Introduction to Financial Services

Meaning
   

Assisting in sourcing of funds Funding Advising Procedural assistance in deployment of funds

Two Main Types of Financial Services



Fund Based service provider will invest his own funds and will bear some risk on his own balance sheet Non-Fund (Fee) Based service provider would act as an intermediator / facilitator between the funding agency & the corporates The financial services w.r.t. Balance Sheet & Income Statement items are related to Corporates & Mutual Funds, Credit Cards & Consumer Finance Loans are related to Retail Customers

The Term Financial Services

Balance Sheet Items:Share Capital Management of Public Issues, Underwriting, Registry Services, Custodian Services, Book Running, Pricing Advice, Ratings, Sourcing of Venture Capital Reserves & Surplus Advice on Bonus issue and Dividend Policies Term Loans Loan Syndication & Restructuring, Securitization, Recovery Services & Credit Rating Debentures/Bonds Management of Debenture issues, Registry services, Custodian services

The Term Financial Services



  

Balance Sheet Items:Current Liabilities Working Capital arrangements in form of CC, OD, CP, CD, Rating of these short term instruments, Intermediation of these services Fixed Assets Project feasibility study, Risk Assessment, Capital Rationing, Partner Search, Funding Structure, Capital Cost advice, Liaisoning with various authorities Investments Investment Strategies, Asset Selection, Risk Mitigation Current Assets Management & Strategic Consulting on Inventory and Receivables Total Balance Sheet Overall rating of the firm

The Term Financial Services

Income Statement Items:Sales Bill Discounting, Factoring, Forfeiting & Letter of Credit Variable Costs Credit arrangement for purchase of raw material & Bills of Exchange Fixed Costs BPR, Management Consultancy, Lease or Buy decision analysis Interest Loan Optimization, Restructuring, Risk Cover Allocation Tax Tax Advice

Factors determining use of Financial Services In-house or Sourced

      

Frequency Size of the organization Expertise of the Exiting Personnel Fund Based Activity Excessive Workload Ascertaining Decisions / Unbiased Advice Regulatory Requirements

Agencies providing Financial Services

       

Commercial Banks Merchant Bankers Leasing & Hire Purchase Companies Mutual Funds Venture Capital Funds Rating Agencies Other NBFCs (Consumer Finance, PMS, etc) The Stock Exchanges

Financial Innovation & Services



Financial Innovation (Engineering) involves the design, the development and the implementation of innovative financial instruments and processes and the formulation of creative solutions to various problems in finance. A financially innovative product may be innovative today but it may eventually become a common product in the near future.

Causes of Financial Innovation

    

Competition Liberalization Technology Financial Awareness Matured Legal Processes

Stages in Financial Engineering

        

Need Identification Idea Formation of the Product Product Development & Model Building Product Testing Product Improvement based on Test Feedback Product Pricing Restructuring the Product to suit Pricing Idea Test Marketing Launching of the Product

Various Types of Financially Engineered Products

       

Preference Shares Convertible Debentures Call & Put Option Warrants Derivatives Forwards, Futures, Options Non-Voting Shares Employees Stock Option (ESOPs) Sweat Equity Shares

Challenges before Financial Services Industry Market Issues  Regulatory Issues  Operational Issues  Technological Issues  Manpower Issues