Financial Services & Systems 2e

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Financial Services and System imparts knowledge in the various areas of financial services and system including topics on credit rating, mutual funds merchant banking and factoring. Comprehensive and student friendly this book in two parts is content rich and up to date.

Cover
Title Page
Copyright Page
Preface
Dedication
Contents
Part I — Financial System
- 1. Financial System—An Overview
  - Financial System
  - Features
  - Constituents
  - Financial Institutions
  - Financial Services
  - Financial Markets
  - Financial Instruments
  - Summary
  - Key Terms and Concepts
  - Review Questions
- 2. Macroeconomic Aggregates
  - Meaning
  - The Aggregates
    - 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
  - Macroeconomic Aggregates in India
    - Real Sector Policies
    - Agriculture Policy
    - Manufacturing, Infrastructure and Services
    - Trade Policies
    - Export and Import (EXIM) Policy (2002-2007)
    - Policies for External Capital Flows
    - Fiscal Policy
    - Tax Measures
    - Structural Reforms
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
- 3. Indian Financial System
  - Framework
  - Department of Banking Supervision (DBS)
  - Supervisory Role
  - Department of Non-Banking Supervision
  - Supervisory Process
    - Inspection
    - On-site Inspection
    - Off-site Monitoring & Surveillance System (OSMOS)
  - Board for Financial Supervision (BFS)
  - Advisory Council to BFS
  - Sub Committee (Audit) to BFS
  - Supervisory Jurisdiction
    - Supervision Strategies — Elements
    - Revised Strategies for Financial Supervision
  - Other Measures
    - Corporate Governance Framework
  - Transparency and Disclosure
  - Internal Controls and Housekeeping in Banks
    - Reconciliation of Inter-branch Accounts
    - Balancing of Books
    - Reconciliation of Nostro Accounts
    - Strengthening of Internal Audit/Control System
    - Audit System in Banks
    - Fraud Monitoring
  - Effective Banking Supervision—Core Principles
  - Summary
  - Key Terms and Concepts
  - Review Questions
- 4. Profile of Entrepreneur
  - Definition and Characteristics of Entrepreneur
  - The Changing Role of Entrepreneurs
  - Entrepreneur — Individual or Group?
  - Approaches to Entrepreneurship
  - Entrepreneurship Qualities
  - General Qualities
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
- 5. Global Financial System
  - Genesis
  - Essential Considerations
    - Supervision
    - Intermediation Process
    - Settlement System
    - Proliferation
    - Economic Instability
  - Summary
  - Key Terms and Concepts
  - Review Questions
- 6. Capital Structure Decisions
  - Capital Structure
  - Optimal Capital Structure
    - Simplicity
    - Low Cost
    - Maximum Return & Minimum Risks
    - Maximum Control
    - Liquidity
    - Flexibility
    - Equitable Capitalization
    - Optimum Leverage
  - Pattern of Capital Structure
  - Taking Decisions on Capital Structure
    - Cost Principle
    - Control Principle
    - Returnl Principle
    - Flexibility Principle
    - Timing Principle
  - Factors Affecting Capital Structure Decisions
    - Economy Characteristics
    - Industry Characteristics
    - Company Characteristics
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
Part II — Financial Services
- 7. Financial Services— -An Overview
  - Genesis
  - 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
    - FIIs Era
  - Financial Services Sector — Problems
    - Lack of Expertise
    - Inadequate Accommodation
    - Inadequate Technology
    - Inadequate Quality Service
    - Captive Organizations
    - Restricted Scope of Operations
    - Limited Innovation
    - Lack of Sound Institutional Mechanism
    - Other Problems
  - Regulatory Framework
    - The Need for Regulation
    - Types of Regulatory Framework
  - The Regulatory Framework
    - Framework for Banking and Financing Services
    - Framework for Insurance Services
    - Framework for Investment Services
    - Framework for Merchant Banking and Other Services
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
- 8. Book-Building
  - Concept
  - Characteristics
    - Tendering Process
    - Floor Price
    - Price Band
