutual Fund
The securities and exchange board of India
(mutual fund) regulation, 1993 defines a mutual
fund as “A fund established in the form of a
trust by a sponsor, to raise monies by the
trustees through the sale of units to the public,
under one or more schemes, for investing in
securities in accordance with these regulations
4.1.3 Mutual Fund Types :
Different types of mutual funds are as follows:
Money market funds
They are considered the safest mutual fund investments
because till date these funds have maintained a 100 % success rate as none has
ever folded up. Therefore serious investment objectives like storing money for
emergencies, saving for the short term, or looking for a place to store cash from
sale of an investment, are perfectly compatible with money market funds. These
funds also invest in short term debt instruments occasionally and return accruals
that are double of what bank securities offer. Additionally money markets allow
investors to write checks out of their accounts and usually allow a high level of
liquidity that is not found in bank securities
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Bond funds
Investments in bond funds have more risk than those of the money
market funds and are usually aimed at consolidating a portfolio by generating more
income. Some of the main bond funds are:
Municipal bond funds
Corporate bond funds
Mortgage backed securities funds
US government bond funds
Stock funds
Stock funds promise more ‘bang for the buck' but are fraught with the
risk of investments being exposed to the turbulence that stock markets occasionally
experience. Where money market funds and bond funds give an ROI that is barely
above inflation, stock funds are way ahead with their high earning potential. Some
of the main stock funds are:
Strategic
Growth funds
Value funds
Blend funds
International Funds
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Foreign funds
Country specific funds
Investing in Mutual Funds
A mutual fund is pools the savings of a
number of investors, with the objective of
investing that money in capital market securities
such as equity stocks, bonds, and debentures. The
returns on these investments are shared by the
investors whose money has been pooled. A mutual
fund is considered to be the ideal investment
option for the common person, allowing him to invest in a diversified,
professionally managed assortment of securities at a relatively lower cost.
On the basis of execution and operation
Open-ended Funds:- These funds do not have a fixed date of redemption.
Generally they are open for subscription and redemption throughout the year.
Their prices are linked to the daily net asset value (NAV). From the investors'
perspective, they are much more liquid than closed-ended funds.
Close-ended Funds:- These funds are open initially for entry during the Initial
Public Offering (IPO) and thereafter closed for entry as well as exit. These
funds have a fixed date of redemption. One of the characteristics of the close-
ended schemes is that they are generally traded at a discount to NAV; but the
discount narrows as maturity nears. These funds are open for subscription only
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these funds are listed on stock exchanges (with certain exceptions), are tradable
and the subscribers to the fund would be able to exit from the fund at any time
through the secondary market.
4.1.4 Benefits of Investing in Mutual Funds:
There are several benefits from investing in a Mutual Fund:
Small investments: Mutual funds help you to reap the benefit of returns by a
portfolio spread across a wide spectrum of companies with small investments.
Professional Fund Management: Professionals having considerable expertise,
experience and resources manage the pool of money collected by a mutual fund.
They thoroughly analyze the markets and economy to pick good investment
opportunities.
Spreading Risk: An investor with limited funds might be able to invest in only
one or two stocks/bonds, thus increasing his or her risk. However, a mutual
fund will spread its risk by investing a number of sound stocks or bonds. A fund
normally invests in companies across a wide range of industries, so the risk is
diversified.
Transparency: Mutual Funds regularly provide investors with information on
the value of their investments. Mutual Funds also provide complete portfolio
disclosure of the investments made by various schemes and also the proportion
invested in each asset type.
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choose from. An investor can pick up a scheme depending upon his risk/ return
profile.
Regulations: All the mutual funds are registered with SEBI and they function
within the provisions of strict regulation designed to protect the interests of the
investor.
Concept of Mutual Funds
A Mutual Fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is then invested in
capital market instruments such as shares, debentures and other securities. The
income earned through these investments and the capital appreciation realized
are shared by its unit holders in proportion to the number of units owned by
them. Thus a Mutual Fund is the most suitable investment for the common man
as it offers an opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost. The flow chart below describes
broadly the working of a mutual fund:
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4.1.5 Risks involved in investing in Mutual Funds:
Mutual Funds do not provide assured returns. Their returns are
linked to their performance. They invest in shares, debentures, bonds etc. All
these investments involve an element of risk. The unit value may vary
depending upon the performance of the company and if a company defaults in
payment of interest/principal on their debentures/bonds the performance of the
fund may get affected. Besides incase there is a sudden downturn in an industry
or the government comes up with new a regulation which affects a particular
industry or company the fund can again be adversely affected. All these factors
influence the performance of Mutual Funds.
Some of the Risk to which Mutual Funds are exposed to is given
below:
Market risk:- If the overall stock or bond markets fall on account of overall
economic factors, the value of stock or bond holdings in the fund's portfolio can
drop, thereby impacting the fund performance.
Non-market risk:- Bad news about an individual company can pull down its
stock price, which can negatively affect fund holdings. This risk can be reduced
by having a diversified portfolio that consists of a wide variety of stocks drawn
from different industries.
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When interest rates rise, bond prices fall and this decline in underlying
securities affects the fund negatively.
Credit risk:- Bonds are debt obligations. So when the funds invest in corporate
bonds, they run the risk of the corporate defaulting on their interest and
principal payment obligations and when that risk crystallizes, it leads to a fall in
the value of the bond causing the NAV of the fund to take a beating.
4.1.6 Rights of a Mutual Fund holder in India
As per SEBI Regulations on Mutual Funds, an investor is entitled to:
Receive Unit certificates or statements of accounts confirming your title within
6 weeks from the date your request for a unit certificate is received by the
Mutual Fund.
Receive information about the investment policies, investment objectives,
financial position and general affairs of the scheme.
