Types Of Financial Services

Merchant Banking
A bank

that deals mostly in international finance, long-term loans for companies and underwriting, merchant bank s do not provide regular banking services to the general public. In India the merchant banking came into reality with the opening of merchant banking division by Grindllays Bank in.

 The

main reason for rapid development of merchant banking in India in Eighties is awareness of general investors about capital market steadily. In India, generally the following agencies operate as merchant bankers: SBI Capital Market Ltd., Canbank Financial Services Ltd., PNB Capital Services Ltd., BOI finance Ltd., and India Bank Merchant Banking services Ltd.

Mutual Funds
Mutual

funds are trusts of publics member who wish to make investment in the financial instruments or assets of the business sector/ corporate sector for the mutual benefit of its member. The funds collects the moneys of these members from their saving and invests them in a diversified portfolio of financial assets so as to reduce risks and to maximize their income and capital appreciation for distribution to its member on a pro-rata basis.

 In

India, the only mutual fund operating for a long time was the UTI. It is an open-ended mutual fund. Its units can be sold and repurchased at anytime. It is in the public sector. An amendment made to the banking regulation act in 1983, empowered the RBI to permit the bank to carry on nonbanking business such as leasing, mutual funds etc. Such banks are SBI, Canara bank, Punjab national bank etc.

Credit Rating
The

term credit rating means the exercise of assessing the credit records, integrity and capability of a prospective borrower so as to meet debt obligation. Credit rating is done for companies, individuals and even countries.

 In

case of the companys debt instrument, such formal evaluation is carried out with the aid of quantitative and qualitative criteria. The instruments could be a Debenture, Fixed Deposit or Commercial Paper. The rating agencies working in India are Credit Rating and Information and Credit Rating Agency of India Ltd. (ICRA), and Credit Analysis and Research Limited (CARE)

Portfolio Service
Other

new service now brought within the preview of financial services is portfolio services. It refer to the management of individual investor-customer. Portfolio is the term collectively refers to the different securities belonging to an individual or a group of people or mutual fund. If a portfolio has the securities that are capable of earning high yield but at a greater risk, there will be scope for high yield provided risk doesnt come into the picture.

 In

India, Vysya Bank and Banking Centers of SFCs are performing these functions. Besides, private investment advisors are also maintaining the individual investors portfolio.

Leasing
Lease

is a contractual arrangement by which a firm or a person acquires right to use an asset for a definite period, in return for rent payable at regular intervals. Leasing is an alternative source of funds.

has certain advantages as listed below: 1. Availability of 00 per cent financing. 2. Tax deduction on lease payments. 3. Possibility of a faster tax write-off depending on the payment schedule. 4. Flexible terms of payment. 5. Borrowing capacity is not affected since it is an off-balance sheet form of financing. 6. Less time consuming and exclude

It

Hire Purchase Financing

Hire

Purchase Act was enacted in the year 1972. Hire purchase is a kind of debt. In this method, an asset is purchased on payment of regular instalments comprising the principal and interest spread over a specified period. the asset gets transformed only on payment of the last instalment.

 However,

the hirer can avail of depreciate and deduction of interest cost for computing taxable income. Hire purchase sales are to be made in accordance with the provisions of the Hire Purchase Act , 1972. in this method, goods are delivered to the purchaser immediately on completion of the contract. However, right will not be transferred; only the possession is transferred.

House Finance
Recently,

many private house financing companies are established. Government if India has established a finance company called National Housing Bank on July 9, 1988. It is acting as the Apex of the entire house financing companies functioning in the country.

 So

far the bank has given recognition to about 10 companies to get rediscounting finance from it. House Finance and Urban Development Corporation (HUDCO). Housing Development an Finance Corporation (HDFC), LIC and the subsidiaries of Commercial Bank are some of the organizations that are actively involved in rendering finance in this field.

Venture Capital Companies

Another

new type of service rendered in capital market is venture capital. Technocrat entrepreneurs have got knowledge about the trade. They have got relevant skill also. But they suffer from lack of finance even to fulfill the requirement of promoters contribution up to 15%20% of the total cost of the project.

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capital given to implement such a scheme is called venture capital. Thus venture capital entails high risk but has the promise of attractive returns. Therefore it is, also called as Risk Capital.

Factoring
Factoring

is an arrangement for obtaining funds by selling receivables to a specialized financing agency called the factor, generally without recourse. The balance is paid after receiving the amount due from the firm's customer. To ensure timely collection, the factor may follow up with the customer after furnishing the details of receivables.

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interest rate depends on the cost of money and competition among factors. Thus factoring is a financial package of credit, debt collection and sales ledger administration leading to regular cash flows to companies whose credit sales comprise a significant portion of the total sales.

Discounting Of Bills
The

most important form in which bankers give accommodation, without any collateral security is the discounting of clean bills . This form of financing is very popular in western countries. Genuine trade bills are of much use to the traders, acceptors and also to the commercial banks.

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RBI introduced the following recommendations: 1. All banks are eligible to offer bills of exchange for rediscount. 2. The bills of exchange should be a genuine trade bill. 3. The bill should not have a maturity period of more than 120 days and at the time of its offering to the reserve bank for rediscount its maturity period should not exceed 90 days.

4. 5.

6.

Accommodation bills are not eligible for this purpose. The bill should have at least two good signature. Of them one should be of a licensed scheduled bank. The minimum amount of bills should be Rs.5,000 and maximum should be Rs. 50,000.

Interconnected Stock exchange Of India Ltd.(ISE)

15

regional stock exchanges promoted the Interconnected Stock Exchange of India Limited (ISE) to provide costeffective trade linkage/connectivity to all the members of the Participating Exchange. Its aim is to widen the market for the securities listed on these exchanges. It is a national-level stock exchange to provide trading, clearing, settlement , risk management and surveillance support to its traders and dealers.

 The

Participating Exchange of ISE have in all, about 4,500 stock brokers. Of them more than 200 have been currently registered as traders on ISE. ISE has also appointed around 450 dealers across 70 cities other than the Participating Exchange centers in order to leverage its infrastructure and to expand its nationwide reach.

Objective Of ISE
1.

2. 3.

Creating a single integrated nationallevel solution with access to multiple markets for providing high costeffective services to millions of investors all over the country. Creating a liquid and vibrant nationallevel market. Optimally utilizing the existing infrastructure and other resources of participating stock exchange.

4. Offers an opportunity to participate in a national-market having investmentoriented business. 5. Minimizing the transaction cost. 6. Providing clearing and settlement facilities to the traders and dealers across the country. 7. Spreading demat trading across the country.