Contents. Chapter 1 Introduction to Financial Services 3

Transcription

1 Contents Preface V PART 1: Introduction Chapter 1 Introduction to Financial Services Finance and Business Financial Services Characteristics of Financial Services Distinctiveness of Financial Services Classification of Financial Services Financial Intermediation and Disintermediation Need for Financial Intermediaries Characteristics of Financial Intermediation Advantages of Financial Intermediation Disadvantages of Intermediation Financial Disintermediation Financial Exclusion and Inclusion Financial Exclusion Financial Inclusion Credit Creation Process Financial Products and Services 18 Chapter Summary 19 Key Words 19

2 xiv Contents Suggested Assignments 20 Suggested Questions 20 Chapter 2 The Financial System Introduction to Financial System Functions of a Financial System Financial Markets Characteristics of Financial Markets Classification of Financial Markets Primary and Secondary Markets Stock Exchanges Performance of the Indian Capital Market Securities Market Money Market Foreign Exchange Market Financial Sector Reforms Institutional Framework 64 Chapter Summary 74 Key Words 74 Suggested Assignments 75 Suggested Questions 75 Suggested Books For Further Reading 75 Chapter 3 Globlisation of Financial Markets Meaning of Globalisation Need for Globalisation Process of Globalisation Impact of Globalisation International Experiences of Globalisation Globalisation of Financial Markets Structure of Global Financial Markets International Equity Markets Barriers to International Investments International Equity Price Movements Fixed Income Securities Market International Bonds Foreign Exchange Market Global Derivatives Market Global Financial Products 97

3 Contents xv 3.9 Cross Border Investments and Borrowing Opportunities Financial Market Integration 98 Chapter Summary 99 Key Words 99 Suggested Assignments 99 Suggested Questions 100 Suggested Further Readings 100 PART 2: Conceptualisation Chapter 4 Asset-Based Corporate Financial Services Leasing and Hire-purchase Introduction to Leasing Definition Essentials of Lease Transactions Types of Leases Advantages of Leasing Leasing Process Lease Evaluation Lease Rental Calculation Hire Purchase Evolution Hire Purchase Process Parties to a Hire Purchase Contract Legal Framework Taxation Aspects Mortgage Loans Introduction Definition of Mortgage Mortgage Origination Working Capital Finance Introduction Bank Finance for Working Capital Factoring Introduction Definition and Functions Characteristics of Factoring Services Types of Factoring Costs and Benefits of Factoring 132

4 xvi Contents Factoring Services in India Management Issues in Factoring Services Marketing of Factoring Services Future Prospects Forfaiting Evolution Forfaiting Process Cost of Forfaiting Benefits of Forfaiting Forfaiting-Indian Experience Commercial Paper Eligibility Credit Rating Maturity and Denomination Issuing of CP Investments in CP Payment of CP Stand-by Facility Role and Responsibilities Current Status Certification of Deposit Eligibility Minimum Size of Issue and Denominations Subscription Maturity Reserve Requirements Transferability Loans/Buy-backs Format of CDs Security Aspect Payment of Certificate Current Status Bank Deposit Schemes Current Account Fixed Deposit Demat Account Bonds and Debentures Who Issues the Bonds? 145

5 Contents xvii Price of the Bond Who Buys Bonds? Principal Features of Bond Types of Bonds Regulatory Framework Bond Market in India Debentures Difference between Bonds and Debentures Types of Debentures Terms of Debenture Issue SEBI s Control 154 Chapter Summary 154 Key Words 154 Suggested Assignments 154 Suggested Questions 155 Chapter 5 Fee-Based Corporate Financial Services Guarantees (Financial and Performance) Financial Guarantees Performance Guarantee Continuing Guarantee Specific Guarantees Deferred Payment Guarantee (DPG) Revocation Invocation of Guarantee Cost of Guarantee Securities Advantages and Disadvantages of Guarantees Regulatory Framework Payment of Invoked Guarantees Letters of Credit Definition Types of Letters of Credit Process of Opening Letter of Credit Advantages of Letter of Credit Disadvantages Amendments Regulations 171