    - Bid
    - Allotment
    - Participants
  - The Process
    - 75 Percent Book-building
    - 100 Percent Book-building
  - Allocation Procedure
  - Case I - Initial Public Offer (IPO) Issue
  - Case II —Additional Issue by Listed Company
  - Case III - Offer by Unlisted Company
    - Normal Public Issue Vs. Book-Building Process
  - Reverse Book-Building
    - Meaning
    - Features/Benefits
    - Mechanism
    - Criticisms
    - Suggestions
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Reading
- 9. Credit Cards
  - Genesis
  - Origin and History
    - Non-bank Cards
    - Bankcards
    - Visa & Mastercard
    - Cards in Europe
    - Electronic Cards
    - Special Purpose Cards
  - Features of Modern Credit Card
  - Facilities and Services
    - Risk Coverage
    - Emergency Cash Withdrawal
    - Twenty-four Hour Service
    - Photocard Option
    - Travel Privileges
    - Credit-Line Increase
    - Service Over Phone
    - Purchase Protection
    - Fuel Facility
    - Medical Advance Facility
    - Supplementary Cards
    - Hotels Discount Facility
    - News Letters
    - Joint Credit Card and ATM Facility
  - Classification of Credit Cards
    - Based on Mode of Credit Recovery
    - Based on Status of Credit Card
    - Based on Geographical Validity
    - Based on Franchise/Tie-up
    - Based on the Issuer Category
  - Innovative Cards
    - ATM Cards
    - Debit Cards
    - Prepaid Cards
    - Private Label Cards
    - Affinity Group Cards
    - Smart Cards
    - Chip Card
    - Co-branded Card
  - Credit Card Cycle
  - Bank Card Associations
    - Function of Interchange
    - Clearing Function
  - Credit Card Structure
    - Issuer Bank
    - Acquirer Bank
    - Options for Service Delivery
    - Stand-alone
    - Co-branding
    - Regional Associations
    - Outside Service Providers
  - Validity and Renewal
  - Credit Cards and E-commerce
  - Credit Card Frauds
    - Major Sources
    - Prevention
  - Credit Information Bureau (CIB)
  - Future Outlook
  - Benefits of Credit Cards
    - Benefits to Cardholders
    - Benefits to Merchants
    - Benefits to Issuer Banks
  - Drawbacks of Credit Cards
  - The Indian Scenario
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
- 10. Debit Card
  - Genesis
  - Concept
  - Mechanism
  - Promotion and Progress
  - Dangers of Debit Cards
  - Liability for Fraud
  - Consumer Protection
  - Precautions
    - Guard PIN
    - Understand Your Card
    - Guard Your Receipts Carefully
    - Contact Your Bank
    - Check Bank Statement
  - The Indian Scenario
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
- 11. Smart Cards
  - Concept
  - Features
    - Data Carrier
    - Personal Identification
    - Financial Usage
  - Evolution
  - Types of Smart Cards
    - Contact Smart Cards
    - Contactless Card
    - Super Smart Card
  - Security Features
    - Physical and Manufacturing Security
    - Personal Identification Security
    - Communications Security
  - Financial Applications
    - Debit and Credit Cards
    - Electronic Cheque
    - Electronic Cash
    - Electronic Token
    - Cash Management Services
    - Other Applications
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Reading
- 12. Credit Rating
  - Genesis
  - Impetus
  - Origin
  - Definition of Credit Rating
  - Features
    - Specificity
    - Relativity
    - Guidance
    - Not a Recommendation
    - Broad Parameters
    - No Guarantee
    - Quantitative and Qualitative
  - Advantages
    - To Investors
    - To Issuers
    - To Intermediaries
    - To Regulators
  - The Credit Rating System - Growth Factors
    - Credibility and Independence
    - Capital Market Mechanism
    - Disclosure Requirements
    - Credit Education
    - Creation of Debt Market
  - Major Issues
    - Investment Vs. Speculative Grades
    - Continuous Monitoring
    - Grade Surveillance
    - Rating Ceiling
    - Evaluation of Line
    - Ownership Considerations
  - Global Credit Rating Agencies
  - Domestic Credit Rating Agencies
  - Credit Rating—Regulatory Framework
    - Global Scenario
    - Indian Scenario
  - Credit Rating Symbols
    - ICRA (Investment Information and Credit Rating Agency of India Limited)
    - CRISIL (Credit Rating and Information Services of India Ltd.)
