Financial Services Industry

India has a diversified finance industry that is experiencing rapid expansion, both in terms of
the fast growth of existing financial services firms and new business entrants.  The industry
comprises commercial banks, insurance companies, financial non-banking financial
companies, cooperatives, pension funds, mutual funds and other smaller financial entities.
The banking regulator has recently approved the formation of new entities such as payment
banks, thereby adding to the categories of entities that operate in the sector. Though, India's
finance market is primarily a banking sector with commercial banks holding for over 64 per
cent of the financial system's total assets.

Business size
The AUM of the MF industry increased in October 2014 from Rs 10.96 trillion (US$ 156.82
billion) to Rs 26.33 trillion (US$ 376.73 billion) in October 2019.

The insurance sector is another critical part of India's finance industry. The insurance
industry expanded at a rapid rate. The gross premium for the first year of life insurance
companies was Rs 214,673 crore (US$ 30.72 billion)

The demand for Initial Public Offerings (IPOs) has also seen significant growth alongside the
secondary sector. In FY19, out of Initial Public Offerings (IPOs) was received Rs 14,674
crore (US$ 2.10 billion).

In addition, India's leading stock exchange Bombay Stock Exchange (BSE) will create a joint
venture with Ebix Inc to develop a large insurance distribution network from a new
distribution exchange platform.

Importance and role:

It is the presence of financial services that enables a country to improve its economic
condition whereby there is more production in all the sectors leading to economic growth.

The benefit of economic growth is reflected on the people in the form of economic prosperity
wherein the individual enjoys higher standard of living. It is here the financial services enable
an individual to acquire or obtain various consumer products through hire purchase. In the
process, there are a number of financial institutions which also earn profits. The presence of
these financial institutions promote investment, production, saving etc.
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 Banking Financial Services:

Banking is an essential part of every successful business. They accumulate the idle savings of
the people and make them available for the investment. It is important to know what the
benefits and services are of your banking institution so you can make the most out of your
business income. There are two types of banking activities they are:

Investment banking:
Investment banks provide services and advice to corporations, investors, and other
individuals or institutions. These services are generally based on the intermediation between
issuers of capital and providers of capital, and include financial products ranging from debt or
equity issuance to advice on mergers and acquisitions.

 Capital Markets: Advising business on a variety of ways to access financial

markets, usually coordinating between corporate finance, sales & trading, and research.
 Mergers and Acquisitions: Assisting buyers or sellers of businesses with deal
execution, advising on the strategy, timing, value, and terms associated with such
transactions.
 Public Finance: Assisting municipalities and other public-sector entities with their
financing needs.
 Sales/Trading: On behalf of clients or using the bank's own capital, selling, buying
and structuring financial products.
 Research: Providing industry, company, or product analysis to investors, typically
in support of sales & trading and wealth management areas.

Commercial Banking:
Commercial banks are typically in the business of taking deposits and making loans using
their own capital. Such loans are offered to both businesses and individuals, and there are a
number of related activities in support of the commercial banking product

 Relationship Management: Interacting with corporate, small business or individual

clients to market the bank's products and make sure client needs are addressed.
 Structuring/Underwriting: Using the bank's resources to package loans or related
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financial products for clients, making sure that capital risks are adequately mitigated.
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 Syndication & Sales: Offloading all or parts of underwritten loans to other financial
institutions, in support of structuring/underwriting and relationship management.
 Risk Management: Assisting clients and working with bank's internal resources to
help manage interest rate, foreign exchange and other market price exposure.
 Cash Management: Assisting corporations with the flows and short-term
investment of cash balances.
 Retail Banking: Working with individuals and small businesses to address their
banking needs at the branch level.

Financial Intermediaries:

A financial intermediary is an organization that works as a middleman in a financial

exchange between two parties, such as a commercial bank, hedge bank, mutual fund or
pension fund. Financial intermediaries give the average customer a range of benefits
including stability, liquidity and economies of scale involved in banking and asset
management.

While technological developments threaten to replace the financial intermediary in some

fields, such as lending, disintermediation is much less of a challenge in other fields of
finance, including banking and insurance.

