DEPARTMENT OF CORPORATE SECRETARYSHIP & INFORMATION

SYSTEMS MANAGEMENT
CLASS: II B.Com (C.S.) A & B (2020-2023 BATCH)
SUBJECT : FINANCIAL SERVICES ( Core Elective )
STAFF INCHARGE : Ms. SHEREEN. A ( Asst. Professor )
 UNIT - 1
FINANCIAL SYSTEM

Financial system consists of four types

❖ Financial Institutions
❖ Financial Markets
❖ Financial Instruments
❖ Financial Services
 COMPONENTS OF FINANCIAL SYSTEM

FINANCIAL INSTITUTIONS
● Central banks
● Commercial banks
● Co-operative banks
● Development banks
● Merchant banks
● Hire purchase finance companies
● Finance companies
● Leasing companies
● Factoring companies
● Asset Liability Management companies
● Underwriters
● Mutual funds
 FINANCIAL MARKETS

1. CAPITAL MARKET
● Primary Market
● Secondary Market
2. MONEY MARKET
3. FOREIGN EXCHANGE MARKET
● Authorised dealers
● Money changers
● Foreign banks
● Importers & Exporters
4. GOVERNMENT SECURITIES MARKET
● Treasury Bills
● Bonds
 FINANCIAL INSTRUMENTS

❖ Negotiable Instruments
➔ Cheques
➔ Bill of Exchange
➔ Promissory Note
❖ Commercial paper
❖ Bill of Lading
❖ Letter of credit
❖ Traveller’s cheque
 FINANCIAL SERVICES
MEANING :
Financial service, as a part of financial system provides different types of finance through
various credit instruments, financial products and services.
Financial instruments - cheques, bills, promissory notes
Financial products - mutual funds, credit cards and debit cards
Financial services - leasing, factoring, hire purchase finance.
Thus, financial services enable the user to obtain any asset on credit, according to his
convenience and at a reasonable interest rate.
 IMPORTANCE OF FINANCIAL SERVICE

1. Promoting Investment
2. Promoting Savings
3. Minimising the risks
4. Maximising the returns
5. Ensures greater yield
6. Economic growth
7. Economic Development
8. Benefit to Government
9. Expands activities of Financial Institutions
10. Capital Market
11. Promotion of Domestic and Foreign Trade
12. Balanced Regional Development
 CLASSIFICATION OF FINANCIAL SERVICES

1. Factoring
2. Leasing
a. Financial Lease
b. Operating Lease
3. Forfaiting
4. Hire Purchase Finance
5. Credit card
6. Merchant Banking
7. Book - Building
8. Asset Liability Management (ALM)
9. Housing Finance
10. Housing finance in India
11. Portfolio Finance
12. Underwriting
13. Credit Rating
The credit rating starts from AAA and goes upto D.
1. AAA - most safety, 2. AA - more safety, 3. A - safety, 4. BBB - moderate safety
5. BB - inadequate safety, 6. B - high risk, 7. C - substantial risk 8. D - default.
14. Interest and Credit swap
15. Mutual Funds.
 CHALLENGES FACED BY FINANCIAL SERVICE SECTOR

1. Lack of expertise
2. Inadequate accommodation
3. Inadequate technology
4. Inadequate quality service
5. Captive organization
6. Restricted scope of operations
7. Limited innovation
8. Lack of sound institutional mechanism
9. Other problems
 MERCHANT BANKING

Meaning
A merchant banker is one who underwrites corporate securities and advises clients on
issues like corporate mergers. The merchant banker may be in the form of a bank, a
company, firm or even a proprietary concern. It is basically a service banking providing
non- financial services such as arranging for funds rather than providing them. The
merchant banker understands the requirements of the business concerns and arranges
finance with the help of financial institutions, banks, stock exchange, and money market.
 REGULATIONS BY SEBI

SEBI has made the following reforms for the merchant banker
1. Multiple categories of merchant banker will be abolished and there will be only one
equity merchant banker.
2. The merchant banker is allowed to perform underwriting activity. For performing
portfolio manager, the merchant banker has to seek seperate registration from SEBI.
3. A merchant banker cannot undertake the function of a non banking financial
company, such as accepting deposits, financing other’s business, etc.
4. A merchant banker has to confine himself only to capital market activities.
 CONDITIONS BY SEBI FOR MERCHANT BANKER
SEBI has laid the following conditions on the merchant bankers,
f for conducting their operations. They are-

1. SEBI will give authorisation for a merchant banker to operate for 3 years only.
Without SEBI’s authorisation merchant bankers cannot operate.
2. The minimum networth of the merchant banker should be Rs.1 crore.
3. Merchant banker has to pay authorisation fee, annual fee and renewal fee.
4. All issue of shares must be managed by one authorised merchant banker. It should be
the lead manager.
5. The responsibility of the lead manager will be clearly identified by SEBI.
6. Lead managers are responsible for allotment of securities, refunds, etc.
7. Merchant banker will submit to SEBI all returns and send reports regarding the issue
of shares.
8. A code of conduct for merchant bankers will be given by SEBI, which has to be
followed by them.
9. Any violation by the merchant banker will lead to the revocation of authorization by
SEBI.
 CONDITIONS BY SEBI PERTAINING TO PRE-ISSUE OBLIGATIONS

Recent regulations by SEBI on merchant bankers with regard to pre issue obligations
involve the following -
1) Registration
All merchant bankers must compulsorily register themselves with SEBI. SEBI has
classified merchant bankers into 4 categories
a. Issue Management
b. Underwriters
c. Consultants to Issue
d. Mobilisation of Foreign Funds for Companies

2) Capital Structure Decisions

3) Role of a merchant banker in a public issue
a. Furnishing information
b. Books to be maintained
c. Agreement with Issue company
d. Action by RBI
e. Code of conduct
4) Responsibilities of merchant banker in Rights Issue
5) Role of merchant banker in the issue of Prospectus
 FUNCTIONS OF MERCHANT BANKER

1. Corporate counselling
2. Project counselling
3. Capital structure
4. Portfolio management
5. Issue management
6. Credit syndication
7. Working capital
8. Venture capital
9. Lease finance
10. Fixed deposit
11. Treasury management

12. Stock broking

13. Servicing of issues

14. Small scale industry counselling

15. Foreign colloboration

 ROLE OF MERCHANT BANKERS IN THE CORPORATE SECTOR

1. Providing a good scope of investment studies for investors

2. Project finance
3. Working capital
4. Foreign currency finance
5. Capital structure counselling

Drawbacks of Merchant Banks

1. Lacking entrepreneurial ability

2. Lack of professionals
3. Lack of control
4. Unhealthy practices
 LEASING
Terms used in the Lease Agreement
1. Lessor
2. Leasee
3. Lease property
4. Term of Lease
5. Lease rentals
 LEGAL ASPECTS INVOLVED IN LEASING

1. Details of contracting parties

2. Details of the asset
3. Terms of lease
4. Rent as part of lease
5. Termination of lease