Essentials of Financial Services 3e

Dr. S. Gurusamy

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Essentials of Financial Services 3e

Dr. S. Gurusamy

ISBN 9789393161963

Publication Date Mon Mar 06 07:48:49 UTC 2023

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Biographical note

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Cover
Title Page
Copyright Page
Contents
Preface
Chapter 1 Financial Services – An Overview
- Financial Services—Concept
  - Financial Services—Objectives/Functions
- Financial Services—Characteristics
- Financial Services Market—Concept
- Financial Services Market—Constituents
- Growth of Financial Services in India
- Merchant Banking Era
  - Investment Companies Era
  - Modern Services Era
  - Depository Era
  - Legislative Era
  - Foreign Institutional Investors (FIIs) Era
- Financial Services Sector—Problems
- Review Questions
Chapter 2 Financial Services Environment
- The Forces
  - Employment and Unemployment
  - Inflation and Deflation
  - Trade Cycles
  - Stagflation
  - Economic Growth
  - Exchange Rate and Balance of Payments
  - Deregulatory Measures
  - Technological Changes
  - Enhanced Competition
  - Global Portfolio Preferences
- Players in Financial Markets
  - Households
  - Business Firms
  - Financial Firms
  - Governments
  - External Agencies
- Interest Rate Determination
  - Meaning
  - Features
  - Determining the Rate of Interest
- Macroeconomic Aggregates in India
  - Real Sector Policies
  - Fiscal Policies
  - Agriculture Policy
  - Policy on Manufacturing, Infrastructure and Services
  - Trade Policies
  - Export and Import (EXIM) Policy
  - Policies for External Capital Flows
  - Fiscal Policy
  - Tax Measures
  - Structural Reforms
- Goods and Services Tax (GST)
- Demonetization
- Review Questions
Chapter 3 Merchant Banking
- Definition
  - Merchant Bankers
- Functions
  - Corporate Counselling
  - Project Counselling
  - Pre-investment Studies
  - Capital Restructuring Services
  - Credit Syndication
  - Issue Management and Underwriting
  - Portfolio Management
  - Working Capital Finance
  - Acceptance Credit and Bill Discounting
  - Mergers and Acquisition
  - Venture Financing
  - Lease Financing
  - Foreign Currency Financing
  - Brokering Fixed Deposits
  - Mutual Funds
  - Relief to Sick Industries
  - Project Appraisal
- Merchant Bankers’ Code of Conduct
- SEBI Guidelines
  - Operational Guidelines
- Review Questions
Chapter 4 Public Issue Management
- Meaning
- Functions
- Categories of Securities Issue
  - Public Issue of Securities
  - Rights Issue
  - Private Placement
- Mechanics of Public Issue Management
- Issue Manager
  - Requirements
  - Categories of Issue Managers
- Role of Issue Manager
- Activities Involved in Public Issue Management
  - Pre Issue Activities
  - Post Issue Activities
- Marketing of Issue
  - Need
  - Steps
- Public Issue Proposal — Factors
- Pricing of Issues
  - CCI Model
  - Safety Net Scheme
- Law Relating to Issue Management
  - SEBI Rules and Regulations
- Review Questions
Chapter 5 New Issues Market (NIM)
- NIM and Secondary Markets—An Interface
- Services of NIM
  - Transfer Function
- NIM Vs Secondary Market
- Methods of Marketing Securities
  - Pure Prospectus Method
  - Offer for Sale Method
  - Private Placement Method
  - Initial Public Offer (IPO) Method
  - Rights Issue Method
  - Bonus Issue Method
  - SEBI Guidelines
  - Rights Issue Vs Bonus Issue
- Book-building Method
  - Advantages of Book-Building
  - Stock Option or Employees Stock Option Scheme (ESOP)
  - Bought-Out Deals
  - Bought-Out Deals Vs Private Placements
- Review Questions
Chapter 6 Underwriting of Securities
- Meaning
- Types
  - Firm Underwriting
  - Sub-Underwriting
  - Joint Underwriting
  - Syndicate Underwriting
- Underwriter
- Underwriting Agreement
- Benefits/Functions
- Mechanics of Underwriting
- Indian Scenario
- Underwriting Agencies
  - Private Agencies
  - Investment Companies
  - Commercial Banks