Financial Institutions:

A financial institution is a company involved in dealing with financial and monetary

transactions such as deposits, lending, savings, and trade of money. Financial companies
provide a broad variety of financial services sector activities from banks, securities agencies,
insurance firms, brokerage firms, and investment dealers. Virtually everyone living in a
developed economy is in constant, or at least periodic, need of financial institutions 'services.

Financial institutions offer a wide range of products and services for individual and
commercial clients. The specific services offered vary widely between different types of
financial institutions.

 Commercial banks
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 Investment banks
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  Insurance companies
 Brokerage firms

Financial services offered by various financial institutions are

 Factoring.
 Leasing.
 Forfaiting.
 Hire Purchase Finance.
 Credit card.
 Merchant Banking
 Book Building.
 Asset Liability Management.
 Housing Finance.
 Portfolio Finance.
 Underwriting
 Credit Rating
 Interest & Credit Swap.
 Mutual Fund

Financial Markets
Stock markets generally refer to any marketplace where equity dealing exists including,
though not limited to, the stock exchange, debt exchange, forex market and derivatives
market. Capital markets are essential to the proper functioning of capitalist economies

One of the important requisites for the accelerated development of an economy is the
existence of a dynamic financial market. A financial market helps the economy in the
following manner.

 Saving mobilization: Obtaining funds from the savers or surplus units such as
household individuals, business firms, public sector units, central government, state
governments etc. is an important role played by financial markets.
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 Investment: Financial markets play a crucial role in arranging to invest funds thus
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collected in those units which are in need of the same.

 National Growth: An important role played by financial market is that, they
contributed to a nation’s growth by ensuring unfettered flow of surplus funds to deficit
units. Flow of funds for productive purposes is also made possible.
 Entrepreneurship growth: Financial market contributes to the development of the
entrepreneurial claw by making available the necessary financial resources.
 Industrial development: The different components of financial markets help an
accelerated growth of industrial and economic development of a country, thus
contributing to raising the standard of living and the society of well-being.

Indian financial market:

The financial market in India at present is more advanced than many other sectors as it
became organized as early as the 19th century with the securities exchanges in Mumbai,
Ahmedabad and Kolkata. In the early 1960s, the number of securities exchanges in India
became eight - including Mumbai, Ahmedabad and Kolkata. Apart from these three
exchanges, there was the Madras, Kanpur, Delhi, Bangalore and Pune exchanges as well.
Today there are 23 regional securities exchanges in India. The Indian stock markets till
MONTH have remained stagnant due to the rigid economic controls.

Indian financial market helps in promoting the savings of the economy –helping to adopt an
effective channel to transmit various financial policies. The Indian financial sector is well
developed, competitive, efficient and integrated to face all shocks. In the Indian financial
market, there are various types of financial products whose price are determined by the
numerous buyers and sellers in the market. The other determined factor of the price of the
financial products is the market forces of demand and supply. The various types of Indian
market help in the functioning of the wide Indian financial sector.

Classification of Financial markets:

It is divided into Organised and unorganised and further organised is sub-divided into 2 types
they are:
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 Money market
  Capital market

Money Market:
The money market is a safe place to store cash for people, banks, other companies, and
governments for a limited period of time, usually one year or less. It operates in such a
manner that companies and governments that need cash to run can easily access money at fair
expense, and so companies that have more cash than they need can use it. The instruments
used in the money markets include deposits, collateral loans, acceptances, and bills of
exchange. Institutions operating in the money markets include the Federal Reserve,
commercial banks, and acceptance houses.

