• Financial services refer to services
provided by the finance industry.
The finance industry encompasses
a broad range of organizations that
deal with the management of
money. Among these organizations
are banks, credit card
companies, consumer finance
brokerages, investment funds and
some government sponsored
* FINANCIAL INTERMEDIATION
* It is a process by which funds are mobilized from a large
number of savers and make them available to those who are
in need of it.
* It means “ mobilizing and allocating SAVINGS”
* It includes all the activities involved in the transformation
of SAVINGS into INVESTMENTS
* It can also be called as financial intermediation.
* IMPORTANCE OF FINANCIAL SERVICES
*Economic Growth (Employment)
*Promotion of Savings (Interest)
*Capital Formation (used in industries)
*Provision of Liquidity (providing to those who need
*Contribution to GNP
* SCOPE OF FINANCIAL SERVICES
1. FUND BASED ACTIVITIES: includes
* Underwriting (subscription of shares and
* Dealing in secondary market activities. (stock
market)(selling of already sold shares)
* Participating in money market instruments. (short
* Leasing, hire-purchase, venture capital, etc.
FEE BASED ACTIVITIES: includes
• Managing the capital issues (generation of capital)
• Arrangements for placement of equity (profits) and
debt (interest) instruments
• Arrangement of funds from financial institutions
• Assisting in Government and other clearance
B. MODERN ACTIVITIES
* Rendering project advisory services. (consultancy fee)
* Planning for mergers and acquisitions.
* Acting as trustee to the debenture-holder (interest)
* Hedging of risks. (avoidance of future risk)
* Managing the portfolio of large public sector companies.
* Undertaking risk management services.
* FINANCIAL INSTRUMENTS
* Commercial Papers
* Treasury Bills
* Certificates of Deposit
* Inter-bank Participation(IBPs)
* Option Bonds
* Medium Term Maturity
* Equity with 100% Safety Net
* Convertible Bonds
* Flip-Flop Notes
* Loyalty Notes
* Convertible Bonds with a Premium Put
* Debentures with „Call‟ and „Put‟ features
* Easy Exit Bonds
* FINANCIAL SERVICES AND PROMOTION
*Industrial promotion through Merchant Banking
*Working Capital Finance Through Factoring
*Equipment Finance through Leasing
*Financial resources through Mutual Funds
*Long-term Risk Capital through Venture Capital
*Leasing is an arrangement that provides firm with the use
and control over assets without buying and owing the same.
*It is a contract between the owner of asset (lessor) and the
user of asset(lessee)
*The lessee agrees to pay a number of fixed or flexible
installments over an agreed period to the lessor called as
* STEPS IN LEASING
*Leasing a product is similar to renting it
*A contract lasts over a number of years, usually between 2 and
10, depending on the cost and usable life of the product.
*Have the full use of a piece of equipment without having to
pay the full cost of the item in one go.
*TYPES OF LEASING
Sale and leaseback Direct leasing
Leveraged lease Operating lease
*Long-term, non-cancellable lease contracts are known as
*The essential point - it contains a condition whereby the
lessor agrees to transfer the title for the asset at the
end of the lease period at a nominal cost.
*At lease it must give an option to the lessee to purchase the
asset he has used at the expiry of the lease.
*High cost high tech equip.
*The lease agreement is irrevocable.
*All the risks incidental to the asset ownership are
transferred to the lessee who bears
the cost of maintenance,
insurance and repairs.
*Only title deeds remain with the lessor.
*SALE AND LEASEBACK
*Sub-part of finance lease
*The owner of an asset sells the asset to a party (the
buyer), who in turn leases back the same asset to the owner
in consideration of lease rentals.
*This enables a firm to receive cash from sale of asset and
also retain the economic use of asset in consideration of
*Sale and lease back transaction is suitable for those
assets, which are not subjected depreciation but
appreciation, like land.
*The seller assumes the role of a lessee and the buyer
assumes the role of a lessor.
*The seller gets the agreed selling price and the buyer gets the
*Contrast to the financial lease
*A lease agreement gives to the lessee only a limited right to
use the asset.
*The lessor is responsible for the upkeep and maintenance of
*The lessee is not given any uplift to purchase the asset at
the end of the lease period.
*A third party is involved beside lessor and lessee.
*The lessor borrows a part of the purchase cost (say 8 0 %) of
the asset from the third party i.e., lender
*The asset so purchased is held as security against the loan.
*The lender is paid off from the lease rentals directly by the
lessee and the surplus after meeting the claims of the lender
goes to the lessor.
*Under direct leasing, a firm acquires the right to use an
asset from the manufacturer directly.
*The ownership of the asset leased out remains with the
*ADVANTAGES OF LEASING
*No large outlay:
The cost is spread over a number of years; there is no need to pay the
entire amount upfront.
The product is still owned by the leasing company, meaning that they
have better security on finance.
