Credit Rating; Credit Cards; Mutual Funds; Advance Banking and Insurance; Merchant Banking Services; Venture Capital, Factoring for Failing and Bill Discounting

1. MANAGEMENT OF FINANCIAL
SERVICES
UNIT 4

2. CREDIT RATING
Credit rating is a symbolic indicator of the current objective
assessment by a rating agency of the relative capability and
willingness of an issuer of a debt program to service the debt
obligations as per the terms of the contract.
For example :- Credit Rating Information Service of India Ltd.
(CRISIL)
Functions of Credit
Rating
Superior Information Low Cost Information
Basis for a Proper Risk
Return Trade Off
Healthy Discipline on
Corporate Borrowers
Formulation of Public
Policy Guidelines on
Institutional
Investment

3. Benefits of Credit Rating
Low cost information
Quick Investment Decision
Sources of Addition Certification
Increase the Investors Populations
Forewarns Risks
Encourages Financial Discipline
Merchant Bankers Job Made Easy
Investors Protection
Foreign Collaborations made Easy
Benefits the Industry as a Whole

4. Rating Process
Information
Analysis of
Information
Financial
Profile
Coverage Ratio
Financial
Leverage Ratio
Liquidity Ratio
Cash Flow
Ratio
Profitability
Ratio
Business
Profile
Issuer’s
Industry
Issuer's
Competitors
Issuer’s
Management
Issuer’s
Instrument
Granting Rating
Symbol

5. Types of Rating
Equity Rating
Mutual Fund
Rating
Individual Credit
Rating
Rating of Banks
and Financial
Companies
Sovereign Rating
Rating structured
obligation

6. Credit Rating
Agencies in India
Credit Rating
Information Services
Ltd. (CRISIL)
Information and
Credit Rating Agency
of India (ICRA)
Credit Analysis and
Research (CARE)

7. CREDIT CARD
A credit card is a card or mechanism which enables cardholders
to purchase goods, travel and dine in a hotel without making
immediate payments – 45 days – credit card is a passport to
“safety , convenience, prestige and credit”
Types of
Credit Card
Credit Card
Charge
Card
In-Store
Card

8. New Types of
Credit Cards
Corporate
Credit Card
Business
Card
Smart Card
Debit Card
ATM Card

9. Parties to
Credit Card
Issuer
Cardholder
Member
Establishments

10. Procedure at the time of purchase at member establishments
A] Member establishment Scrutinizes :-
1. Validity period of the card has not expired.
2. The card has not been warning bulletin. Like card lost/
cancelled.
3. The signature of the card holder tallies with the specimen
signature on the credit card.
4. The card has not been tampered within any manner.
B] Merchant proceed :-
1. Obtain the impression of the card with the help of imprinter.
2. Obtain card holder’s signature in the space provided and
check whether signature tallies with signature on the card.
3. Prepare triplicate slips, one for the consumer, keep one copy
for record and forward one copy to the bank.

11. C] Procedure of Reimbursement:-
1. The member can claim reimbursement from the designated
branches of bank.
2. All transactions emanating during the day are consolidated in
the Summation Sheet cum BAR in triplicate.
3. The Summation sheet cum BAR in duplicate along the Banker's
copy of the charge slip should be submitted to the designated
branch for reimbursement.
4. Reimbursement should be obtained within 30 days from the
date of charge slip.
5. The bank after deducting commission credit the amount of
claim to the Member Establishment’s Account .

12. D] Facilities offered to card holders
1. Making purchase/availing of service at any of the member
establishments.
2. Cash withdraw at any of the branches of the issuer/member
affiliated of issuer to meet emergent requirements.
3. Add on facility fro family members.
4. Free credit period ranging from 15 to 45 days.
5. ATM facilities at selected centers.
6. Wide range of insurance facilities like, personal accident
insurance, cover accidental death etc.

13. Benefits of
Credit Cards
Card Holder
Simple to
operate
Convenient
method of
payment
Enjoy limit
Cash Obtained
Overdraft
Facility
Purchasing
Power
Issuers
High profit to
banks
Get new
customer
Reduces
Cheques by
customer
Member
Establishment
No Bad Debts
Speedy
settlements of
bills
Reduce Risk
Offer credit
facility
Increase the
volume of
Business

14. Demerits of
Credit Cards
Card Holder
High service
charges
Purchase
beyond capacity
Issuers
Include High
cost
Frauds
Less utilization
of cards
Member
Establishment
Heavy
Commission to
banks
Delay in
payments

15. Credit Card
Business In India
Andhra Bank
Central Bank
Bank of Baroda
Canara Bank
Bank of India

16. MUTUAL FUNDS
A mutual fund collects the savings from small investors, invest
them in government and other corporate securities and earn
income through interest and dividends, besides capital gains.
SEBI Regulations 1993 defines Mutual Funds as “a fund established
in the form of a trust by a sponsor, to raise monies by the
trustees through the sale of units to the public, under one or
more schemes, for investing in securities in accordance with
these regulations.”

