Unit 1 An Overview of

Financial Service Sector

MANAGEMENT OF FINANCIAL SERVICES

Introduction

Financial Service Sector ?

Financial Institutions/ Intermediaries Borrows & lend to others for

profit

Financial Instruments

Financial Markets Where financial instruments are sold

Financial System & Its Role In Economic Development

Introduction

Changing Role of Indian Banking Sector

Shift from traditional role of WC lending

Specialized Financial Institutes

New Avenues for Corporate Finance

FIIs investing In India

Indian Companies Investing Abroad

Interest Rate & Foreign Exchange Deregulation

Classification of Financial Service In

India

Unorganized /Unregulated and Organized / Regulated

Fund Based & Non Fund Based

Structure of Indian Financial System

Introduction Financial Services

Characteristics of Financial Services

Intangibility

Inseparability Service Provider & Service

Perishability Goods vs. Services

Variability SBI vs. HDFC, 1st Employee vs. 2nd Employee

Success Factor of Financial Services

Innovation Eg. Kotak Mahindra Saving Account

Service Augmentation

Types of Financial Services

Leasing

Bill Discounting

Factoring

Securitization

Venture Capital

Credit Rating

Mutual Fund

Credit Cards

Merchant Banking

Classification of Risk Macro Risk

Liquidity Risk

Funding Risk

Asset Liquidity Risk

Interest Rate Risk

Currency Risk

Equity Risk

Commodity Risk

Reputation Risk

Classification of Risk Micro Risk

Default Risk

Legal Risk

Operational Risk

Model Risk

Political Risk

New Financial Products & Services

Risks & Derivatives

Market Risk

Derivative Products Forward Contract, Future, Options, etc.

ETF Gold ETF

Gold ETF In India

Units Held In Demat Form

Market Efficiency

Dematerialization of Securities - CDSL (Central Depository Service (India) Limited) and

NSDL (National Securities Depository Limited)

Faster Settlement Process (Clearing House)

Cross Border Take Overs - Funding

Indian Stock Markets in tandem with global markets

New Financial Products & Services

Evolution of Regulatory Authorities

Provide Level Playing field

RBI

SEBI

Insurance Products

Life Term Plan & Endowment Policies

Non Life Mediclaim, Fire, Theft, Flood, Earthquake, Property, Vehicle, etc.

FDI in Insurance Sector (26% to 49%)

IRDA

Cross Border Takeover Deals & Financial Restructuring

Services of Merchant Bankers

Valuers, Lawyers etc.

Role of Regulatory Authorities

Domain of RBI & SEBI

RBI - Banks, FIs, Fund Based NBFCs, Money Market, Foreign Exchange Market, Treasury
Bonds, etc.

SEBI Capita Market, Derivative Market, Merchant Banks, Credit Rating, Underwriters,
stock brokers, etc.

FDI Investment Norms by RBI & Registered Under SEBI

SAT (Securities Appellate Tribunal) - Appellate Tribunal against SEBI Orders

RBI regulator of all Banks

RBI responsible for formulating countrys monetary policy

Control Inflation & Liquidity in the country

Role of Regulatory Authorities

Protecting Interest of Small Depositors

CRR (4%) & SLR (22%)

Repo (8%) & Reverse Repo (7%)

Lender of Last Resort

Capital Adequacy Norm Minimum Capital to Absorb Business Risk (As a %

of assets, 9% to 15%) (
http://rbi.org.in/scripts/BS_ViewMasCirculardetails.aspx?Id=8133&Mode=0 )

Deposits Upto Rs. 1 Lacs to be ensured by Deposit Insurance Corporation of

India

Role of Regulatory Authorities

Control of Credit

Priority Sector Lending (40%)

Tondon Committee Norms (Process of Working Capital Loan)

Inventory Norms Large Companies where used as benchmark

Lending Norms CA:CL 1.33

Style of Credit Demand Loan & CC (Based on Realistic Projections)

Quarterly Information System

Legal Enactments in Financial Service Sector

Companies Act 1956

Control Affairs of Companies

Investigate Affairs of the company

Transparency of affairs of companies Eg. MCA

Bankers Books of Evidence Act 1891

Securities Contract Regulation Act (SCRA) 1956

The court is empowered to order inspection of books of bank & take copies of it

Governs Operation of Stock Exchange & Trading of Securities

Finance Act

Indian Budget

Major Areas - Direct & Indirect Taxes

Legal Enactments in Financial Service Sector

Reserve Bank of India Act 1934

Empowers the RBI to regulate the Banking Sector in India

Scheduled Commercial Bank - All banks are listed in 2 nd Schedule of RBI Act

All the powers of RBI viz. monetary policy, credit policy etc. are through RBI Act

Insurance Regulatory & Development Authority (IRDA) Act 1999

Controls Insurance Sector

All insurance companies to be registered with IRDA

Deposit Insurance Corporation Act 1961

Insurance cover to bank deposits

Non Banking Financial Companies/

Institutions (NBFCs / NBFIs)

Advantages

Diversification of financial sector

Quick Decision Making

Customer Orientation

Niche & Customised Services

Catering Needs of Small & Unorganized Borrowers

Relatively Higher Rate of Return on Deposits

Categories of NBFCs

Equipment Leasing Company

Hire Purchase Company

Housing Finance Company

Mutual Benefit Finance Company

Miscellaneous Non Banking Company

Residuary Non Banking Company