INTRODUCTION TO FINANCIAL SERVICES

What is meant by “Finance”?

Finance is defined as:

 money or other liquid resources of a government, business, group, or individual.

 The system that includes the circulation of money, the granting of credit, the
making of investments, and the provision of banking facilities.

 the science or study of the management of funds

 the obtaining of funds or capital, i.e. financing

This course deals with the second part of the definition- the system that includes the
circulation of money, the granting of credit, the making of investments, and the
provision of banking facilities.

The Financial system:

A system is a set of things working together as a mechanism or network. Thus, a

financial system is an integrated set of systems of financial markets, institutions,
products/ instruments and services which facilitates the transfer and allocation of
funds efficiently and effectively under the ambit of regulations.

The financial system constitutes:

a. Financial markets
b. Financial Institutions- which facilitate smooth functioning of the financial
system and act as intermediaries or middlemen between savers and borrowers.
c. Financial instruments/ assets/ securities
d. Financial services (fund/ asset and non-fund/ fee based)
e. Regulators

The first four components of the financial system are regulated by the fifth who
regulates the conduct of financial services industry to protect the interests of investors
and increase their competition in the financial market which in turn helps in the growth
and development of the industry. The first four components are linked with each other,

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are inter-dependant, interact with each other and are also competitors in the same
space at times.

In developing countries this system includes both formal as well as informal sector.
The formal sector is characterized by the presence of organised and regulated system
which caters to the modern economy; the informal sector is unorganised, unregulated
and non-institutional dealing with traditional and rural side of the economy. The
informal sector has the advantages of – low transaction costs, minimum default risk.
This sector includes money lenders, pawn brokers, chit funds, etc. With ongoing efforts
of financial inclusion there are attempts to reduce the influence of the informal sector.

The Indian financial system

Formal Informal

Regulators Financial Financial Financial Financial

markets Institutions instruments services

Capital market Money market Leasing

Hire purchase
Factoring
Non-banking Forfaiting
Banks Bill discounting
institutions
Credit rating
Portfolio management
Dev. Finance NBFC Mutual funds Insurance
Merchant banking
Institutions Depository &
Custodial

Scheduled Scheduled
Commercial cooperative Time deposits
banks banks Mutual fund units
Insurance policies

Equity
*NBFC- Non banking Finance company Preference
Debt and
Various combinations

Short, medium, long

term

Fig.1.1: Financial system

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For us, at the domestic level, financial systems would include banks and other financial
institutions, financial markets, financial products and services, regulatory authorities.
In a global view, with more sophisticated instruments (products), financial systems
would include the International Monetary Fund, central banks, World Bank, major
banks that practice overseas lending, entities involved in cross-border investment and
advisory services, etc. Companies or entities involved in the financial system constitute
the financial services industry.

Market Players

Participants in the financial services sector:

A. Financial Institutions can be classified as Banking and Non-banking institutions.

1. Banking services form the foundation of the financial services group. The
operations of a commercial bank include the safekeeping of deposits, issuance
of credit and debit cards, and the lending of money. This sector includes

a. Scheduled commercial banks

b. Scheduled co-operative banks

The scheduled commercial banks segment comprises public sector banks,

private sector banks, foreign banks in India, regional rural banks.

2. Financial institutions including developmental financial institutions (DFI)which

provide term finance like ICICI (Industrial credit and investment corporation of
India), Industrial Development Bank of India (IDBI), state finance corporations,
specialised financial institutions like National bank for agriculture and rural
development (NABARD), Infrastructure Development and Finance corporation
(IDFC)

3. Non-banking finance companies (NBFCs), housing finance companies (HFCs)-

HDFC, National Housing Bank (NHB)

4. Mutual funds- Private and public sector like UTI, Reliance, HDFC, etc.

5. Insurance companies- Public sector (GIC, LIC, Oriental), Private (Bajaj Allianz,
Birla Sunlife) in life and non-life segments

6. Private equity funds (Kotak private equity, Sequoia Capital, IDFC private equity),
venture capital funds (ICICI venture). These supply capital to start-ups and
companies in early growth stages in return for equity stakes and profit
participation.

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B. Ancillary institutions-

1. Investment banks which typically only work with corporates/ government

bodies and high-net-worth clients. Financial advisors are also a part of this
segment and advise on areas from personal finance to big ticket deals for
corporates and government entities.

2. This includes currency exchange and payment transfer services, credit card
machine services and networks, debt resolution services and global payment
providers such as Visa and MasterCard.