6 xviii Contents Guidelines for Grant of LCs Facility Precautions and Safeguards Payment under LCs Settlement of Claims FEDAI Rules Bills Co-acceptance Facility (BCF) Advantages Disadvantages Irregularities in Co-acceptance of Bills Safeguards Credit Insurance Deposit Insurance and Credit Guarantee Corporation of India Ltd Export Credit and Guarantee Corporation of India Ltd Credit Insurance Facility from New India Assurance Company Ltd Credit Syndication Corporate Restructuring Credit Rating Advantages of Credit Rating Disadvantages of Rating Regulation of Credit Rating Services Electronic Fund Transfer Evolution Current Status Certification Services Cash Management Services Venture Capital Finance Evolution and History Venture Capital Financing in India Venture Capital Financing Process Accessing Venture Capital Incubation Process The Business Plan Selection of Venture Capital Fund Growth of Venture Capital Financing in India Prospects of Venture Capital Financing in India 215 Chapter Summary 216 Key Words 216

7 Contents xix Suggested Additional Readings 216 Suggested Assignments 217 Suggested Questions 217 End Notes 218 Chapter 6 Merchant Banking Origin of Merchant Banking (Evolution) Definition Activities of Merchant Bankers Regulation of Merchant Banking Activity SEBI Merchant Banking Regulations Capital Adequacy Requirement Eligibility Criteria Code of Conduct for Merchant Bankers Maintenance of Books of Accounts, Records etc Appointment of Lead merchant Bankers Responsibilities of Lead Managers Underwriting Obligations Submission of Due Diligence Certificate Documents to be Furnished to SEBI Continuance of Association of Lead Manager with an Issue Prohibition of Acquisition of Shares Information to SEBI Disclosures to SEBI Appointment of Compliance Officer Payment of Fee to SEBI Role of Merchant Bankers in Initial Public Offering Indian IPO Market Pricing Issues Pre-Issue Obligations of Merchant Banker Prospectus Post-issue Formalities Redressal of Investor Grievances Co-ordination with Intermediaries Underwriters Bankers to an Issue Other Responsibilities Listing of Shares 241

8 xx Contents 6.6 SEBI Guidelines ADR, GDR AND IDR RBI Guidelines on ADR/GDR Bonus issue SEBI Guidelines on Bonus Issue Rights Issue Sweat Equity SEBI Guidelines on Sweat Equity Book-Building Reverse Book Building Registrars Brokers Underwriters and Underwriting Printers Depository Participants Asset Securitisation Meaning Cherry Picking Parties to a Securitisation Transaction The Process of Securitisation Key Elements in Securitisation Basic Methods of Transfer of Assets Benefits of Securitisation Securitisation in India The Barriers Road Map Ahead Future of Securitisation in India Legal Initiative Merchant Banking in India 279 Chapter Summary 280 Key Words 280 Suggested Assignments 280 Suggested Questions 281 Suggested Readings 281 Case Discussion Case Discussion Case Discussion End Notes 286

9 Contents Chapter 7 Asset-Based Retail Financial Services Personal Finance Consumer Finance Housing Finance Residential Mortgage Backed Securities (RMBS) Securitisation Process Benefits of Securitisation Reverse Mortgage Educational Loans Automobile Loans Discounting/Purchase of Cheques Mortgage Loans Deposit Schemes Savings Bank Account Current Account Term Deposit Cumulative Term Deposit Accounts in the Name of Non-Resident Indians Deposits under National Savings Schemes Demat Accounts Chitties and Nidhis Mutual Funds Mutual Funds in India Mutual Fund Concept Organisation Types of Mutual Funds Types of Mutual Funds in India Benefits Limitations Micro Finance 326 Chapter Summary 327 Key Words 328 Suggested Assignments 328 Suggested Questions 329 Case Discussion 330 End Notes 332 xxi

