Financial Sevices Regulation

8/13/2019 Financial Sevices Regulation

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FINANCIAL SEVICES


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TOPICS

Intro Financial services

Regulation


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FINANCIAL SERVICES

It involves all activities involved in the transformation of savings into

investment

It can also be called financial intermediation which is a process by

which funds are mobilized by large number of sectors and make them

available to all those who are in need particularly corporate customers.


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FEATURES OF FINANCIALSERVICES

Customer Oriented

Intangibility

Perishability.

Promotion of Savings

Provision of Liquidity Creation of Employment Opportunities


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SCOPE OF FINANCIAL SERVICES

Fee based

Fund based


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FEE BASED /NON-FUND BASED ACTIVITIES

Financial intermediaries provide services on the basis of non-fund

activities also. This can also be called fee based activity. A wide variety

of services, are being provided under this head. They include the

following:

i. Managing the capital issues, i.e., management of pre-issue and post-

issue activities relating to the capital issue in accordance with the SEBI

guidelines and thus enabling the promoters to market their issues.


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FEE /NON-FUND BASED ACTIVITIES

Credit Rating.(Credit Rating Information service of India Ltd.)

Corporate Advisory Services.

Mutual Fund.


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FUND BASED

Leasing

Hire Purchase

Credit Cards.

Housing Finance


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MODERN ACTIVITIES

Besides the above traditional services, the financial intermediaries

render innumerable services in recent times. Most of them are in the

nature of non-fund based activity.

i. Rendering project advisory services right from the preparation of the

project report till the raising of funds for starting the project withnecessary government approval.

ii. Planning for mergers and acquisitions and assisting for their smooth

carry out.

iii. Guiding corporate customers in capital restructuring.


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MODERN ACTIVITIES

v. Structuring the financial collaboration/joint ventures by identifying

suitable joint venture partner and preparing joint venture agreement.

vi. Rehabilitating and reconstructing sick companies through appropriate

scheme of reconstruction and facilitating the implementation of the

scheme.vii. Hedging risks due to exchange rate risk, interest rate risk, economic

risk and political risk by using swaps and other derivative products.


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MODERN ACTIVITIES

viii. Managing the portfolio of large public sector corporations.

ix. Undertaking risk management services like insurance services.

x. Promoting credit rating agencies for the purpose of rating companies

which want to go public by the issue of debt instruments.


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NEW FINANCIAL PRODUCTS AND SERIVES

Merchant Banking :- is a financial intermediary who has to transfer funds

from those who posses it to those who need it. MB includes activities

such as management of customers securities, portfolio management,

project counseling et.

Loan Syndication :- It refers to a loan arranged by a bank called lead

manager for a borrower who is usually a large corporate customer or a

government department. It also enables the members of the syndicate

to share the credit risk associated with a particular loan among

themselves

Leasing :- A lease is an agreement under which a company

or a firm acquires a right to make use of a capital asset like

machinery, on payment of a prescribed fee called rental

charges.


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Mutual Funds :- A mutual fund refers to a fund raised by a financial

service company by pooling the savings of the public. It is invested in a

diversified portfolio with a view to spreading and minimizing the risk.

Factoring : Factoring refers to the process of managing the salesregister of a client by a financial services company. The entire

responsibility of collecting the book debts passes on to the factor.

Forfaiting : Forfaiting is a technique by which a forfaitor (financing

agency) discounts an export bill and pays ready cash to the exporterwho can concentrate on the export front without bothering about

collection of export bills.

E-banking


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Corporate Advisory Services

New products in Forex Markets : New products have also emerged

in the forex markets of developed countries. Some of these products are

yet to make full entry in Indian markets. Among them are :

a. Forward contract : A forward transaction is one where thedelivery of foreign currency takes place at a specified future date for a

specified price.

Options : As the very name implies, it is a contract where in

the buyer of options has a right to buy or sell a fixed amount of

currency against another currency at a fixed rate on a future date

according to his options.

.


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Futures : It is a contract wherein there is an agreement

to buy or sell a stated quantity of foreign currency at a

future date at a price agreed to between the parties on

the stated exchange.

Swaps : A swap refers to a transaction wherein a financial intermediary buys and sells a specified foreign


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CHALLENGES FACED IN THEFINANCIAL SECTOR

Lack of qualified personnel

Lack of investor awareness

Lack of transparency

Lack of specialization


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REGULATORY FRAMEWORK

Financial Services have thus become indispensable in

running the economy but such an important faces two

problems .: -

Cheating .

Instability.


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THE NEED FOR FINANCIAL SERVICES ARISES

BECAUSE

Financial services cannot be consumed or serviced at the

same time . E.g. Mutual Fund .

The ultimate investor does not have much knowledge about

the financial system.


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TY SOF REGULATION Structural Regulation:- determines the type of activities

that different form of institution are engaged in.

E.g. RBI has prescribed the activities that commercial bank

can provide to the Investors.

Prudential Regulation :- It covers the internal management

of the financial institution in relation to capital adequacy ,

liquidity and solvencythat the absence of prud regul in

some key areas can lead to bank failures . ensure the safetyof depositors' funds

E.g. SEBI has prescribed minimum net worth requirement

for various financial services firms.


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Investors Protection Regulation :-For protecting the

investors.

E.g. Banking Regulation Act , Securities Contract Regulation

Act.

Self Regulation


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REGULATION ON BANKING SERVICES

Banking Institution :- RBI Regulates , Banking Regulation

Act 1949.

Licenses authority .

Minimum capital , reserves.

Inspect working of banks.

Has the power to control the appointment of

chairman and CEO.

Power to cancel the license


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NON-BANKING FINANCIAL COMPANIES

Non banking Financial Companies :- banking law

(Miscellaneous provision )Act , 1963 .RBI.

Register with RBI and periodical statement of their working .

Extent to which the funds can be raised.

Maintain reserve fund.

Can collect report on the functioning of NBFC.

Impose penalty or cancel license


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REGULATION OF INVESTMENT SERVICES

Securities contracts (Regulation ) Act (SCRA)1956, SEBI and

RBI.

SEBI

Regulate the business of stock exchange,

Register and Regulate the working of stock brokers , sub brokers

, merchant bankers mutual funds and other financial

intermediaries. Prohibit fraudulent and unfair trade practices.

Levying fees

Regulation of Mutual Fund.

Promotes investor education


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REGULATION ON INSURANCE SERVICES

IRDA

To regulate and promote growth of insurance business .

To protect the interest of shareholder. To adjudicate disputes between insurer and intermediaries.

To control and regulates the rate , advantages , terms and

conditions that may be offered by the insurer.

Documents

Financial Sevices Regulation