FINANCIAL SERVICES
Financial services are the economic services provided by the finance industry, which encompasses a
broad range of businesses that manage money, including credit unions, banks, credit-
card companies, insurance companies, accountancy companies, consumer-finance companies, stock
brokerages, investment funds, individual asset managers, and some government-sponsored
enterprises.
They are concerned with design and delivery of financial instruments and advisory services to
individual and businesses
FUND BASED- those where banks provide short and long term funds to individuals and
businesses. The financing is provided based on borrower’s capacity to repay.
A. LEASING- A lease is a contractual arrangement calling for the user (referred to as the lessee)
to pay the owner (referred to as the lessor) for the use of an asset.[1] Property, buildings and
vehicles are common assets that are leased. Industrial or business equipment are also
leased. Basically a lease agreement is a contract between two parties: the lessor and the
lessee. The lessor is the legal owner of the asset, while the lessee obtains the right to use
the asset in return for regular rental payments. [2] The lessee also agrees to abide by various
conditions regarding their use of the property or equipment.
B. HIRE PURCHASE- A hire purchase (HP), also known as an installment plan, is an
arrangement whereby a customer agrees to a contract to acquire an asset by
paying an initial installment (e.g., 40% of the total) and repaying the balance of
the price of the asset plus interest over a period of time.
Key Differences
Basis Hire Purchase Leasing
Meaning The deal in which Leasing is an
one party can use the agreement where one
asset of the other party buys the asset
party for the payment and allows the other
of equal monthly party to use it by
installments is known paying consideration
as Hire Purchasing. over a specified
period is known as
Leasing.
Governing No Specific AS- 19
Accounting Standard Accounting Standard
Down Payment Down Payment Not Required
Installments Principal plus interest Principal plus interest
Asset type Car, trucks, lorries Land and Building,
etc. Property.
Ownership Ownership of the Transfer of ownership
asset is transferred to depends on the type
the hire purchaser on of lease
the payment of the
last installment.
Duration Short Term Comparatively Long
term
C. Consumer Credit: Consumer credit is a type of borrowing that is used to finance personal
expenses, such as buying a car or paying for education. The purpose of consumer credit is
to provide individuals with the funds necessary to make large purchases or cover
unexpected expenses.
What are the types of consumer credit?
There are four main types of consumer credit: installment credit, non-installment credit,
revolving credit, and open credit. Installment credit is a type of credit that allows consumers
to finance a purchase for a specific purpose over time. Non-installment credit is a type of
loan that is usually offered interest-free so long as the borrower pays the total lump sum
balance within 30, 60, or 90 days. Revolving/open credit is a type of credit in which there is a
total limit that the borrower can spend up to and usually comes in the form of a credit card.
Open credit often refers to credit accounts such as utility bills that have varying payment
period balances.
What is an example of consumer credit?
An example of consumer credit is a loan that is taken out to finance the purchase of a car. Auto
loans are typically installment loans, which means that they are paid back over time in fixed
payments. The interest rate on an auto loan may be lower than the interest rate on a credit card, but
there will still be interest charges associated with the loan.
D. FACTORING: Factoring is a type of finance in which a business would sell its accounts
receivable (invoices) to a third party to meet its short-term liquidity needs. Under the transaction
between both parties, the factor would pay the amount due on the invoices minus its commission
or fees
E. Educational Loans
F. Loans against PF
FEE BASED- these are those services where banks operate functions and earn a fee out the same.
These can be in the form of brokerage, commission etc.
A. MERCHANT BANKING: It is a combination of banking and consultancy services. Consultancy
means services like providing advice and guidance for financial, marketing, managerial and
legal matters. They provide such services for adequate consideration in the form of fee.
They are specialist in international trade and thus excel in transacting with large
enterprises.
Some services provided by Merchant Banking include:
Project Counselling- these covers matters which are related to project planning,
implementation and control. Under this, the services may include, project
identification, preparation of project reports, obtaining of government approvals,
capital structure(debt-equity mix), financial structure( long term& short term) etc
Credit syndication: it is also called loan syndication. It refers to the service provided by
financial institutions for arranging and processing loans which consists of a large amount
of money( both in Indian and Foreign currency). It helps in preparation of applications,
monitoring of sanctioned funds, negotiating on behalf of clients etc.
Issue Management: this service include, preparation of prospectus, preparation of a
plan and budget etc.
Corporate Restructuring: It is concerned with activities such as merger, acquisition and
amalgamation of corporate units.
B. CREDIT RATING: A credit rating is an evaluation of the credit risk of a prospective debtor,
predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the
debtor defaulting. CRISIL; CARE; ICRA; SMREA; Brickwork Rating; India
Rating and Research Pvt. Ltd and Infometrics Valuation and Rating Pvt.
Ltd.
TOP 3:
1. CRISIL- a. Oldest CRA in INDIA b. 1st CRA. C. provides research to banks & leading corporate.
D. businesses: Research Business(65% Revenue), Advisory (7% revenue)
2. ICRA – INVESTMENT INFORMATION & CTEDIT RATING AGENCY OF INDIA
Moody’s Investor service company- 52%
3. CARE- CREDIT ANALYSIS & RESEARCH: Leading CRA in INDIA
C. STOCK BROKING: A STOCK BROKER IS A PROFESSIONAL WHO BUYS AND SELL SHARE ON
BEHALF OF CLIENTS.