3. Exchanges that facilitate stock, derivatives and commodity trades. The

financial institutions/ entities require custody services for trading and
servicing their portfolios, as well as legal, compliance and marketing advice.

4. The vast financial services sector also includes accountants and tax filing
services. There are also software vendors that cater to the investment fund
community by developing software applications for portfolio management,
client reporting and other back office services.

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Offerings of the Financial services industry:

The financial services industry offers a vast number of products and services for
facilitating financial transactions. These products and services are necessary for the
smooth functioning of the financial system. Financial products and services arise from
the players in the financial system (i.e. the financial services sector) and the needs of
investors, lenders and borrowers. The financial sector covers many different types of
transactions in such areas as real estate, consumer finance, banking, and insurance. It
also covers a broad spectrum of investment funding, including securities.

Who constitutes this industry? A number of large companies dominate the sector,
offering a variety of financial services under one roof. Still, there is a diverse range of
smaller companies and individuals that are also a part of this sector. The financial
services industry comprises a broad range of organisations that work towards
providing the products and services mentioned earlier. This sector includes banks,
financial institutions, government sponsored development institutions, insurance
companies, mutual funds, credit card companies, finance companies, venture capital
funds, etc. It also includes enablers like accountancy and tax firms, financial advisors,
investment bankers, depository and custodial services, etc. Some of these entities may
provide services to others in the same field. Also, while some players in the financial
services industry provide products and services to the retail customer, there are others
which specifically cater to governments, corporates and high net-worth individuals.

Distinction between financial products and services

When we talk about the financial services industry, we have to understand that the
activities of this sector include financial services as well as financial products. For
example, Banks are a part of the financial services sector. But some of the offerings of
the banks are products while some are services. Financial products and services are
originated by banks, financial institutions and other companies in the financial services
sector. So, what are these financial products and services?

Traditional banks offer both financial services and financial products. A saver might
open a savings account, transfer funds and take out a car loan all from the same bank.
There are many members of financial services sector that are not banks, though.

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Investment agencies and stock market brokers are not banks, but they certainly
provide financial services. Their services are only intermediate services, not end goods.
This distinction is similar to how economics distinguish between capital
goods and consumer goods; an orange can be a consumer good if it is directly eaten
by a consumer, but it can also be a capital good if a restaurant owner uses the orange
to make juice.

In a more aggregate sense, the banking industry is most concerned with direct saving
and lending while the financial services sector incorporates investments, insurance, the
redistribution of risk, and other activities. Banks earn revenue primarily on the
difference in the interest rates charged for credit accounts and the rates paid to
depositors. Financial services earn revenue through fees, commissions, and other
methods.

Financial product Vs. Financial Service

Among the things money can buy, there is a distinction between a product or goods
(something tangible that lasts, whether for a long or short time) and a service (a task
that someone performs for you). In a publication of International Monetary Fund (IMF),
a financial service is best described as the process by which a consumer or business
acquires a financial good/ product. A financial service is not the financial good itself—
say a mortgage loan to buy a house or a car insurance policy—but something that is
best described as the process of acquiring the financial good. In other words, it
involves the transaction required to obtain the financial good.

For example, a payment system provider is providing a financial service when it is able
to accept and transfer funds from a payer to a recipient. This includes accounts that
are settled through credit and debit cards, cheques and electronic funds transfers.

Consider a financial adviser: the adviser manages assets and offers advice on behalf of
a client. The adviser does not directly provide investments or any other product; rather,
the adviser facilitates the movement of funds between savers and the issuers of
securities and other instruments. This service is a temporary task, rather than a tangible
asset.

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Financial goods are not tasks; they are things. A loan may seem like a service, but it's
actually a product that lasts beyond the initial provision. Stocks, bonds, loans,
commodity assets and insurance policies are examples of products.

Financial products

Financial products refer to instruments that help you save, invest, get insurance or
loans, these are issued by various banks, financial institutions, insurance providers,
corporates or government agencies. A financial product is a facility (arrangement or
intangible property) through which or through the acquisition of which, a person:

a. Makes a financial investment

the investor gives money to another person who uses the contribution to
generate a financial return. The investor has no day to day control over the use
of funds. E.g. fixed deposits, mutual funds, bonds

b. Manages financial risk

Manage, avoid or limit the financial consequence to them of particular
circumstantial happening e.g. insurance, future contract, currency swap
c. Makes non-cash payments
By ways other than physical delivery of currency e.g. direct debit of a savings
account, use of cheques, electronic payments, etc.