Receive dividend within 42 days of their declaration and receive the redemption
or repurchase proceeds within 10 days from the date of redemption or
repurchase.
The trustees shall be bound to make such disclosures to the unit holders as are
essential in order to keep them informed about any information, which may
have an adverse bearing on their investments.
75% of the unit holders with the prior approval of SEBI can terminate the AMC
of the fund.
75% of the unit holders can pass a resolution to wind-up the scheme.
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who will take up the matter with the
concerned Mutual Funds and follow up with
them till they are resolved.
4.2.1 Introduction of Venture Capital
Venture capital is seen as `you've-got-the-
idea, we-have-the-money'.
Venture Capital is a form of "risk capital .A venture capital fund is a pooled
investment vehicle (often in the form of a limited partnership) that primarily
invests the financial capital of third-party investors in enterprises that are too
risky for the standard capital markets or bank loans. Venture capital (also
known as VC or Venture) is a type of private equity capital typically provided
to early-stage, high-potential, growth companies in the interest of generating a
return through an eventual realization event such as an IPO or trade sale of the
company.
Venture capital provides long-term, committed share capital, to help unquoted
companies grow and succeed. As shareholder venture capitalist's return is
dependent on the growth and profitability of the business. This return is
generally earned when the venture capitalist "exits" by selling its shareholding
when the business is sold to another owner.
Venture capital investors are only interested in companies
with high growth prospects, which are managed by experienced and ambitious
teams who are capable of turning their business plan into reality. The term of
the investment is often linked to the growth profile of the business. Investments
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quicker and easier, are often sold sooner than investments in early-stage or
technology companies where it takes time to develop the business model.
4.2.2 Meaning of Venture Capital
Venture Capital is long-term risk capital to finance high technology projects
which involve risk but at the same time has strong potential for growth. Venture
Capitalist pools their resources including managerial abilities to assist new
entrepreneurs in the early yeas of project. Once the project reaches the stage of
profitability, they sell their equity holdings at high premium.
4.2.3 Features of Venture Capital
The main features of venture capital are:
Venture Capital is usually in the form of equity participation. It may also
take the form of convertible debt or long term loan..
Venture capital finance caters largely to the needs of first-generation
entrepreneurs who are technocrats, with innovative technological business ideas
that have not so far been tapped in the industrial field
Venture Capitalist joins the entrepreneur as a co-promoter in projects and
shares the risks and rewards of the enterprise.
Once the venture has reached the full potential the Venture Capitalist
disinvests his holdings either to the promoters or in the market. The basic
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disinvestment.
4.2.4 Scope of Venture Capital
Venture Capital may take various forms at
different stages of the project. There are four
successive stages of development of a project to
exploit the economics of scale and achieve
stability. The various stages in the financing of
Venture Capital are described below:
Development of an Idea seed finance: In the initial stage Venture Capitalists
provide seed capital for translating an idea into business proposition. At this
stage investigation is made in depth which normally takes a year or more.
Implementation stage start up finance: When the firm is set up to
manufacture a product or provide a service, start up finance is provided by the
Venture Capitalists. The first and second stage capital is used for full scale
manufacturing and further business growth.
Fledging stage additional finance: In the third stage, the firm has made some
headway and entered the stage of manufacturing a product but faces teething
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of financing is proved to develop the marketing infrastructure.
Establishment finance: As this stage the firm is established in the market and
expected to expand at a rapid pace. It needs further financing for expansion and
diversification so that it can reap economies of scale and attain stability.
4.2.5 Venture Capital Regulations in India
Registration with SEBI is mandatory to carry out the business of Venture
Capital Funds in India. The regulations are as follows:
Any company or trust or a body corporate or a foreign Venture Fund (vc) to
carry on any activities of venture capital should apply to the SEBI.
Minimum sum acceptable by the VC Fund from any investor is Rs. 5 lakh.
Before the start of operations by the venture capital fund shall have
commitment from the investor for contribution of an amount of Rs.5 crore.
The Venture Capital fund should not carry on any other activities other than
that of venture capital fund.
Venture Capital fund should not invest more than 25% corpus of the fund in
one venture.
Any Venture Capital fund is not permitted to get its units listed on any
recognized stock exchange for the first three years from the date of issuance of
units.
VC fund should maintain proper books of accounts as per the law.
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5.1.1 Introduction of Derivative
A Derivative is a financial instrument that
is derived from some other asset, index,
event, value or condition (known as the
underlying). Rather than trade or exchange
the underlying itself, derivative traders
enter into an agreement to exchange cash or
assets over time based on the underlying. A
simple example is a futures contract:
Derivatives can be used by investors to
speculate and to make a profit if the value
of the underlying moves the way they
expect (e.g. moves in a given direction, stays in or out of a specified range,
reaches a certain level). Alternatively, traders can use derivatives to hedge or
mitigate risk in the underlying, by entering into a derivative contract whose
value moves in the opposite direction to their underlying position and cancels
part or all of it out. Commodities whose value is derived from the price of
some underlying asset like securities, commodities, bullion, currency, interest
level, stock market index or anything else are known as “Derivatives”.
In simpler form, derivatives are financial security such as an
option or future whose value is derived in part from the value and
characteristics of another security, the underlying it is a generic term for a
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convey ownership of the asset, rather than the asset itself. The legal terms of a
contract are much more varied and flexible than the terms of property
ownership. In fact, it’s this flexibility that appeals to investors.
Derivatives are usually broadly categories are:
The relationship between the underlying and the derivative (e.g. forward,
option, swap)
The type of underlying (e.g. Equity derivatives, FX derivatives, credit
derivatives)
The market in which they trade (e.g. exchange traded or over-the-counter)
5.1.2Benefits
Nevertheless, the use of derivatives also has its benefits
Derivatives facilitate the buying and selling of risk and many people
consider this to have a positive impact on the economic system. Although
someone loses money while someone else gains money with a derivative, under
normal circumstances, trading in derivatives should not adversely affect the
economic system because it is not zero sums in utility.