  - Development Finance Institutions (DFIs)
- Obstacles
- SEBI Guidelines
- Variants of Underwriting
  - Offer for Sale
  - Bought-Out Deals (BODs)
  - Private Placement
  - Grey Market
- Review Questions
Chapter 7 Capital Market
- Meaning
- Money Market
- Characteristics
- Functions
  - Allocation Function
  - Liquidity Function
  - Other Functions
- Indian Capital Market — Evolution and Growth
  - Infrastructure Stage
  - New Issues Stage
  - The SEBI Stage
  - Structural Transformation
- Constituents of Indian Capital Market
  - Gilt-Edged Market
  - Industrial Securities Market
  - Primary Market
  - Modes of Raising Capital
  - Secondary Market
- New Financial Institutions
  - Venture Fund Institutions
  - Mutual Funds
  - Factoring Institutions
  - Credit Rating Institutions
  - Over-The-Counter Exchange of India (OTCEI)
  - National Stock Exchange of India Limited (NSEI)
  - National Clearance and Depository System (NCDS)
  - National Securities Depositories Limited (NSDL)
  - Stock Holding Corporation of India Limited (SHCIL)
  - New Financial Instruments
  - Commercial Paper (CP)
  - Certificate of Deposit (CD)
  - Secured Premium Notes (SPN) with Attached Warrant
  - Non-Convertible Debenture (NCD) with Detachable Equity Warrants
  - Zero Coupon Bonds
  - Zero Interest Fully Convertible Debentures (FCD)
  - Deep Discount Bonds
  - Stock Invest
  - Equity Shares with Detachable Warrants
  - Equipref Shares
  - Preference Shares with Warrants Attached
  - Euro Issues
  - Non-Voting Right Shares
  - Other Innovative Instruments
- Measures of Investor Protection
- SCRA
- Review Questions
Chapter 8 Stock Exchange
- History of Stock Exchanges
- Meaning
- Definition
- Functions/Services/Features/Role
- Stock Exchange and Commodity Exchange Distinguished
- Stock Exchange Traders
  - Remisiers
  - Authorized Clerks
  - Brokers and Jobbers
  - Tarawaniwalas
  - Dealers
- Weaknesses
- Regulation of Stock Exchanges
  - Regulatory Structure
- Steps in Stock Trading
- Mechanics of Settlement
  - Types
  - Counter Party Default
  - Settlement Guarantee Mechanism
- Depository
  - Need
- Stock Trading System
  - Auction Trading System
  - Dealer Trading System
  - Hybrid Trading
  - Margin Trading
- Specialists
  - Functions of Specialists
  - Market-Makers
  - Broker-Dealer
- Recent Developments
  - Over-The-Counter Market System
  - National Stock Market System (NSMS)
  - National Stock Exchange (NSE)
  - Stock Holding Corporation of India Limited (SHCIL)
  - National Clearance and Depository System (NCDS)
  - Securities Trading Corporation of India (STCI)
  - Corporatization and Demutualization
- Review Questions
Chapter 9 SEBI - Function and Working
- Genesis
- Features of the SEBI Bill
- Objectives
- Management
- Powers and Functions
  - Under the SEBI Act
  - Under the SCRA
  - Registration of Intermediaries
  - Directions from Government
  - Power to Make Rules
  - Power to Make Regulations
  - Power to Adjudicate
- Regulatory Role
- Role and Relevance
  - Credible Regulatory Structure
  - Market Surveillance
  - Disclosure Standards
  - Best Governing Practices
  - Building Investor Confidence
- Global Outlook
- Review Questions
Chapter 10 Leasing
- Meaning
- Characteristics of Lease
- Types of Lease
  - Financial Lease
  - Operating Lease
  - Cross-border Leasing
  - Japanese Cross-border Leasing
  - International Leasing
- Financial Lease Vs Operating Lease
- Test for Financial Lease
- Myths About Leasing
- Participants
  - Lessors
  - Lessees
  - Lease Brokers
  - Lease Financiers
  - Leasing Process
- Services of Lessor
  - Comprehensive Package
- Advantages of Leasing
  - Advantages to Lessor
  - Advantages to Lessee
- Limitations of Lease Financing
- Review Questions
Chapter 11 Accounting for Lease
- Meaning of Lease
- Financial Lease
- Operating Lease
- Accounting and Reporting for Financial Lease – Books of the Lessor
- Adjustment in Balance Sheet
- Important Computations
- Accounting and Reporting for Financial Lease – Books of the Lessee