Financial products are categorised in terms of their underlying asset class, volatility,
risk and return. Types of financial products- equity - Shares, rights, bonus, preference,
Mutual funds, options; Debt- Bonds, Treasury bills, Loans

Financial services

A person or entity provides a financial service if he

a. Gives financial product advice

Influences a person to make a decision regarding a financial product
b. Deals in a financial product
Acquiring/ issuing/ selling/ varying a financial product or underwriting it
c. Makes a market for a financial product

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 Through a facility or at a physical or virtual location stating the buying/ selling
price of the product which they wish to acquire or dispose off
d. Provides custodial or depository service
A financial product is held in trust for a client

Features of Financial services:

 Intangible- financial services sector offerings are intangible, the services

provided along with the product differentiate the entities offering the product.
Institutions in the financial services field have to innovate, offer a variety of
products and services and add value to their products through enhanced
services. Financial services also have to build credibility for the customers and
gain their confidence.
 Perishability- like other services, financial services are perishable, they cannot
be stored. They have to be supplied at the time of customer’s requirement. E.g.
in a bank when a customer goes during a slack period he can get better service
and will have a greater appreciation of the bank than when he goes when the
bank personnel are catering to a number of people simultaneously and are
harried.
 Variable- the services have to be variable to meet the needs and expectations
of the customer. This can be through offering a variety of products to meet the
requirements of a diverse clientele.
 Inseparability of production and delivery of services since they are generally
simultaneous
 High human inputs- the financial services are labour intensive and need highly
skilled staff to deal with the array of financial products
 Dynamic nature and Information sensitive- a small piece of information can
have a big impact in the financial services. This sector has to be dynamic and
constantly updated on the latest information on events across the world

Types of Financial services:

The major categories of financial services are funds intermediation, payments

mechanism, provision of liquidity, risk management, and financial engineering.
Financial services are broadly classified as:

Fund/ asset based

Non-fund/ fee based

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For fund/ asset based products/ services, earnings are based on the funds employed
or an underlying asset, e.g. interest spreads of banks. Fund based services include-

 Leasing
 Hire purchase
 Factoring
 Forfaiting
 Bill discounting
 Mutual funds
 Financing (housing/ personal/ business)
 Participation in money market instruments
 Venture capital
 Underwriting
 Insurance

In non- fund based services, earnings are in the form of fees earned on a transaction.
Other than the fees there is no flow of funds to the financial service company. Non-
fund based services are-

 Issue management
 Portfolio management
 Corporate advisory (including restructuring)
 Investment banking and Merchant banking
 Stock broking, equity research
 Custodial service
 Loan syndication
 Debenture trusteeship
 Credit rating
 Securitization

Financial markets

Financial markets enable participants to deal in financial claims or instruments. This

happens along with the provision of a facility where demands and requirements of
participants can be matched. The main financial markets in India are the Capital market
and the Money market.

Money market-

The money market is not a single market but a collection of markets for different
instruments. It is a wholesale market of short-term debt instruments where demand

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and supply of money shape the market. The main players are RBI, Discount and Finance
House of India (DFHI), banks, mutual funds, insurance companies, non-banking finance
companies, corporate investors, state governments, provident funds, primary dealers,
securities trading corporation of India (STCI), public sector undertakings. The money
market is many times larger than the capital market though not as well known at the
retail level. Money market performs the three basic functions:

 Provides balancing mechanism to even out short term surpluses and deficits
 Provides focal point for central bank (RBI) intervention for influencing liquidity
and interest rates
 Provides access to suppliers and users of short term funds to meet their
investing and borrowing requirements

Capital Market-

This is a market for long term funds- both equity and debt- and funds raised within
and outside the country. the capital market aids economic growth by mobilizing
savings and directing them towards productive use. The capital market comprises
Primary and secondary markets. Some functions of the capital market are-

 Mobilize long term savings to finance long term investments

 Provide a mechanism for investors to sell financial assets and thereby provide
liquidity
 Encourage broader ownership of productive assets
 Lower costs of transaction
 Enable wider participation
 Provide information efficiently for enabling participants to develop an informed
opinion
 Provide operational efficiency through simplified transactions, lowering
settlement timings, cheaper transaction costs

Primary market

The primary market directs cash from surplus to deficit sectors such as corporates and
Government. This enables capital formation in the corporate sector as the funds from
the primary issues enable creation of assets by investing in productive capacities. This
in turn creates jobs, increases efficiency and promotes economic growth. It includes
equity issues (public issue, private placement, rights issue, preferential issue), debt
instruments through both domestic and external means.

