Topic – INTRODUCTION TO FINANCIAL

SERVICES

 Key-Words – non banking , leasing, bill discounting, credit rating, stock

broking

Dr. Dileep Kumar Singh

Institute of Management Studies
Faculty of Commerce and Management Studies
Mahatma Gandhi Kashi Vidyapith Varanasi – 221002
e-mail : [email protected]
Dr. Dileep Kumar Singh
Assistant Professor
Institute of Management Studies
Mahatma Gandhi Kashi Vidyapith
Varanasi

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FINANCIAL SERVICES :
„Financial services‟ can be defined as “activities , benefits
and satisfactions , connected with the sale of money , that
offer to users and customers , financial related value” .

TYPES OF INSTITUTIONS :
• Banks and Financial Institutions
• House building Societies
• Insurance Companies
• Credit Card Issuer Companies
• Investment Trusts and Mutual Funds
• Stock Exchanges
• Leasing Companies
• Unit Trusts
• Financial Companies
MAIN SECTORS OF FINANCIAL
SERVICE INDUSTRY

BANKING COMPANIES

FINANCIAL INSTITUTIONS

NON BANKING FINANCIAL

COMPANY
I. BANKING COMPANIES :

Section – 5 of Banking Regulation Act , 1949 defines banking

as , “ the accepting for the purpose of lending or
investments , of deposits of money from the public
repayable on demand or otherwise and withdrawable by
cheque , draft , order or otherwise .”

Main Functions of Commercial Bank –

i. Accepting of deposits
ii. Lending of funds
iii. Provision of a variety of financial and related services that
are indirectly related to the above two main banking
functions
II. FINANCIAL INSTITUTIONS :

FIs refer to non banking institutions / financial companies

engaged in any of the following activities :

i. Financing by way of loans , advances and so on

ii. Acquisition of shares / stocks / bonds / debentures /
securities
iii. Hire purchase and consumer credit
iv. Any class of insurance , stock broking etc.
v. Chit funds
vi. Collection of money by way of subscription / sale of units
III. NON – BANKING FINANCIAL COMPANY [NBFC] :

It means and includes :

a) Financial institution which is a company

b) A non – banking institution which is a company and
has as its principal business the receiving of deposits
or lending .
c) Such other non – banking institutions / class of
institutions as RBI may specify .
CHARACTERSTICS OF FINANCIAL SERVICES :

1. Intangible
2. Direct Sale
3. Heterogenity
4. Fluctuation in demand
5. Protect customer‟s interest
6. Labour intensive
7. Geographical dispersion
8. Lack of special identity
9. Information based
10.Require quality labour
IMPORTANCE OF FINANCIAL SERVICES :

1. Services are provided at the right time , at the right place

and at right price by undertaking production and
distribution of financial services .

2. The interest of customer‟s is protected.

3. Service providing organisations not only provide services

locally but also extend them to national and international
customers.

4. Efforts are made by the service organisation to make their

image and service public.

5. Financial organisations study customer behaviour , their

needs and attitudes.
KINDS OF FINANCIAL SERVICES

ASSET
FEE BASED /
BASED/FUND
ADVISORY
BASED
SERVICES
SERVICES
A. ASSET / FUND BASED SERVICES

1. EQUIPMENT LEASING / LEASE

FINANCING :

• In India , leasing is a recent development

and equipment leasing was introduced by
First Leasing Company of India Limited in
1973 .

• Leasing is an arrangement that provides a

firm with the use and control over assests
without buying and owning the same .

• It is a form of renting assets .

• There is no exclusive law / legislation to
govern equipment lease financing .
2. HIRE PURCHASE AND CONSUMER CREDIT :

Hire purchase means a transaction where goods are

purchased and sold on the terms that

•payment will be made in instalments

•the possession of the goods is given to the buyer immediately
•the property(ownership) in the goods remains with the
vendor till the last instalment is paid,
•the seller can responses the goods in case of default in
payment of any instalment
• each instalment is treated as hire charges till the last
instalment is paid.
Consumer credit includes all
asset based financing plans offer
to individual to help them
acquired durable consumer goods

•In a consumer credit transaction

the individual/consumer/buyer
pays a part of the cash purchase
price at the time of the delivery of
the asset and pays the balance
with interest over a specified
period of time

•There is no specific legislation to

regulate consumer in India
3.BILL DISCOUNTING:
Discounting of the bills of exchange is an
attractive fund based financial service
provided by financing companies.

