MES - Pillai Institute of Management Studies and

Research (PIMSR),
New Panvel

Master of Management Studies (MMS)

(Batch : 2022-2024)

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 MMS – Semester – III
Elective Subject – Finance Group

Subject : Banking, Financial Services and

Insurance (BFSI)

Chapter- 1 : Introduction to Financial Services

Lecture date : 14.9.2023

by
Dr. K.G.S. MANI

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Lecture date : 14.9.2023
Chapter-1 : Introduction to Financial Services

Learning Outcomes (Learning Objectives):

The Learning Objectives of this chapter are mentioned below:
(1) To understand different kinds of Financial Services.
(2) To know the Fund-based and Fee-based services.
(3) To learn the methodology and appraisal of Financial Services.
(4) To understand Regulatory control on Financial Services Companies.

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Lecture date : 14.9.2023
Chapter-1 : Introduction to Financial Services
(1) Meaning of Financial Services (FS):
Financial services (FS) are a broad range of more specific
professional activities extended by the specialised Financial
Services Companies. Financial services are the economic services
encompasses a broad range of specialised activities which . It
includes both fund-based and fee-based services. FS are limited to
the activity of financial services companies and their professionals,
while financial products are the actual goods, accounts, or
investments which are provided by them. Financial Services are
provided by Non-Banking Financial Services Companies.

The Indian financial services industry comprises several key sub-

segments. These include, Investment banking (Merchant Banking),
Wealth Management, Mutual Funds, Financial Advisory Services,
Stock Broking and other services, ranging from small domestic
players to large multinational companies.
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(2) Non-Banking Financial Services Companies (NBFCs):
(i) Nature of NBFCs:
A Non-Banking Financial Company (NBFC) is a company registered
under the Companies Act, 1956 (now 2013) engaged in the
business of loans and advances, acquisition of hares/stocks/bonds/
debentures/ securities issued by Government or local authority or
other marketable securities of a like nature, leasing, hire-purchase
and insurance business. As per RBI (notification on 22.2.2019). the
following are the classification of NBFCs:
(i) Loan Companies (LCs),
(ii) Asset Finance Companies (AFCs),
(iii) Investment Companies (ICs).
(iv) Infrastructure Finance Company (IFC),
(v) Micro Finance Institution (NBFC -MFI).
These are called NBFC - Investment and Credit Company (NBFC-
ICC) with effect from 22.2.2019.

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(ii) Line of activities of NBFCs (permitted by RBI):
NBFC companies can engage in the business activities as under:
• Loans and Advances (example : Bajaj Finance,
• Investments in stock/equity/shares/bonds/debentures and other
Govt securities (example: Aditya Birla Capital Ltd)
• Leasing Company (example : SBI Leasing)
• Hire-purchase Company (example: Apex Capital & Finance Ltd)
• Housing finance (example: Indiabull Housing Finance Co. Ltd)
• Vehicle finance (example : Shriram Transport Finance Co. Ltd)
• Gold Loan facilities (example : Muthoot Finance Ltd)
• Chit fund business (example : Shri Ram Chit Funds Ltd)
• Currency exchange (example : Western Money Transfer)
• Insurance business (example : ICICI Prudential Life Insurance
Company Ltd, ICICI Lombard General Insurance Company Ltd)

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(iii) Regulatory Control on Non-Banking Finance Companies (NBFCs):
(i) A NBFC is a company registered under the Companies Act 1956 earlier
and now under Companies Act 2013, and engaged in the business of
loans and advances, acquisition of shares/stocks/bonds/debentures/
securities issued by the Govt. and others.
(ii) NBFCs are regulated by Reserve Bank of India under RBI Act 1934.
(iii) NBFC also carries on the business of leasing, hire-purchase, Merchant
banking, Gold loans, Housing loans, Vehicle loans, Insurance and
other activities. NBFCs are not allowed to do business relating to
agriculture activities, allied agricultural activities, export financing
activities.
(iv) NBFCs principal business includes, receiving of deposits under any
scheme or arrangement or lending on any other manner. But they
cannot open Savings Bank Account nor issue cheque book. They
normally provide ‘supplementary finance’ to individuals and the
corporate sector.
(v) A NBFC which is a company and had principal business of receiving
deposits under any scheme or arrangement in one lumpsum or in
instalments by way of contributions or in any other manner, is also a
NBFC. 7
(vi) NBFCs are required to comply with the regulatory guidelines RBI or
SEBI as the case may be. Some of the Companies are under the
control of RBI and some are under SEBI.
(vii) In both the cases Registration (RBI or SEBI) is compulsory
(example : Merchant Banking and other financial services only
(under SEBI guidelines), Loaning activities (under RBI guidelines).
However, registration is compulsory with RBI for both types.