- Accounting and Reporting for Operating Lease – Books of the Lessor
  - Implicit Rate of Interest
- Review Questions
Chapter 12 Hire Purchase
- Meaning
- Rights of Hirer
  - Right of Protection
  - Right of Notice
  - Right of Repossession
  - Right of Statement
  - Right to Excess Amount
- Rate of Interest
  - Add-on Rate of Interest
  - Flat Rate of Interest
  - Effective Rate of Interest
- Lease Financing Vs Hire Purchase Financing
- Accounting for Hire purchase
- Methods of Interest Calculation
  - Effective Rate of Interest (ERI)
  - Sum-of-Years Digits Method
  - Straight-Line Method
- Method of Reporting
  - Disclosure in Hirer Books
  - Disclosure in Hire Vendor Books
- Lease Vs Hire Purchase Evaluation
  - Solution
- Review Questions
Chapter 13 Factoring and Forfaiting
- Meaning
- Definition
- Mechanism
- Characteristics
- Factoring and Off-balance Sheet Financing
- Types of Factoring
  - Domestic Factoring
  - Export Factoring
  - Cross-border Factoring
  - Modus Operandi
  - Full-Service Factoring
  - With Recourse Factoring
  - Without Recourse Factoring
  - Advance and Maturity Factoring
  - Bank Participation Factoring
  - Collection/Maturing Factoring
- Advantages of Factoring
- Disadvantages of Factoring
- Factoring—Players
  - The Buyer
  - The Seller
  - The Factor
- Functions of a Factor
  - Sales Ledger Administration
  - Provision of Collection Facility
  - Financing Trade Debts
  - Credit Control and Protection
  - Advisory Services
- Factoring Cost
  - Commission
  - Interest Charges
- Line of Credit—Methods
  - Objective Method
  - Subjective Method
  - Factoring Vs Bills Discounting
- RBI Guidelines for Factoring
  - Prior Approval
  - Subsidiaries
  - Exclusive Business
  - Investment Limit
  - RBI Clearance
  - Reporting
- Factoring—Indian Scenario
- Operational Profile of Indian Factoring
  - Domestic Factoring
  - Export Factoring
- Operational Problems in Indian Factoring
- Forfaiting
  - Definition
  - Characteristics
  - Modus Operandi
  - Advantages of Forfaiting
- Factoring Vs Forfaiting
- Forfaiting – Indian Scenario
- Review Questions
Chapter 14 Consumer Finance
- Meaning
- Types
- Mechanics of Consumer Financing
- Sources of Consumer Finance
  - Traders
  - Commercial Banks
  - Credit Card Institutions
  - Non-Banking Finance Companies (NBFCs)
  - Credit Unions
  - Middlemen
  - Other Sources
- Modes of Consumer Finance
- Demand for Consumer Finance—Factors
- Consumer Financing—Practice in India
  - Products Covered
  - Terms of Finance
- Pricing of Consumer Finance
- Marketing Consumer Finance
- Consumer Finance Insurance
- Consumer Credit Scoring
  - Dunham Greenberg Formula
  - Specific Fixed Formula
  - Machinery Risk Formula
- Case for Consumer Finance
- Case against Consumer Finance
- Boom in Consumer Financing
- Hire Purchase System (HPS)
  - Definition
  - Characteristics
- Advantages of Hire Purchase System
  - Disadvantages of Hire Purchase System
  - Hire Purchase Cost
  - Eligibility
- Instalment Credit System (ICS)
  - Definition
  - Features
- Hire Purchase System Vs Instalment Credit System
- Review Questions
Chapter 15 Venture Capital
- Meaning
- Definition
- Rationale
- Features
- Methods of Evaluation
  - Conventional Method
  - First Chicago Method
  - Revenue Multiplier Method
- Origin and Growth of Venture Capital
  - USA
  - UK
  - Europe
  - Japan and Asia
  - Taiwan
  - Israel
  - India
- Venture Capital and Other Funds
  - Venture Capital and Development Capital
  - Venture Capital, Seed Capital and Risk Capital
  - Venture Capital and National Equity Fund for Small Entrepreneur
  - Stages of Venture Capital Financing Seed Capital
  - Start-up Financing
  - Early-stage Financing
  - Follow-on Financing
  - Expansion Financing
  - Replacement Financing
  - Turnaround Financing
  - Management Buy-Outs (MBOs)
  - Management Buy-Ins
  - Mezzanine Finance
- Analyzing Venture Capital Proposals—Criteria
  - Fundamental Analysis
  - Financial Analysis
