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Financial Services Business Management

Published by: Cygnus Business Consulting and Research

Published: Feb. 1, 2009 - 130 Pages


Table of Contents


EXECUTIVE SUMMARY

HIGHLIGHTS

1. OPERATION MANAGEMENT

1.1 FUND MANAGEMENT

1.1.1 BENEFITS OF FUND INVESTMENT

1.1.2 FUND MANAGER AND MANAGEMENT OF FUNDS

1.1.3 FUND MANAGEMENT PROCESS

1.1.3.1 IDENTIFYING THE INVESTOR’S OBJECTIVE AND CONSTRAINTS

1.1.3.2 CREATING INVESTMENT POLICY STATEMENT

1.1.3.3 MONITORING AND REBALANCING

1.1.3.4 Performance evaluation

1.1.4 Objectives of Investment

1.1.4.1 Risk Objective

1.1.4.2 Return Objective

1.1.4.3 Tax concerns

1.1.4.4 Legal and regulatory requirements

1.1.5 Role of Fund Manager

1.1.6 Expenses Management in Managing Funds

1.1.7 Fund Management Ratings Process

1.1.7.1 Quantitative Screening

1.1.7.2 Background Verification

1.1.7.3 Qualitative Face-to-Face discussion

1.1.7.4 Rating Committee/organization

1.1.7.5 Fund Monitoring

1.1.8 Hedge Funds concept

1.1.9 Regulatory Issues in Allowing Foreign Hedge Funds in India

1.1.9.1 Hedge funds in India

1.1.9.2 Relevant provisions of FII regulations

1.1.10 Identifying hedge funds

1.1.11 Additional Regulatory Concerns

1.2 Asset Liability Management

1.2.1 Evolution of Asset-Liability Management

1.2.2 Types of Asset Liability Management Risks

1.2.2.1 Liquidity Risk

1.2.2.2 Interest Rate Risk (IRR)

1.2.2.3 Market Risk

1.2.3 Categories of Risk

1.2.3.1 Credit risk

1.2.3.2 Capital risk

1.2.3.3 Market risk

1.2.3.4 Interest rate risk

1.2.3.5 Liquidity risk

1.2.4 Asset-Liability Management Process

1.2.4.1 ALM Information systems

1.2.4.2 ALM Organisation

1.2.5 Scope of ALM

1.2.6 Guidelines for Asset Liability Management system in Housing Finance Companies

1.3 Risk Management

1.3.1 Classification of Risk

1.3.1.1 Systematic Risk

1.3.1.2 Unsystematic Risk

1.3.1.3 Other Risks

1.3.2 Why Risk Matters

1.3.3 Credit Risk Management Models

1.3.3.1 Types of Credit Risk Models

1.3.4 Requisites of Credit Model

1.3.4.1 Asset Credit Risk Model

1.3.4.2 Credit Risk Pricing Model

1.3.4.3 Market Risk Pricing Model

1.3.4.4 Exposure Model

1.3.4.5 Risk Calculation Engine

1.3.5 Techniques Used in Building the Credit Risk Models

1.3.5.1 Econometrics

1.3.5.2 Neural Networks

1.3.5.3 Optimisation Models

1.3.5.4 Expert Rule Based Systems

1.3.5.5 Hybrid Systems

1.3.6 Risk Mitigation Approaches

1.3.7 Protection against Risk

1.3.7.1 Market Risk Protection

1.3.7.2 Interest Rate Risk Protection

1.3.7.3 Protection against Inflation

1.3.7.4 Protection against Business and Financial Risk

1.3.8 Basel II and Risk Management

1.4 Regulatory Compliance

1.4.1 Securities and Exchange Board of India

1.4.2 The Organisation

1.4.3 Objectives

1.4.3.1 Aligning the various intermediaries in the financial market

1.4.3.2 Creating awareness and education among investors

1.4.3.3 Conducive investment atmosphere

1.4.3.4 SEBI acts as a facilitator

1.4.3.5 Effective law maker

1.4.3.6 Guidance to corporates

1.4.4 Functions

1.4.4.1 Protecting the interest of investors

1.4.4.2 Monitoring and regulating the business in exchanges

1.4.4.3 Monitoring and administering the active participants in the market

1.4.4.4 Administering the mutual fund schemes

1.4.4.5 Avoidance of unfair practices

1.4.4.6 Imparting knowledge

1.4.4.7 Auditing by SEBI

1.4.5 Reserve Bank of India (RBI)

1.4.5.1 To manage the monetary and credit system of the country

1.4.5.2 To stabilize internal and external value of rupee

1.4.5.3 For balanced and systematic development of banking in the country

1.4.5.4 For the development of organised money market in the country

1.4.5.5 For proper arrangement of agriculture finance

1.4.5.6 For proper arrangement of industrial finance

1.4.5.7 For proper management of public debts

1.4.5.8 To establish monetary relations with other countries of the world and international financial institutions

1.4.5.9 For centralisation of cash reserves of commercial banks and to maintain balance between the demand and supply of currency