 Call Money: Call money is mainly used by the banks to meet their temporary
requirement of cash. They borrow and lend money from each other, normally daily. It
is repayable on demand and its maturity period varies in between one day to a
fortnight. The rate of interest paid on call money loan is known as the call rate.
 Treasury Bill: A treasury bill is a promissory note issued by the RBI to meet the short-
term requirement of funds. Treasury bills are highly liquid instruments, which means,
at any time the holder of treasury bills can transfer or get it discounted from RBI.
These bills are normally issued at a price less than their face value and redeemed at
face value. So the difference between the issue price and the face value of the treasury
bill represents the interest on the investment. These bills are secured instruments and
are issued for a period of not exceeding 364 days. Banks, Financial institutions, and
corporations normally play a major role in the Treasury bill market
 Commercial Paper: Commercial paper (CP) is a popular instrument for financing the
working capital requirements of companies. The CP is an unsecured instrument issued
in the form of a promissory note. This instrument was introduced in 1990 to enable
corporate borrowers to raise short-term funds. It can be issued for a period ranging
from 15 days to one year. Commercial papers are transferable by endorsement and
delivery. The highly reputed companies (Blue Chip companies) are the major player
of commercial paper market
 Certificate of Deposit: Certificate of Deposit (CDs) are short-term instruments issued
by Commercial Banks and Special Financial Institutions (SFIs), which are freely
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transferable from one party to another. The maturity period of CDs ranges from 91
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days to one year. These can be issued to individuals, co-operatives, and companies.
  Trade Bill: Normally, the traders, buy goods from the wholesalers or manufactures on
credit. The sellers get payment after the end of the credit period. But if any seller does
not want to wait or in immediate need of money, he/she can draw a bill of exchange in
favor of the buyer. When a buyer accepts the bill, it becomes a negotiable instrument
and is termed a bill of exchange or trade bill. This trade bill can now be discounted
with a bank before its maturity. On maturity, the bank gets the payment from the
drawee, i.e., the buyer of goods. When trade bills are accepted by Commercial Banks,
it is known as Commercial Bills. So, the trade bill is an instrument, which enables the
drawer of the bill to get funds for a short period to meet the working capital needs.

Capital Market:
The financial market is the location of exchange in securities and bonds. The hour-to-hour
activities are continuously watched and evaluated for hints to the economic condition of the
country, the state of rising sector within it, and support for the short-term future. The primary
aim of corporate institutions joining the financial markets is to raise funds for their long-,
which typically result in extending their enterprises and increasing their profits. They do this
by issuing stock shares and by selling corporate bonds.

The capital market may be further divided into:

 Industrial securities market

 Govt. securities market and
 long-term loans market.

Types of Money market instruments: -

Government Securities:

A Government Security (G-Sec) is a tradeable instrument issued by the Central Government

or the State Governments. It acknowledges the Government’s debt obligation. Such securities
are short term (usually called treasury bills, with original maturities of less than one year) or
long term (usually called Government bonds or dated securities with original maturity of one
year or more). In India, the Central Government issues both, treasury bills and bonds or dated
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securities while the State Governments issue only bonds or dated securities, which are called
the State Development Loans (SDLs). G-Secs carry practically no risk of default and, hence,
are called risk-free gilt-edged instruments.

Treasury Bills (T-Bills) :

Issued by the Central Government, Treasury Bills are known to be one of the safest money
market instruments available. However, treasury bills carry zero risk. I.e. are zero risk
instruments. Therefore, the returns one gets on them are not attractive. Treasury bills come
with different maturity periods like 3-month, 6-month and 1 year and are circulated by
primary and secondary markets. Treasury bills are issued by the Central government at a
lesser price than their face value. The interest earned by the buyer will be the difference of
the maturity value of the instrument and the buying price of the bill, which is decided with
the help of bidding done via auctions. Currently, there are 3 types of treasury bills issued by
the Government of India via auctions, which are 91-day, 182-day and 364-day treasury bills.

