Sample 6748

Download as pdf or txt
Download as pdf or txt
You are on page 1of 12

Financial Services

Sandeep Goel
Assistant Professor—Finance
Management Development Institute
Gurgaon

New Delhi-110001
2012
Financial Services
Sandeep Goel

© 2012 by PHI Learning Private Limited, New Delhi. All rights reserved. No part of this book
may be reproduced in any form, by mimeograph or any other means, without permission in
writing from the publisher.

ISBN-978-81-203-4445-7

The export rights of this book are vested solely with the publisher.

Published by Asoke K. Ghosh, PHI Learning Private Limited, M-97, Connaught Circus,
New Delhi-110001 and Printed by Mudrak, 30A, Patparganj, Delhi-110091.
Contents

Preface...................................................................................................... xi

Chapter 1: Financial System..................................... 1–21


Introduction   1
Financial System: Nature and Scope   1
The Structure of Financial Markets   2
Financial Institutions   3
What are Financial Instruments?   3
The Indian Financial System   4
Globalisation   5
Securitisation   5
Financial Engineering   5
E Finance   5
Financial Markets in India   5
Money Market   6
Capital Market   6
Derivatives Market   7
Forex Market   9
Indian Financial Institutions   9
Regulatory Institutions   9
Intermediaries   9
Financial Assets/Instruments   10
Concept of Financial Services   12
Bank   13
Intermediation or Advisory Services Companies   13
Insurance Companies   13
Investment Services Companies   13
Mutual Funds   14
Credit Rating Agencies   14
Financial Services in India   14
Highlights   15
Deals   16
Stock Markets   16
iii
iv Contents

Insurance   16
Banking Services   17
Regulatory Framework of Financial Services in India   17
Regulation of Banking and Non-Banking Finance
Companies (NBFCs)   17
RBI as a Financial Regulator   18
Objective   18
Constitution   19
BFS Meetings   19
Functions   19
Main Functions   19
Regulation of Indian Capital Market (Stock Market)   20
Regulatory Framework in the Forex Market   21
Regulatory Framework for Insurance Industry   21
References   21

Chapter 2: Regulation of Financial Markets......22–34


Introduction   22
Financial Market Regulation: Nature and Objectives   22
Objective of Financial Market Regulation   23
Development of Financial Regulation In India   24
First Phase   25
Second Phase   25
Third Phase: Developments during 2000–01   26
Guidelines Issued by Regulatory Bodies for The Regulation
of Financial Markets   30
Guidelines Issued by Reserve Bank of India   30
Guidelines Issued by Securities and Exchange
Board of India    32
References   34

Chapter 3: Banking Services.................................. 35–52


Introduction   35
Concept of Bank   36
Growth of Banking in India   37
Phase I (Pre-Independence)   37
Phase II (Post-Independence)   37
Phase III (Post-Liberalisation)   38
Banking Reforms in India   38
India’s Pre-reform Period   38
Gradual Privatisation   40
Diversification of Banking Activities   41
Present Picture of Indian Banking Sector   41
A Mix of Public and Private Sector Banks   41
Prudential Accounting Norms for Banks   41
Asset Liability Management (ALM) System   41
Risk Management   42
Contents v

Better Transparency   42
Technological Developments   42
Structure of Indian Banking Industry   42
The Central Bank   43
Reserve Bank of India and Banking and Financial
Institutions   44
Commercial Banks   44
Structure of Schedule Commercial Banks   45
Specialised Banks   46
Non-banking Financial Institutions/Development
Financial Institution   46
Functions of Commercial Banks   48
Primary Functions   48
Secondary Functions   49
References   50
Appendix: Narasimham Committee Report 1991   50

Chapter 4: Insurance............................................... 53–75


Introduction   53
Concept of Insurance   53
Every Asset has a Value   54
How does Insurance Work?   55
Principles of Insurance   55
Growth of Insurance Sector in India   57
Before Independence   57
Post Independence   57
Post Liberalisation   57
Important Milestones in the Indian Life Insurance
Business   58
Important Milestones in the Indian General Insurance
Business   58
Insurance Companies in India   59
Important Aspects of Insurance Business   60
Actuary   60
Underwriting   61
Policy Owner Services   61
Claim Administration   61
Marketing   61
Investment   62
Accounting   62
Information Systems   62
Legal and Compliance   62
Distribution Channels   63
Agents   63
Insurance Brokers   63
Insurance Consultants   63
Banking Outlets   64
Regulation and Legislation Applicable to Insurance   64
History of Insurance Regulation in India   64
vi Contents