•Bill discounting has emerged as a profitable

business for finance companies and represent
a diversification in their activity.
•After the 1992 scam RBI imposed certain
restriction on bill discounting on service
provided by the banks.
•The development of bill discounting as a
financial service depends upon the existence
of a full fledged bill market.
•The financial companies act as bill brokers
between the banks and business houses.
.
 VENTURE CAPITAL
• The term venture capital represents financial investment
in a highly risky project with the objective of earning a
high rate of return.
• Venture capital financing involves a high degree of risk.
• The government of india has been instrumental in
setting up of new financial agencies to serve the
increasing needs of the enterpreneurs in the area of
venture capital.
• These include:
• Venture capital scheme of IDBI
• Venture capital scheme of ICICI
• Risk Capital and technology corporation ltd.[RCTC]
 HOUSING FINANCE

• It emerged as a fund based financial service in the

country with the setting up of National Housing
Bank [NBH] by RBI in 1988.
• NBH is an apex housing finance institution in the
country and is fully owned subsidiary of RBI
 INSURANCE SERVICES
• Insurance is a contract where by the insurer
undertakes to make good the loss suffered by the
insured against a specified risk such as fire or
compensate the beneficiaries on the happening of
a specified event such as accident death.
• The document containing the terms of contract in
black and white is called policy.
• The property which is insured is the subject matter
of insurance.
• The interest which the insured has in the subject
matter is called insurable interst.
• Insurance services are divided into:
• Life insurance
• General insurance
 FACTORING
• It is a fund based financial service provides
resources to finance receivables as well
facilitates the collection of receivables.
• It is another method of raising short term finance
through account receivable credit offered by
commercial banks and factors.
• A factor is a financial institution which offers
services relating to management and financing
of debts arising out of credit sales.
• At present there are only two factoring
organisations operating in the country namely
SBI Factors and Commercial Services [SBI FACS
and CANBank Factors ltd.
 FEE BASED ADVISORY
SERVICES
1. MERCHANT BANKING

Grindlays bank was the first one to set up Merchant banking

division in 1969 in India with the objective of undertaking
management of public issue and financial consultancy.
Following the recommendations of the banking commission
[1972].
The industrial credit and investment corporation of India
[ICICI] was the first development finance institution to initiate
such service in 1974.
 CREDIT RATING
• It is the opinion of the rating agency on the relative ability
and willingness of the issuer of the debt instrument to meet
the debt obligations as and when they arise.
• For the investor it is an indicator expressing the underlying
credit quality of issue programme.
• In India there are three major credit rating agencies namely
• -CRISIL [Credit Rating Information Services if India limited.]
• ICRA [Investment information and credit rating agency of
India limited]
• CARE [Credit Analysis and Research in Equities.]
 STOCK BROKING
• Prior to the setting up of SEBI , stock exchanges were been
supervised by the ministry of finance under the Securities
Contract Regulation Act [SCRA] and were operating more or
less self regulatory
• SEBI was setup to ensure that stock exchanges perform their
self regulatory role properly
Short Answer Question:-
1.Define Financial Services.
2.Exlain main sectors of financial Services industry.

Long Answer Question:-

1.Exlain various kinds of Financial Services
2.What are the characteristics of Financial Services and what are its
importance.

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 [1] M. P. Groover, Automation, Production Systems, and Computer Integrated
Manufacturing, Prentice-Hall of India Private Limited, New Delhi-110001, India,
pp. 56-60, 1989
 [4] J. Pappas, and E. Brigham, Fundamentals of Managerial Economics, CBS
College Publishing, New York, pp. 240-295, 1981
• Financial Services by M Y Khan, McGraw Hill Education (India) Pvt Ltd, 2013
• Merchant Banking by H.R. Machi Raju, New Age International (P) Ltd.,
Publishers, 2010

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