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(3) Types of Financial Services :
The following are the fund-based and fee-based financial services
activities extended by the Financial Services Companies (Non-
Banking Financial companies).
(a) Funds-based services:
Financial Services Companies and financial sevices rendered by
them are given below:
(i) Leasing (example : SBI Leasing (SBU)
(ii) Hire Purchase Finance (example: Mahindra Financial Services Ltd
(iii) Factoring(for domestic trade bills) (example: SBI Factoring and
Commercial Services Ltd)
(iv) Forfeiting (for Export bills) (example : SBI FCS Ltd)
(v) Housing Finance (example : Indiabull Housing Finance Ltd),
(vi) Consumer Loans (example : Bajaj Finserv. Ltd)
(vii) Venture Capital Finance (example: Blume Ventures (India)
(viii)Private Equity Funds (example: IDFC Private Equity)
(ix) Mutual Funds Schemes (example : HDFC Mutual Funds)
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(b) Fee-based Services:
(i) Merchant Banking (Underwriting, Book Building, Private
Placement) (example : ICICI Securities Ltd)
(ii) Stock Broking (example : Motilal Oswal Stock Broking Ltd)
(iii) Corporate Advisory Services (example: SBI Capital Markets Ltd)
(iv) Mergers & Acquisitions (example : SBICAPS)
(v) Financial Restructuring (example: SBICAPS)
(vi) Corporate Restructuring (example : SBICAPS)
(vii) Credit Rating (examples : CRISIL, ICRA, CARE, Moody’s, S&P)
(viii)Depository Services (examples: National Securities Depository Ltd
(NSDL), Central Depository Services Ltd (CDSL).
(ix) Custodial Services (example: Stock Holding Corporation of India)
(SHCIL provides safe-custody services for Government securities).
(x) Credit Card (example: SBI Cards & Payment Services Ltd)

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(xi) Investment Banking Functions: (Financial Services Activities)
(1) Preparation of Project Report, Appraisal and Assessment.
(2) Public Issue Management ((IPO/FPO)(Equity and Debt instruments)
for Corporates and the GoI undertaking Companies.
(3) Loan Syndication,
(4)Corporate Advisory services (Designing Corporate Structure
Management structure – Horizontal, Vertical structures),
(5) Advising on Mergers and Acquisitions, sale of companies
(6) Conducting Due Diligence Study,
(7) Corporate Restructuring
(8) Consultancy services – Joint Ventures, and others
(9) Financial Restructuring (optimum Debt and Equity mix, reduction
of cost of capita. Reduction of debtm, equity buy-back)
(10) Rehabilitation of Sick Companies,
(11)Arrangement of Foreign Collaboration,
(12) Fixed Deposit Broking,
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(13)Financial Advising (Portfolio Management Services, Wealth
Management) (also known as Sales and Trading),
(14) Raising funds in Global Markets (ADR, GDR, Floating Rate Bonds)
(15) Research Analysis (conduct analysis of stock market and make
recommendation to buy, sell or hold the securities).

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(xii) Loan Syndication (Credit Syndication):
Loan Syndication means the process of involving several different
lenders in providing various portion of loan extended to the
Corporate. Syndicated Loan is structured, arranged, administered
by one or several commercial banks, or investment banks and
provided by a group of lenders. Loan syndication is an
arrangement where a group of banks participate for a single loan.
The loan syndication includes, arrangement of loans and
advances through banks for (i) Long Term investments (Long Term
Loans) on fixed assets such as, construction of factory buildings
(plants), investments on machinery, and other tangible fixed
assets), and (ii) Working Capital requirements.

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Recommended books (for BFSI subject: (Books are available in Library)
(1) Financial Services by MY Khan
(2) Essentials of Financial Services by S. Guruswamy
(3) Investment Banking by Pratap Giri

Other reference books for BFSI subject:

(4) Merchant Banking by HR Suneja (Himalaya Publishing Company),
(5) Banking & Insurance by Gordon and PK Gupta (Himalaya Publisher
(6) Basics of Financial Services by JIA MAKHIJA (Vipul Prakasan)

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Assignment-1 :
Students are required to write a comprehensive note on the
developments in the Banking and Financial Services sector during
the last 10 years. (write only points). (You may also refer to
educational websie and google. But write in your own words. No
cut and paste is not allowed).

Note : Write in A-4 paper and submit to me on or before 30.9.2023

positively. It carries 10 marks for internal assessment.

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THANK YOU

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