Former Federal Reserve Board chairman Alan Greenspan commented in
2003 that he believed that the use of derivatives has softened the impact of the
economic downturn at the beginning of the 21st century.
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5.1.3 Types of derivatives
OTC and exchange-traded
Over-the-counter (OTC) derivatives are contracts that are traded (and privately
negotiated) directly between two parties, without going through an exchange or
other intermediary. Products such as swaps, forward rate agreements, and exotic
options are almost always traded in this way. The OTC derivative market is the
largest market for derivatives, and is largely unregulated with respect to disclosure
of information between the parties, since the OTC market is made up of banks and
other highly sophisticated parties, such as hedge funds.
Because OTC derivatives are not traded on an exchange, there is no
central counterparty. Therefore, they are subject to counterparty risk, like an
ordinary contract, since each counterparty relies on the other to perform.
Exchange-traded derivatives
Exchange-traded derivatives (ETD) are those derivatives products that are traded
via specialized derivatives exchanges or other exchanges. A derivatives exchange
acts as an intermediary to all related transactions, and takes Initial margin from
both sides of the trade to act as a guarantee. The world's largest [3] derivatives
exchanges (by number of transactions) are the Korea Exchange (which lists KOSPI
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such as interest rate & index products),
Some types of derivative instruments also may trade on
traditional exchanges. For instance, hybrid instruments such as convertible
bonds and/or convertible preferred may be listed on stock or bond exchanges.
Also, warrants (or "rights") may be listed on equity exchanges.
Forwards
A forward contract is a customized contract between two entities, where
settlement takes place on a specific date in the future at today’s pre-agreed
price. Forward contracts are being used in India on a large scale in the foreign
exchange market to hedge the currency risk. Forward contracts, being
negotiated by the parties on one to one basis, offer them tremendous flexibility
to articulate the contract in terms of price, quantity, quality delivery time and
place. On the other side, forward contracts, being customized, are plagued with
poor liquidity and default risk (credit risk).
Futures
A futures contract is an agreement between two parties to buy or sell an asset at
a certain time in the future at a certain price. Futures contracts are special types
of forward contracts in the sense that the former are standardized exchange-
traded contracts, such as futures of the Nifty index. In futures market, clearing
corporation/house becomes the counter party to all the trades or provides the
unconditional guarantee for their settlement i.e. assumes the financial integrity
of the entire system. An Option is a contract which gives the right, but not an
obligation, to buy or sell the underlying, at a stated date and at a stated price.
Options are of two types - Calls and Puts options:
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quantity of the underlying asset,
at a given price on or before a
given future date.
‘Puts’ give the buyer the right,
but not the obligation to sell a
given quantity of underlying
asset at a given price on or
before a given future date.
Presently, at NSE futures and
options are traded on the Nifty, CNX IT, BANK Nifty and 116 single stocks.
5.1.1Introduction of Merchant Banking
The term Merchant Banking has its origin in U.K during eighteenth and early
nineteenth century. Merchant banking activities was initiated into Indian capital
market where Grind lays Bank (foreign bank) receive the license from the RBI
in 1967. In 1972, the Banking Commission also recommended that India should
also start merchant banking services so that they would to their clients. Hence
State Bank of India started Indian Merchant Banking in 1972; its objective was
to render corporate advice and assistance to small and medium entrepreneurs.
The Commercial Banks that follow SBI were Central Bank
of India, Bank of India, Syndicate Bank, Bank of Baroda and Standard
Chartered Bank, Canara Bank, Indian Overseas Bank, ICICI Bank etc.Merchant
Banking activities are regulated by the SEBI & Ministry of finance &
Companies act of 1956.
Definition of Merchant Banking
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in the Rule 2 (e) of SEBI (Merchant Bankers) Rules, 1922. Accordingly, “A
Merchant Banker means any person who is engaged in the business of Issue
Management either by making arrangements regarding selling, buying or
subscribing to Securities as Manager, Consultant,
Adviser of rendering Corporate Advisory Service in
relation to such Issue Management”.
5.1.2 Merchant banking Indian Scenario
Till early 1960s, there was no merchant banking in
the Indian banking system. It was the grind lays Bank which started merchant
services as far back as 1967. After Grind lays Bank, other foreign banks like
Citibank and Chartered bank, started these services in India.Till 1970s, the main
services rendered were management of share issues and sub-aspects of financial
consultancies. In mid 1970s, there was a boom in the capital market with the
introduction of “Foreign Exchange Regulation Act (FERA) (1973).” This
created awareness in the investing public about the capital market. Today, the
Merchant Banking set up in the country is broadly divided into the following
groups:
Foreign Banks: Along with Grind lays Banks, Citibank, Chartered Bank and
Hong Kong Bank are also active in merchant banking.
Indian Banks: State Banks of India took the lead among Indian banks and is
at present well established in the merchant banking field.
Private Merchant Bankers: Today, firms like J.M. financial Consultants,
Champaklal Investments and Financial consultancy, V.B. Desai Consultants
etc. are some of the leading Private merchant bankers in our country.
TYBCOM (BBI)
FINANCIAL SERVICES Financial Institutions: Industrial Credit and Investment Corporation of India
(ICICI) has a well established merchant banking office.Its main concentration
and attention is on mergers, amalgamations and takeover.
5.1.3 Guidelines for Merchant Bankers
Merchant Banking in India is governed by Securities and Exchange Board of
India(SEBI)Regukatins,1992 to carry out the business of merchant
banking.Now, as per new amendment passed in 2006,only on category exists
that is Category I.An applicant should comply with the following norms:
Category I business includes activity of issue management ,acting as a
adviser,consultant,manager.