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Secondary market

This is a market for outstanding securities. The secondary market transactions facilitate
liquidity in the system. Equities, not being time bound can be traded indefinitely
whereas debt instruments can be traded till maturity. Secondary market is not
associated with capital formation. It facilitates only liquidity (the ability to buy and sell
an asset readily at a low cost) and marketability of debt and equity products.

Regulation of the financial system:

Financial services are crucial to the economy. The financial system depends on the trust
of the customers and between players in the system. Customers must have confidence
in the advice they receive as well as the fact that the financial institutions they are
investing in will be around for a long time. Purchasers of life insurance expect the
company to be afloat and with enough funds to pay his / her survivors in case of death.
For those who save and invest in the financial instruments, a default could see the
earnings of a lifetime wiped out. A default by one financial institution could trigger a
market collapse which would be detrimental to not just the small investors but also
the economy as a whole. This importance of the financial services sector has been the
reason for the Governments overseeing most financial activities. The Government,
through appointed regulatory bodies, is involved in the licensing, regulation and
supervision of the financial services sector. The regulatory authorities have to
constantly monitor the sector especially considering its recent growth. The main
regulators of the financial system are in India are RBI, SEBI, Insurance Regulatory and
Development Authority of India (IRDA/ IRDAI), Pension Fund Regulatory and
Development Authority (PFRDA), Forward Markets Commission (FMC).

Reserve Bank of India is the central bank of the country and the prominent regulatory
authority in the Indian financial system. It regulates banks through the Banking
Regulation Act, 1949 and also lays down regulations for Non-Banking Financial
companies through Reserve Bank Act, 1934; for chit funds through Chit Fund Act, 1982.
It also regulates other products through various acts including the Factoring
Regulation Act. Furthermore, RBI regulates the financial market infrastructure. RBI also
has a department for addressing the complaints received about deficiency of services
by RBI regulated entities.

Securities and Exchange Board of India (SEBI) is another important regulator in the
financial sector. SEBI protects the interests of investors in securities and regulates the
securities market along with promoting its development. Pension Funds Regulatory

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and Development Authority (PFRDA) is tasked with the promotion and development
of an organised pension system. The Insurance Regulatory and Development Authority
of India (IRDA) has been formed to protect the interests of the policyholders, to
regulate, promote and ensure orderly growth of the insurance industry

Functions of financial services sector

 Enabling transactions (exchange of goods and services) in the economy.

 Mobilizing savings (which would otherwise be limited).
 Disbursing funds where needed
 changing risk (reducing and altering as per risk appetite)

Financial services help with borrowing and financing, lending and investing, buying
and selling securities, making and enabling payments and settlements, and managing
risk exposures in financial markets. Broadly speaking, the financial services sector is in
the business of mobilisation or pooling together and allocating or disbursing savings.
The financial services industry therefore, includes all activities which are involved in
transforming savings into investments. The financial services industry essentially is an
intermediary in the transfer of funds from those who save to those who need the funds.
This intermediation results from funds being mobilised from a large number of savers
and thereon being disbursed to those who are in need of it or those who can use them
more productively. While some institutions in the financial services industry directly
perform these actions, others are enablers.

Importance of Financial services:

Financial system supplies the necessary financial inputs for the production of goods
and services which in turn promotes the economic growth of a country. Efficient
functioning of the financial system facilitates free flow of funds to more productive
activities and thus promotes investment. It promotes the process of capital formation
by bringing together the supply of saving and the demand for investible funds. It is
the intermediation between savers and buyers and promotes faster economic
growth. It provides the payment mechanism for exchange of goods and services.

 Economic growth- the savings of a number of people are aggregated and

advanced to those needing them for productive purposes. Helps put money
to productive use. (Instead of keeping it idle at home). Availability of funds
spurs demand
 Promotion of savings- by providing returns on the savings, financial industry
promotes savings
 Creates employment opportunities

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  Provides liquidity in the economy (i.e. the degree to which an asset or security
can be quickly bought or sold in the market without affecting the asset’s price)
 Promotion of trade (domestic and foreign)
 Reduces risk
 Maximizes returns to businesses and small savers
 Economic growth- availability of funds spurs demand
 Benefits government in raising finance

Cost of services

The cost of financial services vary and can be on flat rate basis or a percentage basis.
Recently people have been antagonised by the way some banks add on fees in a
non-transparent manner.