Certificate of Deposits (CDs)

A Certificate of Deposit or CD, functions as a deposit receipt for money which is deposited
with a financial organization or bank. However, a Certificate of Deposit is different from a
Fixed Deposit Receipt in two aspects. The first aspect of difference is that a CD is only issued
for a larger sum of money. Secondly, a Certificate of Deposit is freely negotiable. First
announced in 1989 by RBI, Certificate of Deposits have become a preferred investment
choice for organizations in terms of short-term surplus investment as they carry low risk
while providing interest rates which are higher than those provided by Treasury bills and term
deposits. Certificate of Deposits are also relatively liquid, which is an added advantage,
especially for issuing banks. Like treasury bills, CDs are also issued at a discounted price and
their tenor ranges between a span of 7 days up to 1 year. However, banks issue Certificates of
Deposits for durations ranging from 3 months, 6 months and 12 months. They can be issued
to individuals (except minors), trusts, companies, corporations, associations, funds, non-
resident Indians, etc.
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Capital market importance

The capital market plays an important role immobilising saving and channel is in them into
productive investments for the development of commerce and industry. As such, the capital
market helps in capital formation and economic growth of the country. We discuss below the
importance of capital market.

The capital market acts as an important link between savers and investors. The savers are
lenders of funds while investors are borrowers of funds. The savers who do not spend all their
income are called. “Surplus units” and the borrowers are known as “deficit units”. The capital
market is the transmission mechanism between surplus units and deficit units. It is a conduit
through which surplus units lend their surplus funds to deficit units.

Funds flow into the capital market from individuals and financial intermediaries which are
absorbed by commerce, industry and government. It thus facilitates the movement of stream
of capital to be used more productively and profitability to increases the national income.

Indian capital market vs. Global capital market

INDIAN CAPITAL MARKET GLOBAL CAPITAL MARKET

Access to Indian markets only. Access to different markets around the

world.

Exposures of Indian markets are highly Exposures of global markets are less risky.
risky.
Inflation is high in Indian markets Inflation is less in global markets
Small Change in global capital market Change in Indian capital markets will not
would result in changes in Indian capital make much changes in global capital
markets. markets.
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Primary Market
It is also known as the New Issue Market which is a part of the capital market that deals with
the issue of new securities to investors directly by the issuers. Here, the investors buy
securities that were never traded before.

The securities are issued for the first time by the companies in order to raise capital, also
known as Initial Public Offering. Companies, government or public sector institutions can
obtain funds through the sale of a new stock or bond issues through the primary market. The
primary market creates new securities and offers them for sale to the public.

The issue can be in the form of a public issue, private placement, preferential issue, rights,
and bonus issue.

A public issue does not limit anyone (individual, organization, or corporate) in investing,
while in private placement, the issuance is done to select a number of people.

IPO: IPO is an abbreviation of Initial Public Offer; it is when a company makes a fresh issue
of securities to the general public for the first time.

SBI CARDS: -

Issue Open Date 02-Mar-20

Issue Close date 05-Mar-20

IPO Price 750
₹ 10 Per Equity
Face Value
Share
10286.20 -
IPO Size (In ` Crore)
10354.77
Listing At BSE, NSE
IPO Lot Size 19
Timeline of SBI Cards IPO

Issue Open Date 02-Mar-20

Issue Close date 05-Mar-20

10

Basis of Allotment 11-Mar-20

Page

Refunds 12-Mar-20
 Credit To Demat Account 13-Mar-20

Listing Date 16-Mar-20

Open price = 613.80

Previous close = 608.05

Bid price =590.25

FPO: FPO is an abbreviation of Follow on Public offer, it is when a public limited company

that is already listed on exchanges issue additional shares to the general public.

ITI:-

A recent FPO was ITI FPO who’s listing date was 05-20-2020, offer price was 59.6, current
price is 60.15

LISTIN
OFFE
CLOS LISTIN CURRE CHAN HOLDI G
NAME OF R
E G NT GE ABS NG PRICE
IPO PRIC
DATE DATE PRICE % PERIOD CHAN
E
GE %

SBI Cards &

05-03- 16-03-
Payment 755 590.25 2.93 33 10.7
2020 2020
Services Ltd.
Hind
Prakash 17-01- 27-01-
40 41 0 81 0
Industries 2020 2020
Ltd.
Vaxtex 03-01- 13-01-
24 21.1 0 95 12.45
11

Cotfab Ltd. 2020 2020

Page
Prince Pipes
20-12- 30-12-
& Fittings 178 98.7 3.05 109 38.31
2019 2019
Ltd.
DC Infotech
and 18-12- 27-12-
45 39 0 111 14.29
Communicat 2019 2019
ion Ltd.
Ujjivan
Small 04-12- 12-12-
37 27.6 0.55 125 53.02
Finance 2019 2019
Bank Ltd.