  - Portfolio Analysis
  - Divestment Analysis
- Buy-Outs
  - Advantages
  - Precautions
  - Types
  - Management Buy-Outs
  - Shareholder Buy-Outs
  - Receivership Buy-Outs
- Financial Sources
- Investment Nurturing
  - Definition
  - Objectives
  - Elements
- Styles of Venture Financing
  - Hands-on Nurturing
  - Hands-off Nurturing
  - Hands-Holding Nurturing
- Nurturing Methods
  - Personal Discussions
  - Plant Visits
  - Feedback
  - Periodic Reports
  - Commissioned Studies
- Compensation
- Forms of Organization
  - Limited Partnership
  - Investment Company
  - Investment Trust
  - Offshore Investment Company
  - Offshore Unit Trust
  - Small Business Investment Company
- Exit Mechanism
  - Methods of Exit
- Review Questions
Chapter 16 Mutual Funds
- Definition
  - Features/Role/Benefits
- Products/Schemes
  - Operational Classification
  - Return-Based Classification
  - Investment-Based Classification
- Mechanics of Mutual Fund Operations
- Mutual Funds in India
- Managing Mutual Funds in India
  - The Sponsor
  - The Trustees
  - The Custodians
  - Asset Management Company (AMC)
- SEBI requirements of AMC
  - Track Record
  - Reputation
  - Expertise
  - Operational Autonomy
  - Contribution
- Functions of AMC
  - Registrars and Transfer Agents
  - Fund Accountants
  - Lead Managers
  - Investment Advisors
  - Legal Advisors
  - Auditors
  - Underwriters
- Working Mechanism of AMC
  - Creating Fund Manager
  - Research and Planning
  - Creating Dealers
- Portfolio Management Process in Mutual Funds
  - Setting Investment Goal
  - Identifying Specific Securities
  - Portfolio Designing
  - Portfolio Revision
- Operational Efficiency of Mutual Funds
  - Net Return
  - Net Asset Value (NAV)
  - Load
  - Disclosures
  - Voting Right to Investors
  - Investors’ Protection
- Evaluating Mutual Funds
  - Treynor Model
  - Sharpe Model
- Mutual Fund Holders’ Account
  - Regular Account
  - Accumulation Account
  - Withdrawal Account
- Causes for Poor Performance of Mutual Funds
- Review Questions
Chapter 17 Credit Rating
- Impetus
- Origin
- Definition
- Features
- Advantages
  - To Investors
  - To Issuers
  - To Intermediaries
  - To Regulators
- Credit Rating System—Growth Factors
  - Credibility and Independence
  - Capital Market Mechanism
  - Disclosure Requirements
  - Credit Education
  - Creation of Debt Market
- Global Credit Rating Agencies
  - Moody’s Investors Service (Moody’s)
  - Standard and Poor’s Corporation (S&P)
  - Duff and Phelps Credit Rating Co (DCR)
  - Japan Credit Rating Agency (JCR)
  - IBCA Limited
  - Thomson Bank Watch
- Domestic Credit Rating Agencies
- CRISIL
- ICRA
- CARE
- Credit Rating Symbols
  - CRISIL (Credit Rating and Information Services of India Limited)
  - CRISIL Fixed Deposit Rating Symbols
- CRISIL Ratings for Short-Term Instruments
- Credit Rating Process
- Rating Framework—Major Factors
  - Business Factors
  - Financial Factors
- Equity Grading
  - The Need
  - Equity Grading by ICRA—Methodology
  - Equity Grading Process by ICRA
  - Credit Rating—Drawbacks
- Review Questions
Chapter 18 Insurance - An Overview
- Definition
- Basic Principles of Insurance
- Reinsurance
- Life Insurance
  - Meaning
  - Policies
- General Insurance
  - Meaning
  - Types
  - Fire Insurance
  - Marine Insurance
  - Policies
  - Other Insurances
  - Liability Insurance
- Concept of Insurance Services
- Health Insurance
  - Meaning
  - Health Insurance Policy
  - Health Insurance Plan
  - Employer Sponsored Plans
  - Government Sponsored Plans
  - Need for Health Insurance
- Motor Insurance
  - Meaning
  - Nature
  - Property Accident Aspect
  - Personal Accident Aspect
- Rural Insurance
  - Meaning
  - Potential
  - Delivery Channels
- Annuity
  - Definition
  - Features
  - Types
  - Fixed Annuity
  - Types of Fixed Annuity
  - Variable Annuity
  - Equity-Indexed Annuity
- Review Questions
Chapter 19 Insurance - Regulatory Framework
- The Insurance Act
