Chapter 1 FINANCIAL SERVICES “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Learning Goals: Provide an overview of the financial system Explain the nature financial services offered. Review the role of financial services in the economy Capture the contemporary developments in the financial sector “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Introduction Financial Services Industry :Largest in the world Has undergone turbulent times in the recent years Banking ,Financial Services ,and Insurance (BFSI) sectors play a greater role Real sector needs the services of FS sector; contribution of services sector to the GDP of the country is high “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Financial Services: Concept Services: Hospitality, Tourism, Health Services, Education, BFSI Financial services are intermediary services in the financial market place. Financial services are provided by the banks and financial institutions in the financial system Contd… “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Financial Services: Concept Project financing, bridge finance, portfolio management, wealth management, foreign exchange advisory, risk management are some of the services Financial services in a financial supermarket “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Nature of Financial services Intangibility Inseparability Heterogeneity Perishability Advisory Marketing of financial services Techno savvy “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Indian Financial System Commercial Banks Insurance companies NBFCs Mutual Funds Housing Finance Companies Financial Institutions Regulators,FinancialMarkets,Financial Instruments. “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Functions of the Financial System Mobilising Savings Storing wealth Providing Liquidity Payment and settlement mechanism Credit provider Risk management Policy Implementation Information provider “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Growth of Financial Services: Key Factors Financial Reforms Opening up of Insurance sector Growth of Capital market Changes in the NBFC sector Corporate Restructuring Regulatory reforms “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Trends in the Financial sector Financial reforms Financial crises Financial engineering Financial convergence Financial Inclusion “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

INTERNATIONAL FINANCE WORKING CAPITAL FINANCE Counselling for new projects Project Appraisals Structuring of issues Portfolio Management Trading in units. Bonds, Debentures etc., Mergers & Acquisitions Drafting prospectus/Letter of Offer, Application Form, Memorandum etc. Underwriting and Sub-Underwriting Arrangement Arrangement of Bridge Finance Marketing support Private Placement Strategic publicity Loan syndication Management of public/Right issues Advisory services for joint ventures Arrangements of foreign, technical and financial collaborations Portfolio management services for NRIs Assistance to exporters in market information, factoring and other forms of finance Liaison with international institutions for capital market products Loans for consumer Durables Vehicle Finance Equipment Finance for Professionals Leasing Sale & Lease-Back Vendor Leasing Hire-Purchase Sales Aid Lease Bill Discounting Inter-Corporate Deposits Short Term Loans MERCHANT BANKING INTERNATIONAL FINANCE RETAIL FINANCE EQUIPMENT FINANCE WORKING CAPITAL FINANCE “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Institutional Framework of Indian Financial System BANKING SECTOR Commercial Banks Cooperative Banks BROADER FINANCIAL SECTOR Term Lending Institutions Investment Institutions State level Institutions Other Institutions NBFCs. (Based on RBI Report on Currency &Finance) Contd… “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

CAPITAL MARKETS Equity Mutual Funds “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

“Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Trends Financial reforms Narasimham Committee Banking, Financial Institutions, Capital market,Money Market As a result of the Committee’s recommendation: SEBI was made a statutory body and the SEBI Act was passed in 1992. The Capital Issues Control Act was repealed and a free pricing era started SEBI issued guidelines for each of the market intermediary and made the market micro structures ready for a more transparent and orderly growth of the market. Contd… “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Global Depository receipts (GDRs) were launched in 1992 and investment norms for NRIs and the Overseas Corporate Bodies were also prescribed. Foreign Institutional Investors (FIIs) were permitted to invest in the Indian capital market. Money Market Mutual Funds (MMMFs), new money market instruments like Commercial papers (CPs), 14 day T-Bills, repos were introduced. “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Financial Engineering Creative application of financial technologies to solve financial problems or to exploit financial opportunities / to add value Introduction or design of new financial instruments or structured finance solutions CDS, CDOs “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

FINANCIAL TURBULENCE IN 2007-2008 U.S. Sub prime crisis surfaces Mid 2007 Bear Stearns Collapses June 2007 JP Morgan buys Bear Stearns March 2008 Fannie Mae & Freddie Mac taken over by US Treasury September 6, 2008 Contd… “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Bank of America (BoA) agrees to acquire Merill Lynch. BoA refuses to buy Lehman Brothers September 15, 2008 Federal Reserve agrees to lend AIG $85 billion in return for control of the group September 16, 2008 “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Financial Convergence and Financial Inclusion All under one roof model / financial super market model / one stop finance shoppe Financial Inclusion Ensuring access to financial services and timely and adequate credit to vulnerable sections of the society at affordable cost credit to all ‘bankable’people; insurance to all ‘insurable’ people “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

Contribution of Services Sector to the GDP “Financial Services” by R Shanmugham Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.