10 xxii Contents Chapter 8 Fee-Based Retail Financial Services Personal Tax Counseling Tax Return Preparer (TRP) Scheme Credit Card, Debit Card and Smart Card Credit Cards Debit Cards Smart Cards Barter Cards Automated Teller Machines (ATM) Benefits of ATM Foreign Inward Remittance Foreign Outward Remittances Fund Transfer Facilities Safe-Deposit Lockers RBI Guidelines on Safe Deposit Lockers/Safe Custody of Articles Facility Safe-Custody Facilities Certifications Portfolio Management SEBI Guidelines on Portfolio Management General Obligations and Responsibilities of Portfolio Manager Bancassurance 365 Chapter Summary 368 Key Words 369 Suggested Assignments 369 Suggested Questions 369 End Notes 370 Chapter 9 Marketing of Banking and Financial Services Concept of Marketing in Financial Services Characteristics of Financial Services Marketing Financial Services Financial Institutions Marketing of Financial Services Banking Product Development Marketing Mix Product Price 375

11 Contents xxiii Promotion Placement Public Image Product policy Distribution Policy Marketing Research Market Research Advertising Research Consumer Research Steps in Market Research Segmentation of Bank Market Competition Advertisement and Sales Promotion of Banking Products Consumer Behaviour in Bank Market Consumer and Customer Consumer Behaviour Buying Motives Marketing Strategies Selling Strategies Customer Satisfaction to Customer Delight Quality Management in Banks ISO Certification General Application Normative References Terms and Conditions Quality Management Systems Documentation Requirements Management Responsibility Planning Responsibility, Authority and Communication Internal Communication Management Review Resource Management Product/Service Realisation Design and Development Purchasing Measurement, Analysis and Improvement Analysis of Data 404

12 xxiv Contents Improvement Conclusion Banking Ombudsman Scheme 405 Chapter Summary 406 Key Words 406 Case Discussion 406 Suggested Assignments 409 Suggested Questions 409 Suggested Readings 410 PART 3: Management Chapter 10 Management of Banking Institutions Definition of a Banking Company Licensing of Banks Branch Expansion Organisational Structure Organisation of Branches, Regional and Zonal Offices Functions of Head Office Functions of Regional/Zonal Office Organisation of Branches 429 Chapter Summary 435 Key words 436 Suggested Assignments 436 Suggested Questions 436 End Notes 437 Chapter 11 Management of Non-Banking Financial Companies Definition of a Non-Banking Financial Company Role of NBFCs Classification of NBFCs Categorisation of NBFCs Registration Requirements Opening of NBFCs Entry Point Norms Organisational Structure Responsibilities of the Board of Directors Role and Responsibility of Independent and Non-Executive Directors 443

13 Contents xxv Company Secretary Commonality of Directors of Banks and Non Banking Finance Companies (NBFC) Human Resources Department Products and Services Marketing Process Credit Management Credit Facilities to the Directors Time Frame for Recovery of Loans Guidelines on Fair Practices Code for NBFCs Applications for Loans and their Processing Loan Appraisal and Terms/Conditions Disbursement of Loans including Changes in Terms and Conditions Know Your Customer Standards Customer Acceptance Policy (CAP) Customer Identification Procedure (CIP) Monitoring of Transactions Risk Management Customer Education Introduction of New Technologies Credit Cards/Debit Cards/Smart Cards/Gift Cards KYC for the Existing Accounts Applicability to Branches and Subsidiaries Outside India Appointment of Principal Officer Finance Management Supervisory and Control Systems Management Information System Customer Grievance Redressal Mechanism Financial Linkages between Banks and NBFC Structural Linkages between Banks and NBFCs Regulatory Issues 468 Chapter Summary 471 Key Words 471 Suggested Assignments 471 Suggested Questions 472 End Notes 472