    - CRISIL Fixed Deposit Rating Symbols
  - CRISIL Ratings for Short-Term Instruments
  - Rating Framework — Major Factors
    - Business Factors
    - Financial Factors
  - Equity Grading
    - The Need
    - Equity Grading by ICRA - Methodology
  - Equity Grading Process by ICRA
    - Mandate from the Issuer
    - Assigning Team of Analysts
    - Data Collection
    - Data Analysis
    - Discussions
    - Credit Report
    - Grade Communication
    - Equity Grades of ICRA
    - Credit Rating - Drawbacks
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
- 13. Commercial Bill Financing
  - Definition of Commercial Bills
  - Features
    - Written Instrument
    - Negotiable Instrument
    - Making a Bill of Exchange
    - Discounting a Bill
  - Types of Bills
    - Demand Bills
    - Usance Bills
    - Documentary Bills
    - D/A Bills
    - D/P Bills
    - Clean Bills
    - Inland Bills
    - Foreign Bills
    - Accommodation Bills
    - Supply Bills
    - Hundis
  - Commercial Bill Discounting
  - Definition
  - Features
    - Discount Charge
    - Maturity
    - Ready Finance
    - Discounting & Purchasing
  - Advantages
    - Easy Access
    - Safety of Funds
    - Certainty of Payment
    - Profitability
    - Smooth Liquidity
    - Higher Yield
    - Ideal Investment
    - Facility of Refinancing
    - Relative Stability of Prices
  - Precautions by Banker
    - Credit Standing
    - Complete Bills
    - Genuine Trade Bills
    - Proper Documentation
    - Credit Appraisal
    - Safeguards on Bills
    - Goods
    - Noting and Protesing
  - Steps in Discounting and Purchasing
    - Examination of Bill
    - Crediting Customer Account
    - Control Over Accounts
    - Sending Bills for Collection
    - Action by the Branch
    - Dishonour
  - Bills Systems
    - Drawer Bills System
    - Drawee Bills System
  - Summary
  - Key Terms and Concepts
  - Review Questions
- 14. Consumer Finance
  - Definition
  - Types
    - Revolving Credit
    - Fixed Credit
    - Cash Loan
    - Secured Finance
    - Unsecured Finance
  - Sources of Consumer Finance
    - Traders
    - Commercial Banks
    - Credit Card Institutions
    - NBFCs
    - Credit Unions
    - Middlemen
    - Other Sources
  - Mode of Consumer Finance
    - Open Account
    - Credit Card
    - Revolving Account
    - Option Plan
    - Instalment Account
    - Cash Loan
  - Demand for Consumer Finance—Factors
  - Consumer Finance—Practice in India
  - Products Covered
  - Terms of Finance
    - Eligibility
    - Guarantee
    - Tenure
    - Rate of Interest
    - Other Charges
    - Mode of Payment
    - Credit Evaluation
  - 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
    - Enjoying Possession
    - Compulsory Saving
    - Convenient Mode
    - Meeting Emergency
    - Maximization of Revenue
    - Realization of Dreams
    - Accelerates Industrial Investment
    - Enhanced Living Standard
    - Promoting Economic Development
    - Exportation
    - Effective Stock Management
    - Large-scale Production
    - Protection Against Inflation
    - National Importance
  - Case Against Consumer Finance
    - Thoughtless Buying
    - Insolvency
    - Costly Credit
    - Risk to Traders
    - Artificial Boom
    - Bad Debt Risk
    - Economic Instability
  - Boom in Consumer Financing
  - Hire Purchase System (HPS)
    - Definition
    - Characteristics
  - Hire Purchase Agreement
  - Advantages of Hire Purchase System
  - Disadvantages of Hire Purchase System
  - Hire Purchase Cost
    - Eligibility
  - Instalment Credit System (ICS)
    - Definition
    - Features
    - HPS & ICS
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
- 15. Hire Purchase Finance
  - Definition
  - Rights of Hirer
    - Right of Protection
    - Right of Notice
    - Right of Repossession
    - Right of Statement
    - Right to Excess Amou nt
  - 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
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
- 16. Insurance Services
  - Definition
  - Basic principles of Insurance
    - Good Faith
    - Insurable Interest
    - Compensation
    - Subrogation
    - Contribution
    - Loss Mitigation
    - Causa Proxima
  - Reinsurance
  - Life Insurance
    - Definition
    - Policies
  - General Insurance
  - Types
  - Fire Insurance
  - Marine Insurance
    - Policies
  - Other Insurances
  - Liability Insurance
  - Concept of Insurance Services
  - Profile of Insurance Service Providers
  - General Insurers
  - Life Insurers
  - Life Insurance Corporation of India (LIC)
    - Objectives
    - Superiority of Life Insurance
    - Medical and Non-Medical Schemes
    - With Profit and Without Profit Plans
  - Keyman Insurance
    - Plans For Individuals
  - HDFC Standard Life Insurance Company
    - Individual Products
  - Group Products
    - Tax Benefits
  - Max New York Life Insurance Company
    - Whole Life Policy
    - Term Policy
    - Endowment Policy
  - ICICI Prudential Life Insurance Company
  - TATA AIG
    - Liability Insurance
  - SBI Life Insurance Company
  - ING Vysya Life Insurance
  - Allianz Bajaj Life Insurance Company
  - Royal Sundaram
    - Motor Insurance
    - Health Insurance