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Growth of Indian capital market

History of capital markets in India goes back to eighteenth century when East India
company securities were traded in the country. Until the nineteenth century, securities
trading was unorganized and the main trading centres were Mumbai (Bombay) and
Kolkata (Calcutta). Of the two, Mumbai was the chief trading centre. Trading in Mumbai
in the mid-nineteenth century was limited to a dozen brokers, their trading place was
under a banyan tree in front of the town hall in Mumbai. These stock brokers organised
an informal association in 1875 called the Native Shares and Stock brokers Association,
Bombay. The stock exchanges in Ahmedabad and Calcutta materialized later. The
Bombay Stock Exchange was recognised in 1925 under the Bombay Securities
Contracts Control Act, 1925. Since the British Government was not interested in the
financial growth of the country, the market was not well organized during the period.

In the post- independence era also, initially, the size of the capital market remained
small. In 1956, the Government enacted the Securities Contracts (regulation) Act. The
Companies Act, 1956 was also enacted. In the 1950s, a network of development
financial institutions and state financial corporations was established to promote
industrial growth. In the highly regulated Indian economy, the Controller of Capital
Issues (CCI) supervised the timing, composition, interest rates, pricing, allotment and
floatation costs of new issues. This demotivated many companies from going public
for almost 40-45 years. In 1973, MNCs were forced to dilute their majority stakes in
their Indian ventures in favour of the Indian public (under FERA). This gave a boost to
the equity market. The 1980s also witnessed an explosive growth of the securities
market in India.

The 1990s was the most important decade in the history of Indian capital markets. Due
to the policies of previous Governments, the growth rate of Indian economy had come
down to 0.8% in 1991. The aftermath of the 1991 balance of payments and foreign
exchange crisis saw a paradigm shift in India’s economic and financial policies. The
economic reform process was then started with liberalisation and globalisation. The
approach under the reform era included a thrust towards liberalisation, privatisation,
globalisation and concerted efforts at strengthening the existing and emerging
institutions and market participants. These reforms transformed India from a closed
and trailing economy to an open and leading economy. During this decade there was
a new economic policy, formation of SEBI as capital market regulator, entry of foreign
institutional investors, free pricing, repeal of Capital issues (control) Act, new trading
practices, new stock exchanges and entry of new players.

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In the year 2000, internet trading and futures trading commenced. The Indian capital
market is now organised, integrated, modernised and more global.

Some recent statistics:

Mergers and acquisition (M&A) activity in India rose 125 per cent year-on-year to US$
32.5 billion across 445 deals during January-September 2016.

Funds mobilised by Indian companies through non-convertible debentures (NCDs)

increased sixteen-fold to Rs 23,901.4 crore (US$ 3.58 billion) during April-September
2016 led by growing investor appetite.

The assets under management (AUM) of the mutual fund (MF) industry grew 45 per
cent to Rs 17.89 lakh crore (US$ 268.35 billion) during March 2016 to February 2017.
Mutual fund asset base in India increased by Rs 3.71 trillion (US$ 55.65 billion) to reach
a total corpus of around Rs 17 trillion (US$ 255 billion) in 2016, which is the highest
growth recorded in the last seven years.

India’s life insurance sector is the biggest in the world with about 360 million policies,
which are expected to increase at a Compounded Annual Growth Rate (CAGR) of 12-
15 per cent over the next five years.

Investment corpus in India’s pension sector is expected to cross US$ 1 trillion by 2025,
following the passage of the Pension Fund Regulatory and Development Authority
(PFRDA) Act 2013.

In 2016, 2.4 million new demat accounts were opened by Indians, the highest number
of account openings since 2008, led by higher number of initial public offerings (IPOs)
and greater interest in mutual fund investments.

SBI, the second largest issuer of credit cards in India, has reported issuance of 115,000
new cards in December 2016, post demonetisation, taking its total card issuance to
4.75 million.

The BHIM (Bharat Interface for Money) mobile application reached the mark of 10
million downloads indicating the widespread acceptance of the app. India's digital
payments industry is expected to grow by 10 times to reach US$ 500 billion by 2020
and contribute 15 per cent of Gross Domestic Product (GDP).