17. Features/ Roles/ Benefits
Mobilizing small savings
Investment avenue
Professional management
Diversified investment
Better liquidity
Reduce Risk
Investment protection
Switching facility
Tax benefits
Low transaction cost
Economic development
Convenience

18. Products /
Schemes
Operation
Classification
Open-ended
Scheme
Closed-ended
Scheme
Interval
Scheme
Investment Base
Classification
Equity Fund
Scheme
Bond Fund
Scheme
Balanced Fund
Scheme
Sectoral fund
Scheme
Fund-of-fund
Scheme
Leverages Fund
Scheme
Gilt Funds
Index fund
Tax Saving
Scheme
Return Base
classification
Income Fund
Scheme
Growth Fund
Scheme
Conservative
fund Scheme

19. Risk
Associated
Market
Risk
Scheme
Risk
Investment
Risk
Business
Risk
Political
Risk

20. BANKING
“A bank collects money from those who have it to spare or who
are saving it out o f their incomes, and it lends this money to
those who require it”
G. Crother
“Banking means the accepting for the purpose of Indian
Companies lending or investment, of deposit of money from
the public, repayable on demand or otherwise, and withdraw
able by cheque, draft or otherwise.”
The Banking Companies(Regulation) Act, 1949

21. Types of Banks
On the basis of
Reserve Bank
Schedule
Schedule Bank
Non-Schedule
Bank
On the basis of
ownership
Public Sector
Bank
Private Sector
Bank
Cooperative
Banks
On the basis of
Domicile
Domestic Bank
Foreign Bank
On the basis of
Function
Commercial
Bank
Industrial Bank
Agricultural
Bank
Exchange Banks
Central Bank

22. Functions of
Commercial
Bank
Basic Function Agency Function
General Utility
Function

23. Basic Function
Accepting
Deposit
Saving Deposit
A/c
Fixed Deposit
A/c
Current Deposit
A/c
Recurring
Deposit A/c
Home Loan A/c
Advancing of
Loan
Call Money
Advances
Cash Credit
Overdraft
Discounting Bills
of Exchange
Term Loan
Credit Creation

24. Agency Function
Remittance of Funds
Collection and
Payment of Credit
Instrument
Execution of Standing
orders
Purchase and Sale of
Securities
Collection of dividend
on shares and interest
on debenture
Trustee and Executors
of wills
Representation and
Correspondence

25. General Utility Function
Locker Facility
Travelers' Cheque
Gift Cheques Facility
Letter of Credit
Underwriting contract
Provides Statistical Data
Foreign Exchange
facilities
Merchant Banking Service
Acting As Referee

26. INSURANCE
“Insurance is a contract whereby one person, called insurer,
undertakes in return for the agreed consideration called
premium, to pay to another person called the insured, a sum
of money or its equivalent on specified event.”
“ Insurance is a plan by which large number of people associate
themselves and transfer to the shoulders of all, risks that
attach to individual”

27. Nature or Characteristics of Insurance
1 Sharing or Risk :-
2 Cooperative device :-
3 Evaluation of risk :-
4 Payment on happening event:-
5 Amount of payment :-
6 Large number of insured person :-
7 Insurance is not a gambling:-
8 Insurance is not a charity :-
9 Protecting against risk :-
10 Spreading of risks:-
11 Transfer of Risk :-
12 Ascertaining o flosses :-
13 A contract :-
14 Based upon certain principles :-
15 Institutional set up :-
16 Insurance of pure risk only :-
17 Social device :-
18 Based on mutual good faith :-
19 Regulation under the law :-
20 Wider scope :-

28. Functions of
Insurance
Primary
Function
Provide
protection
Collective
Bearing of risk
Evaluation of
risk
Provide
certainty
against risk
Spreading risks
Secondary
Function
Prevention of
losses
Small capital to
cover larger risk
Contribution
towards
development
Other Function
Means of saving
and investment
Source of
earning foreign
exchange
Promoters
exports
Provides social
security

29. Limitations of Insurance
All the risk cannot be insured
Insurable interest on the subject matter
Impossibility of measurement of real loss
Not possible to insure the risk covered by a single
individual or a small group
Higher premium rate
Moral hazard
Certain rights cannot be insured by private insurers
Unattractive investment
In certain cases cooperation of govt. I necessary
All the pure risks are not insured

30. Scope or
Classification
Nature of
Business
Life insurance
Fire insurance
Marine
insurance
Social insurance
Miscellaneous
insurance
Sickness
Insurance
Death Insurance
Disability
Insurance
Unemployment
Old age
insurance
Business point of
view
Life Insurance
General
Insurance
Risk point of
view
Personal
Insurance
Property
Insurance
Liability
Insurance
Fidelity
Guarantee

31. Principles of
Insurance
Good Faith Indemnity Subrogation
Contract of life and personal
accident insurance
Payment of the whole loss
Surrender of all rights
claims to insurers
Insurer get benefit only to
extent of payment
The insured to provide
facility to the insurer
Insurer entitled to only such
rights as are available to the
insured
Insurable
interest
Cause Proxima
Doctrine of
Contribution

32. MERCHANT BANKING
“Any person who is engaged in the business of issue
management either by making arrangement regarding selling,
buying or subscribing to securities or acting as manager,
consultant, adviser or rendering corporate advisory services in
relation to such issue management.”

33. Difference between Commercial banking and Merchant banking
Commercial banking
• Financing agency
• Retail banking activity
• Collection savings as per
plan and guidelines
Merchant banking
• Financial services
• Whole sale banking
• Handling amount of its own

34. Function and Services of Merchant Banking
1. Corporate counseling:-
2. Project counseling:-
3. Pre-investment studies:-
4. Capital restructuring:-
5. credit Syndication and Project Finance:-
6. Issue management and underwriting:-
7. Portfolio management:-
8. Working capital finance:-
9. Acceptance Credit and Bill Discounting:-
10. Merger, amalgamation and takeovers:-
11. Venture capital:-
12. Leasing financing:-
13. Foreign currency finance :-
14. Fixed deposit broking:-
15. Mutual funds:-
16. Project appraisal:-