Life Insurance and Its Practice in India   67


Types of Insurance   67
Other Aspects of Insurance   69
Surrender Value   69
Options   70
Guarantees   70
Premium   70
General Insurance   74
Groups of General Insurance   75
References 75

Chapter 5: Capital Market Services..................... 76–98


Introduction   76
Capital Markets in India   76
Types of Capital Market   78
Primary Market   78
Secondary Market   79
Initial Public Offering   79
Capital Market Reforms   79
Structure of The Indian Capital Market   81
Government Securities Market   81
Industrial Securities Market   82
Development Financial Institutions (DFIs)   82
Financial Intermediaries   82
Stock Exchanges in India   82
Bombay Stock Exchange   83
National Stock Exchange   83
Regional Stock Exchanges (RSE) of India   84
Factors for Investment in Capital Markets   85
Volatility Risk and Risk of Contagions   85
Liquidity Risk   85
Clearance and Settlement Risk   86
Political Risk   86
Currency Risk   86
Limited Disclosure and Insufficient Legal Infrastructure   86
References   86
Appendix: Policy Developments of Primary Market   87

Chapter 6: Mutual Funds..................................... 99–120


Introduction   99
What are Mutual Funds?   100
Different Categories of Mutual Funds   102
Based on Structure   102
Based on Asset Class   103
Based on Industry   103
Based on Indices   104
Importance of Mutual Funds   106
Contents vii

Regulations of Mutual Funds in India   107


Registering of a Mutual Fund in India   108
Structural Arrangement of Mutual Funds   109
Examples of the Struc­tural Arrangement   110
Net Asset Value (Nav) of a Mutual Fund   110
Performance Measures of Mutual Funds   112
The Treynor Measure   113
The Sharpe Measure   113
Jenson Model   114
Fama Model   114
Index Funds vs. Ordinary Mutual Funds   115
Fund of Funds (FoF)   116
SIP, SWP, STP, Dividend Sweep and Triggers   117
Systematic Investment Plans (SIPs)   117
Systematic Withdrawal Plan (SWP)   117
Systematic Transfer Plan (STP)   117
Dividend Sweep   118
Triggers   118
Emerging Challenges of Mutual Funds   118
The Issue of Fluctuating Returns   118
Expenses   119
Sub-Optimal Purchases   119
Diversification or Over Diversification   119
Forced Redemption   119
Taxes   120
References   120

Chapter 7: Leasing and Hire Purchase........... 121–131


Introduction   121
What is Leasing?   121
Essential Elements   122
Types of Leasing   123
Financial Lease   123
Operating Lease   124
Leasing in India   124
Regulations of Leasing in India   125
Laws and Acts Governing Leasing in India   125
Documents Required for Leasing   126
Contents of Lease Agreement   126
Hire Purchase   127
Standard Provisions   128
Evolution of Hire Purchase   128
The Seller and the Owner   129
Implied Warranties and Conditions to Protect the Hirer   129
The Hirer’s Rights   129
The Hirer’s Obligations   130
The Owner’s Rights   130
Distinction between Leasing and Hire Purchase   130
References   131
viii Contents

Chapter 8: Factoring Services.......................... 132–149


Introduction   132
Factoring: The Concept   133
Factoring Means ‘Instant Cash’   133
Characteristics of Factoring   133
Factoring Mechanism   134
Parties to Factoring   134
Benefits of Factoring   135
Exemplary Cases of Factoring   136
Example: Account Receivables   136
Example: Converting Invoices to Cash   137
Example: Avoiding Hassle of Collecting Bad Debt   137
Example: Smoothing Cash Flow   137
Example: Borrowing Money, Secured by Debt   137
Factoring vs. Other Financial Services   137
Factoring vs. Invoice Discounting   138
Factoring vs. Bank Loan   138
Factoring vs. Forfeiting   138
Types of Factoring   139
Disclosed Factoring (Notified factoring)   139
Undisclosed (Non-notified or Confidential factoring)   139
Recourse Factoring   139
Non Recourse Factoring   140
Other Factorings   140
Other Aspects of Factoring   140
Cost of Services   141
Factoring in India   141
Major Players   142
Legal Aspects   143
The RBI Guidelines   143
Products of Factoring: Corporate Cases   144
SBI Factors   144
HSBC   145
Emerging Issues in Factoring Services   146
How to Get Payroll Funding for Staffing Companies?   146
For a Small Business Loan Factoring is a Better
Proposition   146
Factoring: The Road Ahead   147
References   149