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Role of SEBI and PFRDA:

SEBI (Securities Exchange Board of India) was formed to protect the interests of
investors in securities and to promote the development of and regulate the securities
markets. The key departments/ functions of SEBI are-

 Commodity derivatives market regulation- market policy; risk management;

products and product development; exchanges for commodity derivatives
 Corporate finance department- this involves issuance and listing of securities;
schemes involving merger/ demerger, amalgamation; reduction in capital;
corporate restructuring; delisting of shares, etc.
 Economic and policy analysis- in the fields of economics, commodities,
securities and regulatory research
 Regulation of market intermediaries- this involves regulation of the market
intermediaries in the capital markets. It includes all intermediaries involved in
new issues like- bankers to an issue (64); credit rating agencies, debenture
trustee, depository participants, KYC registration agencies, merchant bankers,
registrar and share transfer agents, underwriters
 Market regulation department- policy, risk management, new products and
investor complaints regarding securities
 Others- enforcement and investor assistance

Pension Fund Regulatory and Development Authority (PFRDA) was created by an Act
of Parliament. It was formed in 2014. It administers the National Pension Scheme
(NPS). Besides NPS, some Mutual funds and insurance companies also provide
pension/ retirement plans which are not under jurisdiction of PFRDA. NPS has been
formed to inculcate the habit of saving for retirement.

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Additional information:

 Leasing
Lease is a contract between the owner of an asset (lessor) and the user (lessee)
under which the lessor gives the right to use the asset to the lessee for agreed
period of time and consideration, called lease rental.
 Hire purchase
Hire purchase agreement is a contract whereby the owner of goods lets them
on hire to hire-purchaser on payment of rent, to be paid in instalments and
the title in the goods will pass to the hirer after payment of last instalment.
 Factoring
Factoring is an activity of managing the trade debts of the business concern/
client. Customer places an order with the client for goods on credit. Client
delivers goods and sends invoice to customer. Client assigns invoice to factor.
Factor makes prepayment upto 80% and sends periodical statements. Sends
monthly statements to customer and follows up. Customer makes payment to
factor. Factor makes balance payment on realisation to client.
 Forfaiting
Forfaiting is a means of financing used by exporters that enables them to
receive cash immediately by selling their medium-term receivables (the
amount an importer owes the exporter) at a discount, and eliminate risk by
making the sale without recourse, meaning the exporter has no liability
regarding possible default by the importer on paying the receivables.
 Bill discounting
Bill discounting is an arrangement whereby the seller recovers an amount of
sales bill from the financial intermediaries before it is due. Such intermediaries
charge a fee for the service. It is a source of working capital finance for the
seller of goods on credit.
 Venture capital
It is the capital made available to new business ventures, investment in highly
risky projects with the objective of high returns, in the form of equity finance.
 Housing finance

Financing house building or acquisition. Some entities are- LIC housing

finance, HDFC

 Insurance
Insurance is a contract between two parties. Insured is the person whose life
or property is insured with the insurer. That is, the person whose risk is insured

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 is called insured. It is a contract in which the insurance company undertakes to
indemnify the insured on the happening of certain event for a payment of
consideration.
 Mutual funds
Mutual funds are financial intermediaries which mobilise savings from the
people and invest them in a mix of corporate and government securities.
 Custodial services
Custodian is an institution or a person who is handed over securities by the
security owners for safe custody. Custodian is a caretaker of a public property
or securities. Custodians are intermediaries between companies and clients
(i.e. security holders) and institutions (financial institutions and mutual funds).
There is an arrangement and agreement between custodian and real owners
of securities or properties to act as custodians of those who hand over it. The
duty of a custodian is to keep the securities or documents under safe custody.
 Merchant banking
Merchant banking is basically a service concerned with providing non-fund
based services of arranging funds rather than providing them. The merchant
banker merely acts as an intermediary.
 Debenture trustee
Debenture trustee serves as a liaison between debenture holders and
company. The debenture trustee serves as official representative of the
investors and can liquidate collateral in case of default.
 Stock broking
Stock broking has emerged as a professional advisory service and buys/ sells
or deals in shares and securities
 Securitization
Securitization of debt is the process through which an issuer creates
a financial instrument by combining other financial assets and then marketing
different tiers of the repackaged instruments to investors, and this process can
encompass any type of financial asset and promotes liquidity in the
marketplace.
 Credit rating
It indicates the financial strength of the issuer of debt instrument and his
ability to meet the financial obligations on time. It is assessing the credit
worthiness of a company by an independent organization.
 Loan syndication
It is an arranging for finance from a group of financers when any one bank
cannot forward the entire loan amount.

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