1.4.6 Functions

1.4.6.1 Monetary Authority

1.4.6.2 Manager of Foreign Exchange

1.4.6.3 Issuer of currency

1.4.6.4 Developmental Role

1.4.6.5 Related Functions

1.4.7 Regulatory Initiatives

1.4.8‘KYC’ and Anti-Money Laundering Measures

1.4.8.1 Written Anti-Money Laundering procedures

1.4.8.2 According to SEBI the Customer Due- diligence process consists of the following

1.4.8.3 Policy for Accepting the Clients

1.4.8.4 The special category of Clients defined by SEBI are as follows

1.4.8.5 Guidelines issued by the RBI for Anti-money laundering are as follows

1.4.8.6 KYC (Know Your Customer)

1.5 BASEL II and Its Management

1.5.1 Implementation of Basel II in Advanced Countries and its Impact on Emerging Economies

1.5.1.1 High-cost lending and reduced lending to emerging economies

1.5.1.2 Curtailment of credit to emerging economies

1.5.1.3 High interest cost and competitive advantage for corporate borrowers

1.5.1.4 Impact on infrastructure development

1.5.1.5 Short-term maturity lending

1.5.1.6 Impact on capital flows and companies

1.5.1.7 Impact on stock returns

1.5.2 Implementation of Basel II in Emerging Economies

1.5.2.1 External credit rating and standardized approach

1.5.2.2 Implementation of internal ratings based risk management

1.5.2.3 High cost in IT spending and training

1.5.3 Impact of Basel II on Emerging Economies

1.5.3.1 Risk management improvement and capital adequacy

1.5.3.2 Preference for mortgage credit to consumer credit

1.5.3.3 Advantages for big banks

1.5.3.4 Advantage for Indian IT companies

1.5.3.5 Consolidation among banks

1.5.3.6 Impact on sovereign rating

1.5.4 Criticality of Qualitative Factors

1.5.4.1 Need for top management support

1.5.4.2 Creation of profile for chief risk officer

1.5.4.3 360-degree appraisal and feedback systems

1.5.4.4 Technology and people development

1.5.5 Three Pillars of Basel II

1.5.5.1Pillar One

1.5.5.2 Pillar Two

1.5.5.3 Pillar Three

1.5.6 Approach of RBI towards Basel II

1.5.7 Basic Indicator Approach

1.5.7.1 Standardised Approach

1.5.7.2 Advanced Measurement Approach

1.5.8 Comparison of Basel I and Basel II

1.5.9 Issues & Challenges in Implementing Basel II

1.5.10 Operation Management and its Importance in the Future

2. MICROFINANCE AND ITS MANAGEMENT

2.1 Definition and Concept of Microfinance

2.2 Models of Microfinance in India

2.2.1 MFI Model

2.2.2 SHG Bank Linkage Model

2.3 Issues and Challenges of Microfinance

2.3.1 Literacy & skill levels of clientele

2.3.2 High transaction and service cost

2.3.3 Credit risk

2.3.4 Skewed regional distribution of microfinance

2.3.5 Diversion of funds to unproductive activities

2.3.6 Regulatory issues

2.3.7 Irregular flow of income due to seasonality

2.3.8 Uncertainty of Market Conditions

2.3.9 Lack of tangible proof for assessment of income

2.3.10 Need for information sharing & better technology

3. CUSTOMER ACQUISITION AND SERVICING

3.1 Customer Relationship anagement

3.1.1 Meaning of CRM

3.1.2 CRM in Financial Services Industry

3.2 Understanding Investors and their Needs

3.2.1 Need for recognition and social company

3.2.2 Security needs

3.2.3 Mutual trust

3.2.4 Need for information

3.2.5 Prompt services

3.2.6 Interdependent relationship

3.2.7 Friendly approach

3.3 Developing and Positioning of Financial Instruments

3.3.1 Positioning of Financial Instruments

4. MANAGING FINANCIAL SERVICES ORGANISATION

4.1 Scope of Financial Services Management

4.1.1 Banking

4.1.2 Insurance

4.1.3 Capital and Investment Markets

4.2 Functions of Financial Services Management

4.2.1 Marketing and Sales Function

4.2.2 Research

4.2.3 Training and Staffing

4.3 Distribution Channels of Financial Services

4.3.1 Insurance

4.3.1.1 Insurance Agent

4.3.1.2 Corporate Agent

4.3.1.3 Insurance Brokers

4.3.1.4 Bancassurance

4.3.1.5 Distribution Trends for Insurance