    - Travel Insurance
    - Accident Insurance
    - Home Shield
  - Regulatory Framework
  - The Insurance Act
  - Insurance Regulatory and Development Authority (IRDA)
    - 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
    - Definitions
    - Registration
    - 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
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
- 17. Factoring and Forfaiting
  - Genesis
  - Definition
  - Mechanism
  - Characteristics
    - The Nature
    - The Form
    - The Assignment
    - Fiduciary Position
    - Professionalism
    - Credit Realizations
    - Less Dependence
    - Recourse Factoring
    - Compensation
  - 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
  - Legal Aspects of Factoring
    - Factoring Contract—Terms and Conditions
    - Legal Implications of Factoring
  - Advantages of Factoring
    - Cost Savings
    - Leverage
    - Enhanced Return
    - Liquidity
    - Credit Discipline
    - Cash Flows
    - Credit Certification
    - Prompt Payment
    - Information Flow
    - Infrastructure
    - Better Linkages
    - Boon to SSI Sector
    - Efficient Production
    - Reduced Risk
    - Export Promotion
  - 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
  - Line of Credit- Methods
    - Objective Method
    - Subjective Method
  - Factoring Vs Bills Discounting
  - RBI Guidelines for Factoring
  - Factoring—Indian Scenario
  - Major Factoring Firms
  - SBI Factors and Commercial Services
    - Features
    - Services
    - Canara Bank Factors
    - Fair growth Factors
    - Foremost Factors Ltd (FFL)
  - Operational Profile of Indian Factoring
    - Domestic Factoring
    - Export Factoring
  - Operational Problems in Indian Factoring
  - Factoring—A Cost-benefit Analysis
    - Principles of Factoring
  - Methods of Evaluation
    - Net Benefit Method
    - Effective Rate of Interest Method
  - Steps in Evaluation
  - Alternative Steps
  - Forfaiting
    - Definition
    - Characteristics
    - Modus Operandi
    - Advantages of Forfaiting
  - Factoring Vs. Forfaiting
  - Forfaiting—Indian Scenario
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
  - Annexure
    - Background
    - Terms of Reference
    - Concept and Types of Factoring Services
    - Need for Factoring Services
    - Pricing of Various Services
    - Organizational Set-up
    - Educating Business Community
    - Mechanism of Factoring Operation
    - Credit Investigation
    - Linkages Between Banks and Factors
    - SSI Units and Factoring
    - Export Factoring
    - Legal Framework
- 18. Leasing—An Overview
  - Definition
  - Characteristics of Lease
    - The Parties
    - The Asset
    - The Term
    - The Lease Rentals
  - Types of Lease
    - Financial Lease
    - Operating Lease
    - Conveyance-type Lease
    - Leveraged Lease
    - Sale and Leaseback
    - Partial Pay-out Lease
    - Consumer Leasing
    - Balloon Lease
    - Close-end Leasing
    - Open-end Leasing
    - Swap Leasing
    - Wrap Leasing
    - Import Leasing
    - Cross-border Leasing
    - Double-dip
    - Triple-dip
    - Japanese Cross-border Leasing
    - International Leasing
  - Financial Lease Vs Operating Lease
  - Test for Financial lease
    - Substance Test
    - Full Payment Test
    - Transfer of Title Test
    - Lease Term Test
  - Myths About Leasing
    - 100% Financing
    - Off-balance Sheet Financing
    - Better Performance
    - No Evaluation
  - Participants
    - Lessors
    - Lessees
    - Lease Brokers
    - Lease Financiers
  - The Leasing Process
    - Lease Selection
    - Order & Delivery
    - Lease Contract
    - Lease Period
  - Services of Lessor
    - Provision of Credit Facility
    - Absorbing Obsolescence Risks
    - Comprehensive Package
  - Advantages of Leasing
    - Advantages to Lessor
    - Advantages to Lessee
  - Limitations of Lease Financing
    - Disguised Debt Financing
    - Costly Option
    - Loss of Tax Shield
    - Double Sales-tax
    - Loss of Residual Value
    - Unfavorable Gearing
    - No Ownership
    - Risk of Default
    - No Working Capital
    - Indiscriminate Finance
    - Long-term Venture
  - Tax Aspects of Leasing
    - Income Tax Implications
  - Implications For Lessor—Depreciation Tax Shield
  - Implications for Lessee
    - Allowability of Lease Rentals
    - Deduction of Incidental Expenses
  - Tax Planning Aspects
    - For the Lessor
    - For the Lessee
  - Financial Implications
  - Implications under Sales Tax
    - On Purchase of Equipment
    - On Lease Rentals
    - Sale of Asset
    - Financial Implications
  - Funding Aspects of Leasing
    - Deposits
    - Bank Borrowings
  - Maximum Permissible Bank Finance
    - Requirements
    - Borrowings from Institutions
    - Eligibility Criteria
    - Terms and Conditions
  - Types of Finance
  - Summary
  - Key Terms and Concepts
  - Review Questions
  - Further Readings
- 19. Accounting and Reporting for Lease
  - Lease
    - Financial Lease
    - Operating Lease
  - Accounting and Reporting for Financial Lease—Books of the Lessor
    - Dr. Gurusamy is currently Professor and Head, Department of Commerce, University of Madras, Chennai.