The applicant should be a body corporate and should have a minimum net
worth of Rs.5 crores
The applicant should not carry on any business other than those connected
with the securities market.
The applicant must have at least two employees with prior experience in
merchant banking and all the issues should be managed but at least by one lead
manager.
The applicant should not have been involved in any securities scam or
proved guilt for any offence.
Every merchant banker should furnish to the board half yearly unaudited
financial results when required by the Board.
SEBI can cancel /suspend registration of defaulter merchant bankers.
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5.1.4 Services Rendered by Merchant Bank
Merchant banks are rendering diverse services and
functions, which are as follows:
Issue Management: When companies seek to raise resources for
implementation of a new project or finance expansion or modernization or
diversification of an existing unit or fund long term working capital
requirement, they retain the services of a merchant banker. The merchant
bankers’ help corporate to raise money from the markets through the issue of
shares, debentures, bonds etc.
Corporate Advisory Services Relating to Issue: The pricing of the issue
especially in a public issue is very important. The promoter also needs to
decide whether to go in for a fresh issue or to go for a rights issue. However this
will depend mainly on the quantum of funds that the company needs to raise. In
this matter, the expert advice of merchant bankers is of immense importance.
Underwriting: Underwriting is like insurance against the failure of an issue.
It is a guarantee to the issuing the company, that the money that it requires for
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FINANCIAL SERVICESits project will definitely be raised. For the risk that the underwriter takes, he is
paid commission. New companies entering the markets for the first time,
always face number of problems in raising funds from the market. Issuing
companies therefore approach different underwriters with a request to
underwrite the issue.
Mergers and Acquisition: A merger is a combination of two companies to
form a new company, while an acquisition is the purchase of one company by
another in which no new company is formed as due to competition the
companies unable to survive or prosper on their own may like to merge and
face competition and achieve growth targets.
Project Counseling: The corporate seek advice in respect of identification
of profitable investment opportunities in the related business areas or as part of
diversification process. The merchant bankers carry out detailed studies on
product demand patterns, cost structures, etc., to enable the corporate in
preparation of feasibility study.
Loan Syndication: It refers to assistance rendered by merchant banks to get
mainly term loans for project. Such loans may be obtained from a single
development finance institution or a syndicate or consortium as in the case of
large term loans. Merchant banks can also help corporate clients to raise
syndicated loans from commercial banks.
Portfolio Management: Portfolio refers to investment in different kinds of
securities such as shares, debentures or bonds issued by different companies or
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FINANCIAL SERVICESby government. It refers to maintaining proper
combinations of securities in a manner that they
give high return with low risk.
6.1.1 Introduction of Leasing
A lease is a legally enforceable contract which
defines the relationship between an owner, the
lessor, and a renter, the lessee. Most consumers
encounter a lease when renting housing or leasing a car.
A lease can be very short-term (a few weeks or months), or it can be
extended for a number of years. Many small businesses and retail stores have
lease agreements for 10 years or more, and renewal of the lease may just be a
formality. Apartment renters, however, rarely sign a lease extending past one
year of occupancy. The lessee knows that he or she has full rights to the
property without fear of sudden seizure or eviction. A lease also guarantees that
the original rental terms will not change until the lease has expired. A lease
arrangement does not always guarantee smooth sailing between landlord and
tenant, however. Renters and leasers are not owners, therefore the property is
always subject to scrutiny by the landlord and/or titled owner
6.1.2 Definition of Lease
A lease is a contractual agreement between the lessor (owner) and the lessee
(second party) for a specified asset, which can be property, a house or
apartment, business or office equipment, an automobile or even a horse. The
lessee receives the right to total ownership for a spelled out period of time and
conditions in return for payments .It is a contract that conveys the right to use
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the property owner.
6.1.3 RBI Guidelines to Leasing Companies
Leasing companies are expected to here the following norms
while availing financial facility from banks:
Formation of consortium by a bank is not necessary, even if credit limit per
borrower exceeds Rs50 crores.
Banks are permitted to extent credit using the “need based approach”.
Banks are permitted to adopt syndication route instead of consortium route
irrespective of the quantum of credit invdived, if the arrangements suits the
borrower and financing banks.
The level of loan and cash credit component in case borrower with a limit of
less than Rs10 core would be settled between banks and the borrower.
The loan component of working capital limit(MPBF) i.e. maximum
permissible bank finance is enhanced to 80% and 75% in case of borrower
enjoying working capital credit limit of Rs20 core and more, and between 10-20
core respectively the balance being in form of cash credit.
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6.1.4 Types of Lease
Capital Lease: A finance lease or capital lease is a type of lease. It is a
commercial arrangement where lesee selects the equipment, settles the right and
terms of sale and arranges with the leasing company to buy it. He enters into
irrevocable and non-cancellable contract with the company. The lesee maintains
it, insures and avail of after sales service and warranty backing.
Operating lease: A lease for which the lessee acquires the property for only
a small portion of its useful life. An operating lease is commonly used to
acquire equipment on a short-term basis. Any lease that is not a capital lease is
an operating lease.
Sale and Leaseback: Leaseback, short for sale-and-leaseback, is a financial
transaction, where one sells an asset and leases it back for a long-term: thus one
continues to be able to use the asset, but no longer owns it. This is generally
done for fixed assets, real estate and planes.
Leveraged lease: A lease in which the lessor puts up some of the money
required to purchase the asset and borrows the rest from a lender. The lender is
given a mortgage 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.
Cross-border lease: Cross-border leasing is also knows as international
lease. It is leasing arrangement where lessor and lessee are situated in different
countries. To illustrate, if a leasing company in USA makes available an air bus
on lease to air India, there would be a cross border lease.