Chapter 9: Plastic Money.................................... 150–169


Introduction   150
Plastic Money: An Overview   150
Growth of Plastic Money Services In India   151
Profitable Utilisation   151
Increasing Reach   151
Utmost Safety   151
Feature-oriented   151
Contents ix

Types of Plastic Cards   152


Credit Card   152
Debit Card   153
Charge Card   153
In-Store Card   153
Smart Card   153
Add-on Cards   154
Petro Cards   154
Performance of Credit Cards   154
Major Banks Issuing Credit Cards in India   154
Global Players in Credit Card Market   155
Different Variants of Credit Cards   155
Do’s and Don’ts of Credit Cards   156
Reasons for Credit Card being Rejected at Retail
Outlet   157
Performance of Debit Cards   157
Features of a Debit Card   158
Tips for Responsible Use of Debit Card   158
Debit Card Service Rewards   159
No Credit Cards Please ...   160
Most Common Mistakes   160
Prevention of Frauds/Misuse   161
Ways to Prevent Credit Card Frauds   161
What to Look for in a Credit Card   162
Terms Used in Plastic Money   163
Card Issuers   163
Cardholders   163
Member Establishment (MEs)   163
Member Affiliates (MAs)   163
Charge Slip   164
Benefits Offered with Credit Cards   164
The Road Ahead for Plastic Money   165
Plastic Money Problems Create Pressures   165
Is Plastic Money for Real?   165
Case Study: The True Story of a Victim   168
References   169

Chapter 10: Venture Capital.............................. 170–184


Introduction   170
Nature and Characteristics of Venture Capital   171
Characteristics   171
History of Venture Capital   171
Venture Capital in India   172
Venture Capital Funding   173
Why Venture Capital?   173
Conventional v/s Venture Capital Funding   174
Risks in Start-ups/Early Stage Companies   174
What Venture Capitalists Look For?   175
Types of Venture Capital   175
  Lo gin | Register 0

Search by Title / Author / ISBN / Description


 

PRODUCT NOT FOUND!


Product not found!

continue

School Books
Oswaal Bo o ks
Class 9th Bo o ks
Class 10th Bo o ks
Class 11th Bo o ks
Class 12th Bo o ks

Engineering Books
RGPV Bo o ks & No tes
VT U Bo o ks & No tes
Free Engineering Bo o ks
Info rmatio n T echno lo gy Bo o ks
Electrical Engineering Bo o ks

Competitive Exams
Bank PO Exam
Gate Bo o ks
T eaching Exams Bo o ks
AIEEE-NIT -JEE MAINS Bo o ks
UPSC Bo o ks

Prof essional Courses


ICSI Bo o ks & Study Materials
Chartered Acco untant Bo o ks
Co mpany Secretary Bo o ks
ICSI 7 days T rial
Latest Scanners

About KopyKit ab.com

Kopykitab is India's 1 st digital & multiple publishers platform. Kopykitab has largest collection of e-textbooks &
branded digital content in Higher & School education. We have strong foundation of leading publishers &
tutorials as content partners.

We offer e-textbook, Test Preparation, Notes & LMS for various curriculam to Students, Professionals &
Institutes. These are same textbooks, way smarter. Our goal is to make education affordable & accessible.
A user can access the content in all electronic devices e.g. Mobile, PC & Tabs

Informat ion Links My Account

Abo ut Us ICSI eLibrary Refer & Earn

FAQ Ko pyKitab eBo o k Reader My Acco unt

Privacy Po licy Co ntact Us Order Histo ry

T erms & Co nditio ns Site Map Wish List

Payment Info rmatio n Newsletter

My Library

Office 365 Email Lo gin

Go o gle Lo gin

Verified By

©2016 DigiBook Technologies (P) Ltd, All Rights Reserved. An ISO 9001:2008 Certified Company

You might also like