- Insurance Regulatory and Development Authority of India (IRDAI)
  - Composition
  - Duties
  - Powers and Functions
  - Constitution
  - Composition of Authority
  - Tenure of Office
  - Administrative Powers
  - Meeting of Authority
  - Grants by Central Government
  - The Fund
  - Accounts and Audit
  - Powers of Central Government
  - Superceding Powers
- Insurance Advisory Committee
- Power to Make Regulations
- Major Amendments to Insurance Act
  - The First Schedule
  - Capital Requirements
  - Divesting Excess Shareholding
  - Conditions of Investment
  - Rural or Social Sector
  - Investigation and Inspection
- Insurance Agents, Intermediaries and Surveyors
  - Insurance Agents
  - Issue of Licence to Intermediary
  - Surveyors
- Review questions
Chapter 20 Pension Plan
- Concept of Pension
  - Meaning
  - Definition
- Pension Fund
- Pension System
  - Meaning
  - Types
- Objectives/Features of Pension Fund
  - Insurance Against Infirmness
  - Socio-economic Justification
  - Employee’s Right
  - Balance of Interest
- Types of Pension Fund
  - Based on Generic
  - Features/Benefits
  - Limitations
  - Features/Benefits
  - Drawbacks
  - Defined Benefit Plan Vs Defined Contribution Plan
  - Based on Funding Nature
  - Based on Sponsors
  - Private Pension Fund
  - Public Pension Fund
  - Taft Hartley Pension Plan
  - Individual Pension Plan
- Other Categories
  - Voluntary Pension Fund
  - Mandatory Pension Fund
  - Income Smoothing Pension Fund
  - Redistributive Pension Fund
  - Insured Pension Fund
  - Non-Insured Pension Fund
  - Qualified Pension Fund
  - Hybrid Pension Fund
  - Cash Balance Pension Fund
  - Features
- Functions/Benefits of Pension Fund
  - Peaceful Retired Living
  - Income Opportunity
  - Cushion Against Volatile Income
  - Fair Determination of Income
  - Low Risk Option
  - Professional Management
  - Tax Advantage
  - Planned Retirement
  - Voluntary Offer
  - Confidence
  - Regular Income
  - Less Risk
  - Protection Against Longevity Risk
  - Financial ‘Myopia’
  - Poverty Alleviation
  - Social Solidarity
- Pension Fund-Growth Factors
  - Growth in Income
  - Longer Life Expectancy
  - Tax Advantage
- Pension Fund Vs Mutual Fund
- Chilean Model
- Pension Investment Policy
  - Investment Factors
  - Investment Constraints
  - Investment Pattern
- Pension Structure
  - Pillar I
  - Pillar II
  - Pillar III
  - Multi-Pillar System
- Pension Risks
- Social Security
  - Models
  - Theories
- Pension Financing
  - Financing Mode
  - Actuarial Valuations
- Projecting Pensions
  - Present Value Technique
- Review Questions
Chapter 21 Non-Banking Financial Companies (NBFCs)
- Meaning
- NBFC Entities
- Registration
- Principle Business of NBFCs
  - NBFCs Registered with RBI
  - NBFCs not Registered with RBI
- Structure of NBFCs
- Supervision of NBFCs
  - ALM System for NBFCs
  - Regulatory Framework – As Regards NBFCs Registered with RBI
  - The Need
  - Banks & NBFCs – A Regulatory Interface
- Regulations Governing NBFCs
- RBI Measures on NBFCs
  - Depositor Protection
  - Web Project
  - Entry into Insurance Business
  - Rationalization of Returns
  - Focus on Large NBFCs
  - Residuary Non-Banking Companies (RNBCs)
- Review Questions
Chapter 22 Securitization and SARFAESI Act, 2002
- Securitization
  - Meaning
- Receivable-Generating Assets
- Securitized Assets
- Cash Flow from Securitized Assets
- Parties and participants in Securitization
- Securitization Process
- Types of Securitization
- Benefits of securitization
  - Benefits to Originator
  - Benefits to Investors
- Limitations of securitization
- SARFAESI Act, 2002
  - Definition
  - Purpose
  - CERSAI
  - The Background
- Recovery Mechanism
- Major Provisions
- Review Questions
Index

Professor and Head Department of Commerce University of Madras

Essentials of

Financial Services

Third Edition

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Essentials of Financial Services, 3e

ISBN: 978-81-8209-459-8

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