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Introduction to Factoring
Factoring is of recent origin in
Indian Context. Kalyana Sundaram
Committee recommended introduction of
factoring in 1989.Banking Regulation
Act, 1949, was amended in 1991 for Banks setting up factoring services. State
Bank of India and Canara Bank has set up their Factoring Subsidiaries. SBI Factors
Ltd, (April, 1991), CanBank Factors Ltd,(August,1991). RBI has permitted Banks
to undertake factoring services through subsidiaries. The parties involved in the
factoring transaction are
Seller or a Client.
Buyer or a Customer.
Financial Intermediary or a Factor.
Factoring is the sale of book debt by a firm (client) to a financial institution (factor)
on the understanding that the factor will pay for the book debt as and when they
are collected or a guaranteed payment date. Normally, the factor makes a part
payment up to 80% immediately after the debts are purchased thereby providing
immediate liquidity to the client. Factoring in India is governed by the following
act:
Indian Contract Act
Sales of Goods Act
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Banking Regulation Act
1) Benefits of Factoring
Factoring offers a fast, reliable, continuous source of cash without the need
to apply for a loan. So you can improve cash flow without incurring debt.
The bank loan application process is frequently lengthy, and the outcome is
often unpredictable. With factoring, this process is eliminated. Banks focus on
your business debt/equity ratio; we focus on your sales and the financial
strength of your customers.
Factoring can reduce or eliminate your need for funds from venture
capitalists, who generally want a percentage of your business, and will often
demand a say in how your company is run.
Factoring is extremely flexible. There is usually no limit to the amount you
can factor. You decide what and when to factor, not us.
Your company receives cash now for outstanding invoices, thereby reducing
your administration costs.
Factoring can allow you to pay your suppliers much faster, enabling you to
take advantage of cash and early payment discounts.
Factoring can reduce your company’s bad debt.
Factoring allows you to streamline credit approvals for new customers, as
we will be verifying creditworthiness both on your and our behalf.
TYBCOM (BBI)
FINANCIAL SERVICES Factoring is accessible to just about any viable company,
even young, growing businesses without lengthy credit track records.
RBI Guidelines for Factoring
RBI as a central authority has been engaged in initiating a number of
measures for the development of factoring as a viable financial service. As a
follow up to recommendations of the Kalyana Sundaram group the banking
regulation ACT, 1949, was amended to enable commercial banks to undertake
factoring business. In 1990, RBI issued following guidelines:
Prior approval: no business of factoring is to be undertaken by banks
directly. However, indirect participation of banks in factoring services with
the reserve banks prior approval will be allowed whereby banks would
invest in shares of other factoring companies within the limits specified.
Subsidiaries: Banks are permitted to setup subsidiaries for undertaking the
business of factoring, either individually or jointly with other banks with
prior approval of RBI. Banks desirous of doing so, should apply to the chief
officer, department of banking operations, RBI, central office, Mumbai in
the form specified for the purpose.
Exclusive business: Factoring is to be undertaken by a factoring subsidiaries
or joint venture factoring company, and such factors should not engage in
financing other companies who are also engaged in business of factoring.
TYBCOM (BBI)
FINANCIAL SERVICES Investment limit: The investment limit of the bank in the shares of factoring
companies, inclusive of its subsidiary in factoring business shall not exceed
in aggregate 10% of paid up capital and reserves of bank.
Reporting: Factor banker shall submit periodical reports to the RBI
regarding factoring business undertaken by it.
2) Different types of Factoring
Recourse Factoring
In recourse factoring, client undertakes to collect the debts from the customer.
If the customer doesn’t pay the amount on maturity, factor will recover the amount
from the client. Recourse factoring is offered at a lower interest rate since the risk
by the factor is low. Balance amount is paid to client when the customer pays the
factor.
Non Recourse factoring
In non recourse factoring, factor undertakes to collect the debts from the
customer. Balance amount is paid to client at the end of the credit period or when
the customer pays the factor whichever comes first. Factor purchases receivables
on the condition that the factor has on recourse to the client; if the debt turns out to
be non-recoverable. Higher commission is charged.
Maturity Factoring
TYBCOM (BBI)
FINANCIAL SERVICES Factor does not make any advance payment to
the client. Factor pays on guaranteed payment date
or on a collection of receivables. There is no risk to
factor. He charges nominal commission.
Full Service Factoring
Under this, factor finance, administers the sales
ledger, collects the debt at his risk and renders consultancy service. If the debtor
fails to repay the debts, the entire responsibility falls on the shoulder of the factor
since he assumes credit risk also.
8) Introduction of Housing Finance
Loans to fulfill your dream....
to own a home...sweet home
Of late, housing finance has not only become popular, but the
procedure for obtaining loan has become so simplified that housing loans are
simply available. The National housing Bank (NHB) was set up in 1988 as an
apex institution for housing finance and a wholly-owned subsidiary of Reserve
Bank of India (RBI). The main objective of the bank is to promote and establish
the housing financial institutions in the country as well as to provide refinance
facilities to housing finance corporations and scheduled commercial banks.