Market
Company Last % 52 wk 52 wk
Cap
Name Price Chg
High Low (Rs. cr)
ICICI
278.4 -0.66 524.75 191 8,968.42
Securities
1,442.0
MCX India 987.35 -3.49 761.7 5,035.32
0

India bulls
102.35 -3.94 362 81.3 4,764.69
Vent

Dolat
35.7 1.28 84 27.45 628.32
Investment

Geojit Fin 18.6 0.27 44.5 15 443.24

5paisa Capita 113.7 -3.32 270.95 93.05 289.68

Share India
48.3 -11.13 90 36.15 154.11
Sec
12
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 Choice
75 0.2 98.3 35.05 150.04
Internat

Secondary market
Secondary market is the market where previously issued securities, such as stocks and bonds,
are traded among investors. It is also the market where investors buy securities from other
investors, and not from the issuing organization. The sale proceeds from the secondary
market go to the investor, and not the issuing company. A primary market, on the other hand,
is the place where the securities are given by the issuing organization for the first time and
the proceeds go towards the capital of that organization.

Stock exchange: -
The secondary tier of the capital market is what we call the stock market or the stock
exchange. The stock exchange is a virtual market where buyers and sellers trade in existing
securities. It is a market hosted by an institute or any such government body where
shares, stocks, debentures, bonds, futures, options, etc are traded.

A stock exchange is a meeting place for buyers and sellers. These can be brokers, agents,
individuals. The price of the commodity is decided by the rules of demand and supply. In
India, the most prominent stock exchange is the Bombay stock exchange. There are a total of
twenty-one stock exchanges in India.

Some of the Indian stock Exchanges: -

 NSE: - National Stock Exchange

 BSE: - Bombay Stock Exchange
 MCX: -Multi Commodity Exchange
 MSE: - Metropolitan Stock Exchange
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Corporate action
Corporate actions are actions taken by a company that impact the shareholders’ value
directly. It is an event that brings material changes to a company and affects its stakeholders.
These may be either monetary e.g. dividend, or non-monetary e.g. Bonus, rights, or stock
splits.

Corporate actions include stock splits, dividends, mergers and acquisitions, rights issues and
spin-offs. All of these are major decisions that typically need to be approved by the
company's board of directors and authorized by its shareholders.

A cash dividend is a common corporate action that alters a company's stock price. A cash
dividend is subject to approval by a company's board of directors, and it is a distribution of a
company's earnings to a specified class of its shareholders. For example, assume company
ABC's board of directors approves a $2 cash dividend. On the Ex-dividend date, company
ABC's stock price would reflect the corporate action and would be $2 less than its previous
closing price.

COMPAN DIVIDEND DATE

Y NAME Type % Announcement Record Ex-Dividend
Nestle Final 610 13-02-2020 - 14-05-2020
ABB India Final 240 12-02-2020 - 05-05-2020
KSB Pumps Final 80 27-02-2020 - 23-04-2020
23-04-
Vesuvius India Final 87.4 24-02-2020 22-04-2020
2020
09-04-
DIC India Final 45 12-02-2020 08-04-2020
2020
Ambuja 07-04-
Final 75 20-02-2020 03-04-2020
Cements 2020

A stock split is another common corporate action that alters a company's existing shares. In a
stock split, the number of outstanding shares is increased by a specified multiple, while the
share price is decreased by the same factor as the multiple.

