MBA Financial markets and services chapter 1 & Concept of Leasing

1. UNIT –2
FINANCIAL
SERVISES
A V V S PRASAD
Assoc. Prof.

2. UNIT 2
FINANCIAL SERVISES1. Financial Services:
2. Concept
3. Nature and Scope of Financial Services
4. Regulatory Frame Work of Financial
Services
5. Growth of Financial Services in India
Merchant Banking –
6. Leasing –

3. INTRODUCTION
 Financial services industry has
undergone a big change since 1990.
 In 1970s & 80s the entire services
industry is dominated by commercial
banks & financial institutions which are
not fulfilled the requirements of the
nation.
 The economic liberalization has given
importance for financial innovation.

4.  All types of activities which are of a
financial in nature could be bought
under the term of financial services.
 It is also called as the financial
intermediation. i.e. transforming savings
into investment.

5. CLASSIFICATION OF FINANCIAL SERVICES
INDUSTRY
 Classification based on markets.
 1. capital market intermediaries.
 2. money market intermediaries.

6. FINANCIAL
SERVICES
Project
advisory
services.
Planning M&A.
JVs.
Hedging risk.
MODERN
NON-FUND
BASED
TRADITION
AL
FUND BASED
1.Lease
financing.
2.Consumer
credit.
3.Bill discounting.
4.Factoring.
5.Forfeiting.
1. Hire purchase.
2. Venture capital.
3. Housing finance.
4. Insurance
service

7. SCOPE OF FINACIAL SERVICES
 • Financial services cover a wide range of
activities.
 They can be broadly classified into two,
namely
 • i. Traditional. Activities
 • ii. Modern activities.

8. TRADITIONAL ACTIVITIES
 • Traditionally, the financial intermediaries
have been rendering a wide range of
services encompassing both capital and
money market activities.
 They can be grouped under two heads, viz.
 a. Fund based activities and
 b. Non-fund based activities.

9. FUND BASED ACTIVITIES :
 The traditional services which come under
fund based activities are the following :
 Underwriting or investment in shares,
debentures, bonds, etc. of new issues
(primary market activities).

10. NON FUND BASED ACTIVITIES
 • Financial intermediaries provide services on
the basis of non-fund activities also.
 This can be called 'fee based' activity. Today
customers, whether individual or corporate,
are not satisfied with mere provisions of
finance.
 They expect more from financial services
companies.
 Hence a wide variety of services, are being
provided under this head.

11. MODERN ACTIVITIES
 • Beside 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.
 In view of the importance, these activities
have been in brief under the head 'New
financial products and services'.
 Like- Rendering project advisory services

12. SOURCES OF REVENUE
 Two Sources of revenue for company
 1. FUND/ ASSET BASED:-
 it mainly comes from the spread (the
difference between interest paid and
received) ex- underwriting.
 2. NON-FUND/ FEE BASED:-
 Charges are collected and fixed on the basis
of services rendered. Ex. Merchant banking.

13. REGULATORY FRAME WORK OF FINANCIAL
SERVICES
 India has two primary financial
services regulators
 The Reserve Bank of India (RBI) regulating
India's banking industry
 The Securities & Exchange Board
of India (SEBI) regulating the capital
markets industry.

14. 1.LEASE FINANCING.
 Concept of leasing:-
 Leasing is an financing arrangement
between two parties.
 “LESSOR” - the issuing company.
 “LESSEE” - user of finance.
 “LEASING” - where the lessor arranges
capital to buy equipment for the use of
lessee, and agreed to return the payment as
rent which is pre fixed at mutual conveinence
for a period of time.

15. James C. van horne:-
“Lease is a contract whereby the
owner of an asset (lessor) grants to
another party (lessee) the exclusive
right to use the asset usually for an
agreed period of time in return for
the payment of rent”.

16. PROCESS OF LEASING
Lessor /
owner of the
asset
lessee / user
of the asset
Manufacturer
/ supplier
D
e
l
i
v
e
r
y
o
f
a
s
s
e
t

17. TYPES OF LEASE
LEASING
FINANCIAL
LEASE
OPERATING
LEASE
LEVERAGE
LEASE
SALE AND
LEASE BACK
CROSS
BORDER
LEASE

18. FINANCIAL LEASE
 It is also known as capital leas, Long Term
Lease , net lease, close lease.
 The lessee selects the equipments, settles
the price with a leasing company.
 It is an irrevocable & non-cancellable
contractual agreement.
 The lessee uses, maintains, insures, sales
service of the asset.
 he bears the risk of obsolesce.
 It is a medium & ling term contract.

19. OPERATING LEASE
 It is also known as service lease.
 It is short term or true lease.
 The lease is terminated by giving an notice.
 Lease rentals are higher & lessor maintains
the asset and bears the risk of obsolesce.
 Ex. Computers, vehicles etc..

20. LEVERAGE LEASE
 it is used for huge capital out lay (50k to 2
crores).
 It involves three parties:- lessor, lessee,
lender.
 25 % of investment funded by lesoor
remaining 75% contributed from a person or
group of persons (lendor)with a mortgage as
a loan to lessor.

21. SALE AND LEASE BACK
 A firm (who is already owner of the asset)
sell it to a leasing company, and gets it back
on lease.
 Asset sold
 Leased back
A firm (who is
already owner of
the asset)
leasing company

22. ADVANTAGES OF LEASING
 Permit alternative use of funds.
 Faster & cheaper credit.
 Flexibility.
 Protection against obsolesce.
 Boon to small firms

23. DISADVANTAGES OF LEASING
 Not so suitable mode of finance
 High rentals.

24. HISTORY OF LEASING
 It is dates back to 200BC when SUMERAINS
leased goods.
 Romans developed full body of leasing.
 1ST used by BELL TELEPHONE COMPANY in
1877
 In Indian it started in 1973 by CHIDAMBARAM
GROUP in madras.
 In 1980s financial institutions also started
leasing.1983 commercial banks.
 Bank India is the first bank to start a leasing
subsidiary.

25. THANK
YOU……