In fact, the State Bank of India has set up a separate subsidiary for housing
finance called ‘SBI Home Finance’. Similarly, the Canara Bank has set up a
separate housing finance company. HUDCO provides refinance facility to the
state government and also to financial institution involved in housing
finance..The central government has adopted a five -year planning strategy
through which it makes some fiscal concessions for housing. State governments
TYBCOM (BBI)
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National Housing and Habitat Policy (1998). Further, land development
agencies can borrow from housing and land development agencies operating
throughout the country.“A set of all financial arrangements that are made
available by Housing Finance Companies (HFFCs) to meet the requirements of
housing is called housing finance”
Housing Finance Companies
Finance company " means a company engaged in the business of financing,
whether by providing loans or advances or otherwise. Some of the leading
finance companies providing housing loans are: HDFC Bank, IDBI Bank,
ICICI Bank, State Bank of India, Punjab National Bank, Bank of Baroda, and
Central Bank of India etc. These finance companies offer Home Loans to
individuals to purchase (fresh / resale) or construct houses. Loans are also
provided for home improvement or repair, extension of house etc. Home
Finance Banks or Housing Finance Companies provide:
Equity Loans: A form of finance to the customer by way of mortgage of
existing property to the financier for taking a loan for some other purpose. The
current market value of the property is the basis for providing home equity
loans.
Home Extension Loans: The purpose of this loan is the extension of
existing houses tike the addition of rooms, toilet facilities etc. Such loans fall
under the category of home loans.
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Home Improvement Loans: These loans are provided mainly for repairs
and maintenance of existing houses- These could include internal and external
repairing, waterproofing and roofing, complete interior renovation, tiling and
flooring etc.
Home Purchase Loans: Finance provided for the purchase of ready-made
houses.
2) Housing Finance in India Growth-Factors
Investment in and sale of commercial properties are
recently gaining popularly in India thanks to real estate
and attractive schemes being offered by various housing
finance companies and banks. A developer who comes up
with a new property rents it out and then sells it.
Investing in a bank would generate hardly 6 to 7 percent interests, while the
stock market is risky. Real estate will offer at least 10 to 15 percent returns,
depending on the locality. The foreign companies are governed by RBI and
FERA norms, which do not allow them to invest in real estate in India. Once
these restrictions are waived, one will definitely see the emergence of real estate
mutual funds in India too. Housing finance has received a boost through a
combination of growing demand and rising affordability.
According to HDFC, every rupee spent on housing leads to a 78 paisa
increase in GDP. The positive fallout of real estate development on industries
such as cement and steel has led the government to provide a fiscal stimulus for
housing finance over the last few years. Between 1999 and 2001, the Union
Budgets have provided significant tax benefits on housing loans, thereby
offering fiscal stimulus to savings towards the construction sector.
TYBCOM (BBI)
FINANCIAL SERVICESMain objective are as follows
To increase the number of residential houses in
the country by providing housing finance in a
systematic and professional manner.
To promote home ownership and to increase flow
of funds to the housing sector.
To strengthen housing finance by improving the
domestic financial market and financial services.
Providing direct loans to individuals and to diversify activities to client by
entering into mutual fund, leasing, insurance, commercial banking etc.
9) Current Scenario of Financial Services
According to the latest Central Statistical Organization (CSO) data, financial
services and real estate sector rose by 9.5 per cent in the first quarter of 2009-
10. During 2008-09, State Bank of India (SBI) and associate banks advanced
US$ 16.8 billion for infrastructure projects such as power plants and petroleum
refineries. Mutual funds investing in the banking sector witnessed an increase in
net values in September 2009 on the an average of 15.8 per cent, exceeding the
9.3 per cent rise.
The government has taken a number of steps in recent months to revive the
economy, including slashing interest rates, lowering factory levies. The
financial services space is a rapidly growing one in India. The mutual fund
industry has seen an 8.7 per cent increase in the asset base for the month of
August 2009, against an increase of 2.8 per cent in July 2009, largely due to
significant inflows into debt schemes.
TYBCOM (BBI)
FINANCIAL SERVICES The average assets under management of the mutual fund industry stood at
US$ 153.89 billion as at end August 2009, according to the data released by
Association of Mutual Funds in India (AMFI).With the capital market showing
signs of revival, banks and financial companies that had put their mutual fund
plans on hold are gearing up to enter the segment. At present, nine players from
the financial services sector are in various stages of entering the space.
Do’s of Financial Services
Reserve Bank of India prefers that commercial banks do not indulge in
merchant banking business directly. They should set up a separate subsidiary.
This limits scope of commercial bank and gives space to merchant banker.
Mergers, takeovers, acquisitions, new Greenfield projects, fund raising for
government institutions, active money market are providing better prospects to
merchant bankers.
The primary advantage of venture capital is that they allow entrepreneurs to
build their company with OPM (other people's money). If you need financing to
build your technology or product and don't have the money to do it yourself, the
idea is that the venture capitalists provides the capital to allow you to build.
At nascent stage of business no other way of funding is available. Bankers are
unwilling to extend loans..Venture Capital funds contribute not only funds but
also management expertise which promoters may not be having adequately.
Venture Capital funds provide investment opportunities in high risk new
ventures.
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Leasing may provide more flexibility to a business which expects to grow or
move in the relatively short term, because a lessee is not usually obliged to
renew a lease at the end of its term. Hundred percent financing is available.
Leasing is less capital-intensive than purchasing, so if a business has constraints
on its capital, it can grow more rapidly by leasing property than it could by
purchasing the property
In factoring there is instant access to your earnings instead of waiting to be
paid by your customers. Instant cash against receivables leading to improved
cash flows
The funds advanced will enable you to make bulk purchases and enjoy
quantity and early payment discounts from suppliers. The increase in cash will
lead to further increase in sales.
Housing Finance Company provides finance for the purchase of ready-made
houses. Real estate will offer at least 10 to 15 percent returns, depending on the
locality as compared to bank.
The real estate property acts as asset which can be used in case of need.
Moreover, the asset value increases year after year. There are also chances of
capital appreciation.
Investors also benefit from the convenience and flexibility offered by Mutual
Funds. Investors can switch their holdings from a debt scheme to an equity
scheme and vice-versa. Because of diversification in mutual funds, it increases
the potential returns of investor as well as it decrease the overall risk.