4.3.1.6 Distribution Issues & Challenges

4.3.2 Mutual Funds

4.3.2.1 Banks

4.3.2.2 National/Regional Distributors

4.3.2.3 IFA

4.3.2.4 Direct Selling

4.3.3 Banks Distribution Channel

4.3.3.1 Branch Banking

4.3.3.2 Automated Teller Machine (ATM)

4.3.3.3 Phone and Mobile Banking

4.3.3.4 Internet Banking

4.3.3.5 Direct Selling Agents (DSA)

4.4 Management Information System

4.4.1 Objectives of MIS

4.4.2 Steps in Developing MIS

4.4.2.1 Identifying and understanding the information need of the managers/management

4.4.2.2 Explain the objectives of the MIS development and its expected benefits

4.4.2.3 Preparing a plan for developing the MIS and keeping a schedule of the task

4.4.2.4 Putting the MIS into operation

4.4.2.5 Monitor and maintain the MIS system developed

4.4.3 Importance of MIS in the Financial Services

4.4.3.1 Benefits of MIS in financial organization

4.5 Outsourcing the Financial Services

4.5.1 Investment Banking

4.5.2 Equity Research

4.5.3 Insurance

4.5.4 Banking

4.5.5 Accounting and Taxation

4.6 Infrastructure Management in Financial Services

4.6.1 IT Infrastructure

4.6.2 Payment and settlement systems

4.6.3 Electronic Clearing Service

4.6.4 Real Time Gross Settlement System

4.6.5 National Electronic Funds Transfer System

4.6.6 Cheque Truncation System

4.6.7 National Electronic Clearing Service

5. EMERGING TRENDS - ISSUES AND CHALLENGES

5.1 Volatility in Global Financial Markets

5.2 Increased Integration of Global Financial Markets

5.3 Increasing Regulatory Supervision

5.4 Changing Investor Needs

5.5 Containing/Reducing the Cost of Administration

BIBLIOGRAPHY

ABBREVIATIONS AND ACRONYM

LIST OF FIGURES

Fig 1.1 Optimal outputs of Credit Risk Management Model

Fig 1.2 Regulatory Authorities of Indian Financial system

LIST OF TABLES

Table 1.1 Risk Mitigation Approaches at Firm Level:Risk Mitigation Type

Abstract

Introduction:

Financial services are the backbone of an economy since it provides financing to all the sectors/industries existing in the economy. The management of the financial services is the most important aspect of the financial services industry because error in managing the process of financial services will affect the economic activities of the other industries. The environment in which financial services institutions operate is rapidly changing. Automation, e-commerce, outsourcing, globalisation, mergers and acquisitions, and a growing regulatory burden are creating conditions that put banking and business operations at greater risk. However, proper risk management strategy in place can mitigate the risk keeping investors’ interest intact.

Key Findings & Highlights:
  • RBI and SEBI are the regulatory authorities in the financial services industry. They frame the guidelines as well as policies for the functioning of the industry.
  • MFI model and SHG-Bank linkage (SHG) model are the two models which are predominantly prevalent in India in microfinance.
  • Financial institutions are trying to create depth in the relationship management through the successful implementation of the CRM programmes.
  • MIS helps in identifying the needs and objectives of the management and presenting the information in the precise and customised manner to the top management.
  • Volatility, integration, regulatory supervision, changing investor needs and reduction in the cost of administration are emerging trends in the financial services industry.
Reasons to Buy:
  • Provides insight into the key concepts of Financial Services Business Management, Operation Management, Microfinance and its management, Customer Acquisition and Servicing, Managing Financial Services Organisation, Emerging trends and issues &challenges
  • Prepares students and budding management executives to face the industry confidently


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