14 xxvi Contents Chapter 12 Management of a Stock Broking Firm Definition of a Stock Broking Firm Registration of a Stock Broking Firm Opening of a Stock Broking Firm Organisational Structure Clearing Members (CM) Clearing Banks Clearing Mechanism Settlement Mechanism Settlement of Futures Contracts Margin Trading Functions of Regional Offices Functions of Branches Functions of Head Office Finance Management Risk Management Regulations for Risk Management Pay In Pay Out Settlements Clearing and Settlement Process at NSE Margin Trading Trading Trading and Risk Management Portfolio Management Portfolio Manager Discretionary Portfolio Manager and a Non-discretionary Portfolio Manager Handling IPOs and New Issues HR Management Current Scenario Steps to Improve HRM Major Challenges of HR Department System Management Duties and Responsibilities of Compliance Department Marketing Functions Management Information System SEBI guidelines on Brokers and Sub-brokers General Obligations and Responsibilities 494

15 Contents xxvii Depository Participant Functions Rights and Obligations of DPs 496 Chapter Summary 497 Key Words 498 Suggested Assignments 498 Suggested Questions 498 Chapter 13 Management of an Insurance Company Introduction Principles of Insurance History of Insurance Insurance Industry in India Types of Insurance Life Insurance Non-Life Insurance Opening of Insurance Companies Organisational Structure Role of Actuary in Insurance Functions of Head Office Functions of Zonal Offices Functions of Regional Offices Functions of Area Offices (AO) and Branches Policy Issuing Process Proposal Form Cover note Policy Acceptance of Business Marketing Process Advertisement and Sales Promotion IRDA Regulations on Insurance Advertising Insurance Claims Handling Process Risk Management Investments Investment in Financial Derivative Contracts Prudential Norms Guidelines on Subscription to Preference Shares IRDA s Powers to Issue Directions Regarding Investments Management Information System 549

16 xxviii Contents Social Obligations Micro Insurance Insurance Ombudsman Scheme 555 Chapter Summary 557 Key Words 558 Suggested Assignments 558 Suggested Questions 558 Recommended Readings 559 End Notes 559 Chapter 14 Risk Management in Financial Service Sector Risk Classification of Risks Liquidity Risk Currency Risk Credit Risk Market Risk Equity Risk Interest Rate Risk Commodity Risk Political Risk Legal Risk Operational Risk Model Risk Reputation Risk Risk Management Risk Identification Measuring Risk Managing Risks Asset-Liability Management in Banks Managing Market Risks Operational Risk Management Use of Derivatives Risk Management in NBFCs Risk Management in Insurance Companies 598 Chapter Summary 599 Key Words 599 Suggested Readings 600

17 Contents xxix Suggested Assignments 600 Suggested Questions 601 Case Discussion Case Discussion End Notes 604 Chapter 15 Corporate Governance in Financial Services Sector Definition Need for Corporate Governance Corporate Governance in Financial Services Industry Corporate Governance Initiatives in Banks Central Vigilance Commission and Public Sector Undertakings Whistle Blowing Policy in Banks Whistle Blowing Some Essentials Justification for Whistle Blowing Conditions for Whistle Blowing Effective Whistle Blowing Policy Whistle Blowing International and Indian Experience Corporate Social Responsibility 621 Chapter Summary 627 Key Words 627 Suggested Additional Readings 628 Suggested Assignments 628 Suggested Questions 629 Case Discussion 629 End Notes 632 PART 4: Supervision Chapter 16 Financial Sector Supervision Genesis of Banking Supervision Review and Revision of Supervisory Regulations Financial Regulation and Supervision Global Initiatives The Bank for International Settlements (BIS) Core Principles of Effective Banking Supervision Legal Initiatives on Financial Services Acts The Companies Act, Banking Regulation Act, Bankers Books of Evidence Act of

18 xxx Contents Securities Contract Regulation Act, Securities and Exchange Board of India Act, Reserve Bank of India Act, Deposit Insurance Corporation Act, The Finance Act Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, Insurance Regulatory and Development Authority (IRDA) Act, Other Enactments Institutional Framework Ministry of Finance Reserve Bank of India Securities and Exchange Board of India Insurance Regulatory and Development Authority 678 Chapter Summary 681 Key Words 682 Suggested Readings 682 Suggested Assignments 682 Suggested Questions 682 Case Discussion 683 References 694 End Notes 695 Index 697