Company Face Value Face Value

Name Record Date Split Date Before() After()
Madhav
14

Infra 28-Apr-20 27-Apr-20 10 1

Page

Projects Ltd
 Bajaj Steel
Industries 26-Mar-20 24-Mar-20 10 5
Ltd
Arnold
19-Mar-20 18-Mar-20 2 10
Holdings Ltd
Sun care
09-Mar-20 06-Mar-20 10 2
Traders Ltd
RSD
12-Feb-20 11-Feb-20 10 5
Finance Ltd
Thinkink
07-Feb-20 06-Feb-20 1 5
Picturez Ltd
Vinati
06-Feb-20 05-Feb-20 2 1
Organics Ltd
Security &
Intelligence
16-Jan-20 15-Jan-20 10 5
Services
India Ltd
Swadeshi
10-Jan-20 09-Jan-20 10 1
Polytex Ltd

Bonus shares are additional shares given to the current shareholders without any additional
cost, based upon the number of shares that a shareholder owns. These are company's
accumulated earnings which are not given out in the form of dividends, but are converted into
free shares.

DATE
Bonus
COMPANY Ex-
Ratio Announcement Record
Bonus
Tiaan 23-04-
01:04 06-03-2020 24-04-2020
Ayurvedic 2020
13-04-
Veeram Sec 134:100 26-02-2020 15-04-2020
2020
30-03-
Junction Fabric 01:02 17-02-2020 01-04-2020
2020
26-03-
Palm Jewels 36:100 10-02-2020 27-03-2020
15

2020
Aakash 26-03-
Page

01:02 08-02-2020 27-03-2020

Explorat 2020
 Karnataka 17-03-
01:10 27-01-2020 18-03-2020
Bank 2020

A spin-off occurs when an existing public company sells a part of its assets or distributes new
shares in order to create a new independent company. Often the new shares will be offered
through a rights issue to existing shareholders before they are offered to new investors. A
spin-off could indicate a company ready to take on a new challenge or one that is refocusing
the activities of the main business.

A company implementing a rights issue is offering additional or new shares only to current
shareholders. The existing shareholders are given the right to purchase or receive these shares
before they are offered to the public. A rights issue regularly takes place in the form of a
stock split, and in any case can indicate that existing shareholders are being offered a chance
to take advantage of a promising new development.

Rights DATE
Company FV Premium
Ratio Announcement Record Ex-Rights
17-03-
AFL 16:47 4 146 17-12-2019 18-03-2020
2020
Arrow 12-02-
01:05 10 26 07-09-2019 13-02-2020
Greentech 2020
11-02-
Brooks Labs 09:20 10 10 11-06-2019 12-02-2020
2020
Bajaj 0.6236111 05-02-
2 308 06-01-2020 06-02-2020
Electric 1 2020

Broking firms vs. Wealth management firms vs. AMCs

criteria Broking firm Wealth management AMCs
firms
Meaning Financial institutions Refers to the Refers to the
that help you buy management of all management of
and sell securities. financial aspects of assets of a client.
the client.
Focus Researches markets Wider focus Narrower focus, a
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to make includes asset subset of wealth

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recommendations management and management.

 for their clients, as financial planning.
well as stock and
bond trades.
Functions They act as the Include management Include management
middleman between of investments/assets of
companies selling and portfolios, tax investments/assets-
stocks and planning, education analyzing past and
individuals wishing planning, legacy current data, risk-
to purchase them. planning, estate return analysis,
planning, insurance, projection, strategy
charitable formulation for asset
contribution, management,
retirement planning. identification of
“suitable” assets.
Registration Usually registered as Usually registered as Usually registered as
brokers. investment advisors. broker-dealers.
Responsibility Providing regular “Fiduciary” Required to offer
updates to clients responsibility to put products “suitable”
regarding the status client interest before for the client.
of their investment self.
portfolios.
Compensation terms They charge Retainer fee based Usually, commission
commission on each along with a fee for based for product
purchase and sale an asset under sales which may
which they execute. management which give rise to a conflict
favors impartiality in of interest.
recommendations.
Examples Fidelity JPMorgan HDFC Mutual Fund,
SBI Mutual Fund.

Growth of financial services industry

India’s Financial services industry has been growing well in the last few years, just in the last
few months due to coronavirus, growth has gone down. According to various reports of
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analysts, the industry will be improving over the next few years, and India is set to be a leader
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in Financial services market by next 10 years.

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