*Flexibility and convenience
The lease agreement can be tailor- made in respect of lease
period and lease rentals according to the convenience and
requirements of all lessees
*DISADVANTAGES OF LEASING
*Costly option - high interest
rates, costlier than straight buying
*Long Term Expense
*No working capital
*An agreement under which goods are let on hire and under
which the buyer (hirer) has an option to purchase them from
vendor (hiree) in accordance with the terms of the agreement
*Hire purchase is used to buy expensive items which a person
cannot afford to pay outright: e.g. a car A down payment is
usually paid and the balance is paid over several months
*Goods are let out on finance by a finance company to the
hire purchaser customer
*Buyer is required to pay an equal amount of periodic
installments during a given period
*Ownership transfers at the payment of the last installment
*TERMS OF HIRE-PURCHASE
*In hire purchase the hiror has to follow the
agreement and he cannot terminate the contract. The
seller can however, terminate the agreement in case
of default of purchaser hire purchase price is higher
than cash price, because interest element is added in
*PROCESS OF HIRE-PURCHASE
*The vendor, contracts with finance co. for
financing his hire purchase deals.
* The customer selects the goods for HP, and dealer arranges for
the complete set of documents
*Down payment by customer on completion of proposal form
*Dealer sends documents to finance co. with request to purchase
the goods, and accept the HP transaction.
*The finance co. signs the agreement and sends copy a long with
EMI details to dealer
*Dealer delivers the goods to the customer, property passes on to
the finance co.
*Hirer pays EMIs, and on last payment , the ownership passes on
to him, with loan completion certificate by the finance co.
*Many kinds of business asset are suitable for financing using
hire purchase or leasing , including:-
Plant and machinery
Medical and dental equipment
Computers, including software packages
Venture capital means funds made available
for startup firms and small businesses with
exceptional growth potential.
Venture capital is money provided by professionals who
alongside management invest in young, rapidly growing
companies that have the potential to develop into significant
Venture Capitalists generally:
*Finance new and rapidly growing companies
*Purchase equity securities
*Assist in the development of new products or services
*Add value to the company through active participation.
*ACCORDING TO SEBI:
The SEBI has defined Venture Capital Fund in its
Regulation 1996 as „a fund established in the form of
a company or trust which raises money through
loans, donations, issue of securities or units as the
case may be and makes or proposes to make
investments in accordance with the regulations’.
*Long time horizon
*Lack of liquidity
*Participation in management
*It injects long term equity finance which provides a
solid capital base for future growth.
*The venture capitalist is a business partner, sharing
both the risks and rewards. Venture capitalists are
rewarded by business success and the capital gain.
*The venture capitalist is able to provide practical
advice and assistance to the company based on past
experience with other companies which were in
The venture capitalist also has a network of contacts
in many areas that can add value to the company.
Venture capitalists are experienced in the process of
preparing a company for an initial public offering
(IPO) of its shares onto the stock exchanges or
overseas stock exchange such as NASDAQ.
They can also facilitate a trade sale.
*METHOD OF VENTURE FINANCING
The financing pattern of the deal is the most important
element. Following are the various methods of
*DEVELOPMENT OF VENTURE
CAPITAL IN INDIA
*DEVELOPMENT OF VENTURE
CAPITAL IN INDIA
*The concept of venture capital was formally
introduced in India in 1987 by IDBI.
*The government levied a 5 per cent cess on all
know-how import payments to create the venture
*ICICI started VC activity in the same year
*Later on ICICI floated a separate VC
company - TDICI
*VENTURE CAPITAL FUNDS IN INDIA
VCFs in India can be categorized into following five groups:
1) Those promoted by the Central Government controlled
development finance institutions. For example:
- ICICI Venture Funds Ltd.
- IFCI Venture Capital Funds Ltd (IVCF)
- SIDBI Venture Capital Ltd (SVCL)
2) Those promoted by State Government controlled
development finance institutions.
- Punjab Infotech Venture Fund
- Gujarat Venture Finance Ltd (GVFL)
- Kerala Venture Capital Fund Pvt Ltd.
3) Those promoted by public banks.
- Canbank Venture Capital Fund
- SBI Capital Market Ltd
4) Those promoted by private sector
- IL&FS Trust Company Ltd
- Infinity Venture India Fund
5)Those established as an overseas venture capital fund.
- Walden International Investment Group
- HSBC Private Equity
management Mauritius Ltd
*RULES AND REGULATIONS OF VC IN
RULES BY SEBI:
VCF are regulated by the SEBI (Venture Capital Fund)
The following are the various provisions:
A venture capital fund may be set up by a company or a
trust, after a certificate of registration is granted by SEBI on
an application made to it. On receipt of the certificate of
registration, it shall be binding on the venture capital fund
to abide by the provisions of the SEBI Act, 1992.
*INDIAN VENTURE CAPITALAND PVT
It was established in 1993 and is based in Delhi, the capital
It is a member based national organization that
- represents venture capital and private equity firms
- promotes the industry within India and throughout the
- encourages investment in high growth companies and
- supports entrepreneurial activity and innovation.
*It IVCA members comprise venture capital
firms, institutional investors, banks, incubators, angel
advisors, accountants, lawyers, government
bodies, academic institutions and other service providers to
the venture capital and private equity industry.
*Members represent most of the active venture capital and
private equity firms in India. These firms provide capital for
seed ventures, early stage companies and later stage
*VC can help in the rehabilitation of sick units.
*VC can assist small ancillary units to upgrade their
*VCFs can play a significant role in developing countries in
the service sector including tourism, publishing, health care
*They can provide financial assistance to people coming out
of universities, technical institutes, etc thus promoting
*FUTURE PROSPECTS OF VC IN INDIA