TYBCOM (BBI)
FINANCIAL SERVICES Mutual funds offer a variety of tax benefits to investors. Investments up to Rs 1
lacs in Equity Linked Saving Scheme (ELSS) are exempt from tax under
section 80 C.
11.0 Dont’s of Financial Services
Company which is in merchant banking business would have expertise in
underwriting, hire purchase, leasing, portfolio management etc. But RBI does
not permit to get into these activities. So same promoters have to setup different
companies for different purposes.
Corporate like to use merchant bankers for malfide intensions. Giant
professional or multinational merchant bankers are cautious in their approach to
Indian market.
The disadvantage is that securing a deal with a VC can be a long and
complex process. Since the project is expected to run at start-up stage for
several years, liquidity may be a greater problem.
Unlike other projects, the ones that run under the venture finance may be
subject to a higher degree of risk, as their result is uncertain or, at best, probable
in nature.
TYBCOM (BBI)
FINANCIAL SERVICES If circumstances dictate that a business must change its operations
significantly, it may be expensive or otherwise difficult to terminate a lease
before the end of the term.
In factoring, since a third party will now deal directly with customers to
collect amounts owed, this can negatively impact their perception of the
business. This is especially true if the factor engages in aggressive or
unprofessional practices when collecting accounts.
Factoring cost is higher than discounting. It may not be of much use where
companies have one time sales with customers.
In hire purchase 20-25% of the cost of asset is to be paid by the hirer.
The cost of maintenance of the hired asset is to borne by the hirer himself.
Due to huge investment in one item, the benefits of diversification of
investment are not available in real estate
.
Liquidity is low. Tax burden in form of stamp duty, capital gains tax, etc. is
heavy. Repairs and maintenance cost is also high.
No investment is risk free. If the entire stock market declines in value, the
value of mutual fund shares will go down as well, no matter how balanced the
portfolio. Investors encounter fewer risks when they invest in mutual funds than
when they buy and sell stocks on their own.
TYBCOM (BBI)
FINANCIAL SERVICES When you invest in a mutual fund, you depend on the fund's manager to
make the right decisions regarding the fund's portfolio. If the manager does not
perform as well as you had hoped, you might not
make as much money on your investment as you
expected.
Future of Financial Services
The revised offer on financial services signals a substantial
improvement. India has offered to bind the existing trade and investment
regime. In the insurance sector, increasing the FDI investment limit up to 49 per
cent over the next 3 years will allow greater infusion of capital, introduction of
new instruments, market expansion and deeper penetration of insurance
services.
India can also undertake pre-commitments for merger and
acquisitions between foreign banks and Indian private sector banks, especially
as RBI’s Roadmap envisions foreign banks entering into mergers and
acquisitions with Indian private sector banks after 2009, subject to the 74 per
cent investment limit. Another area where pre-commitment would send a
positive signal to India’s trading partners would be regarding provision of
national treatment to foreign banks involving solvency ratios, income tax,
borrowing limits etc. Such pre-commitments would signal direction of future
TYBCOM (BBI)
FINANCIAL SERVICESreforms and give domestic service providers and regulators time to prepare
themselves for competition and put in place the required regulatory regime.
Finally, given the move towards greater capital account
convertibility and the advent of e-commerce in financial services, it would be
advisable for India to undertake some commitments in financial services. This
would also strengthen India’s case as it demands that developed countries
provide full market access and national treatment commitment and data
processing of financial services.
CASE STUDY OF FINANCIAL SERVICES
Mission
DENA BANK will provide its
Customers - premier financial services of great value,
Staff - positive work environment and opportunity for growth and achievement,
Shareholders - superior financial returns,
Community - economic growth
Vision
DENA BANK will emerge as the
most preferred Bank of customer choice in its area of operations, by its reputation and performance
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DENA
BANK
Export Services
Dena Bank offers wide range of services both at pre-shipment and post-shipment stage to exporters to help them realize business opportunities world over. We offer both Pre-shipment and Post-shipment credit in Rupee denominated terms as well as in Foreign Currency to exporters having firm export orders or confirmed Letters of Credit.
Pre Shipment Export Credit (Packing Credit)
Dena Bank offers Pre-shipment Credit (Packing Credit) to the exporters for financing procuring, processing, manufacturing and/ or packing the goods for export. Packing Credit is granted for a period depending upon the circumstances of the individual case, such as the time required for procuring, manufacturing or processing (where necessary) and shipping the relative goods. Packing Credit is liquidated out of the proceeds of the Bill dawn for the exported commodities, once the Bill is purchased/ discounted etc., thereby converting pre-shipment credit into post-shipment credit.
Packing Credit in Foreign Currency (PCFC)
With a view to making credit available to exporters at internationally competitive rates, Dena Bank extends Pre-shipment Credit in Foreign Currency (PCFC) to exporters for domestic and imported inputs of exported goods at LIBOR/EURO LIBOR/ EURIBOR linked rates of interest. PCFC is available in major foreign currencies i.e. USD, GBP,
TYBCOM (BBI)
FINANCIAL SERVICESEURO and YEN. Exporters can cover the cost of both domestic as well as imported inputs by these funds. PCFC can be liquidated out of proceeds of export documents on their submission for discounting/rediscounting under the EBR Scheme. Subject to mutual agreement between the exporter and the banker it can also be repaid / prepaid out of balances in EEFC A/c as also from rupee resources of the exporter to the extent exports have actually taken place.
Post Shipment Export Credit
Dena Bank offers Post-Shipment Credit to exporters after shipment of goods till the date of realization of export proceeds and includes any loan / advance granted on the security of any duty drawback allowed by the Govt. from time to time. The exporter has the option to avail of pre-shipment and post-shipment credit either in rupee or in foreign currency. . The exporter can avail the following advances at post-shipment stage:
i. To get export bills purchased /discounted / negotiated;
ii. To get advances against bills for collection;
iii. To receive advances against duty drawback receivable from Govt.
Letter of Credit Advising/ Confirmation
Dena Bank, having wide network of correspondent banks offers Letter of Credit advising services through SWIFT, fax, telephone to help exporters arrange for shipment and preparing the documents in advance.
Bank Guarantees
We offer bank guarantees on behalf of exporters to enable them to undertake big export contacts. The guarantees include bid-bond
TYBCOM (BBI)
FINANCIAL SERVICESguarantee, Advance payment Guarantee etc. The guarantees are issued for eligible purposes as mentioned in FEMA.
Exporters’ Gold Card Scheme
Dena Bank has launched GOLD CARD SCHEME for exporters to meet the working capital needs of exporters with good track record and credit worthiness, subject to their fulfilling the specified eligibility norms.
Eligibility Criteria:
i. Exporters whose accounts have been classified as “Standard” continuously for a period of 3 years and there are no irregularities / adverse features in the conduct of the account. ii. Established exporters having satisfactory track record with the branch for at least 3 years and enjoying Credit Rating stipulated by the Bank.
Key benefits under the scheme are as following:
i. Rate of interest is stipulated at 0.25% lower than the rate applicable for normal exporters for pre-shipment Rupee credit.
ii. The charge schedule and fee structure are relatively lower than those provided to other exporters.
iii. Preference given for grant of Packing Credit in Foreign Currency (PCFC).
iv. Applications for credit are processed at norms simpler and under a process faster than for other exporters.
Gold Card issued is valid for 3 years and will be renewed for a further period of 3 years subject to compliance of laid down sanction terms and conditions.
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FINANCIAL SERVICES
Import Services
Dena Bank provides various types of fund based and non-fund based services to the importers for facilitating the imports in the country. All the facilities are subject to the prevalent rules of the Bank / RBI guidelines. Our Fund based services include Rupee and Foreign Currency loans, External Commercial Borrowing facilitation etc. and Non-Fund based services include establishment of Letter of Credit, collection/ payment of import bill and issuance of various guarantees on behalf of importers.
Letter of Credit
Dena Bank offers L/C facility for the purchase of goods in the international market. With the Letter of Credit, importers can build up better trust/ confidence in their suppliers and develop other business relationship at a much faster pace. The L/C facility can be granted to the importers after assessing their requirement / credit worthiness / financial strength and other parameters being to the satisfaction of the Bank. We help importers drafting the terms of Letter of Credit so as to protect their interest. The bank's vast network of branches and correspondent banks enables your enterprise to sustain a seamless flow of business on a wide platform.
Collection of Import Bills
The import bills are collected through our Authorized Branches at very competitive rates. Our bank has correspondent banking relationship with reputed International Banks throughout the world and affects remittances for imports’ payment in any part of the globe.
Bank Guarantees
Dena Bank on behalf of importers/ other customers issues guarantees in favour of beneficiaries abroad. The Guarantees can be both Performance and Financial. The issuance of guarantee is allowed for the purposes defined under FEMA subject to
TYBCOM (BBI)
FINANCIAL SERVICESavailability of your credit limits or cash margin.
Fund based Services
We assist you to import desired goods by providing Rupee loans and Foreign Currency Loans. We facilitate buyer’s credit for your imports for the period specified under FEMA. We also assist our customers in raising foreign currency funds through External Commercial Borrowing (ECB) for expansion/ modernization of existing facilities and/ or import of capital goods etc.
Conclusion of Financial Services
Financial services constitute an important
component of financial system. Financial services is a
process by which funds are mobilized from a large
number of savers and make them available to all those
who is in need and particularly to corporate
customers. The main participants who are playing a
major role is providing financial services to serve the
needs of individual, institutions and corporate. They
render services such as mutual fund, merchant banking, leasing, factoring, housing
finance etc.
Financial Services contribute, in good manner, to speeding up the process of
economic growth and development. This takes place through the mobilization of
the savings of a cross section of people, for the purpose of channeling them into
productive investments. Financial services help not only in raising the fund but
also in ensuring their efficient distribution. The Financial Services industry
though a highly profitable Industry with respect to earnings does not count for a
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FINANCIAL SERVICESlarge share of the market and also employs a lesser number of people as compared
to some of the other Industries.
In the world almost every company now which previously described
themselves as a bank, insurance company, or brokerage house, now describes
themselves in some way as a financial services institution. The institution
providing the financial services study the needs of the customer in detail. Based on
the results of the study, they come out with innovative financial strategies that give
due regard to the costs, liquidity and maturity considerations for various financial
products.
Abbrevations
MF: Mutual Fund.
NHB: National Housing Bank.
RBI: Reserve Bank of India.
SBI FACS: State Bank of India Factors and Commercial Services Limited.
SEBI: Securities and Exchange Board of India.
SRO: Self-Regulatory Organization.
VCF: Venture Capital Fund.
AMBI: Association of Merchant Bankers of India
AMC: Asset Management Company.
AMFI: Association of Mutual Funds Industry.
EFTPOS: Electronic Funds Transfer at the Point-of-sale.
HDFC: Housing Development and Finance Corporation.
HFC: Housing Finance Company.
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FINANCIAL SERVICES
BIBILIOGRAPHY
Books Author
Financial Market and Services E Gordon, Dr.K.Natrajan
Innovation and Banking and Insurance Romeo.S.Mascarenhas
Banking and Financial Services Hemant.S.Ahluwalia
Financial Services and System Dr.S.Gurusamy
WEB
www.wikipediaorg.com www.sbihomefinance.com
TYBCOM (BBI)
FINANCIAL SERVICESwww.banknetindia.com www.mapsofworld.com
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