Financial Services Provided By

Banks

Class: SY.B.B.I.

SUBMITTED TO: Miss Lata Lokhande.

Submitted by:

Name Roll No

Anil Gupta 11

Sita 21

Anil Pandey 24

Hania Usmani 32

Pravin yadav 34

Tejasvi Hedge 36

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 INDEX
A) Financial Services.

B) Financial Services Provided By Banks:

1- Electronic Fund Transfer.

2- Overdraft.
3- Underwriting.
4- Financial Leasing.
5- Hire Purchase.
6- Demat.
7- Payment Services.
8- Private Banking.
9- Factoring.
10 Merchant Banking.
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Investment Banking.
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- Online Banking.
12 Bill Discounting.

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Bank Draft.
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- Bancassurance.

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Financial Services ?
Financial services refer to services provided by the finance
industry. The finance industry encompasses a broad range of
organizations that deal with the management of money.
Among these organizations are banks, credit companies,
insurance companies, consumer finance companies, stock,
investment and some government sponsored enterprises.

Financial services are basically deal with merchant

banks, credit card companies, consumer finance
companies, stock brokerages or with the management of
money. In the term of earning, financial services are the
largest industry in the world that represents 20 percent of
the market capitalization.
Gramm-Leach-Blilry Act enabled different types of
companies in the US financial services industry to merge.
Now a days, in US every company describes themselves as a
financial services institution such as, Bank of America offers
full-features brokerage products, while E*trade has
expanded into offering bank accounts and loans.

Two types of approaches:

Two different types of appraoches which companies usually
prefer. In the first approach, bank buys an insurance

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company or an investment bank, adds the acquisition to its
holding company to diversify its earnings and also keeps the
original brands of the acquired firm. This type is essential for
the Citigroup as well as JP Morgan Chase.
On the other hand, a bank attempts to sell the products to
its existing customers, with incentives for combining all
things with one company by creating its own brokerage
division or insurance division.

Some essential primary banking services:

When ever needed allow withdrawals and keeps money safe.
It provides the provision of loans and moratgage loans that
are needed to purchase a home, and property as well as
business. The use of Automatic teller Machines (ATM) allows
financial transactions at branches.
To meet monthly spending commitments of customers in
their current account, provide overdraft agreements for the
temporary advancement of the Bank's own money. To settle
credit advances monthly, provide Charge cards advances of
the Bank's own Monet for customers wishing. For making
bills and payments automatically, they provide the facility of
standing orders and direct debits.

Custody Services
For the financial services, custody services and securities
processing, is a kind of 'bank-office administration'.

Some firms engaged in custody services are

State Street Corporation: It provides products and
services for portfolios of investment assets and also focuses
on its services on institutional investors
and investment management.

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The bank of New York: It was a global financial services
company and now it continues with the new name 'The bank
of new York Mellon Corporation'. It operated four primary
business areas such as:
• Securities services
• Private banking
• Investment management
• Treasury management

Intermediation or advisory services

Companies with a branch presence are known as Private
client services or full services brokerages
whereas stock broker's assist people in investing, online
companies called discount brokerages.

Conglomerates
It is a financial services firm that can be active in more than
one sector at a time of a financial service market such as
asset management, retail banking, general health insurance
etc.

Market share
In the term of equity market cap and earnings, the financial
services industry constitutes the largest group of companies
in the world.

Custody services
Custody services and security services are basically used for
financial services which are called a kind of 'back-office
administration'. The amount of assets under custody was
estimated around $65 trillion at the end of 2004 in world.

Some firms that are involved in custody services are

• JPMorgan Chase

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 • Mellon Financial Corporation
• Investors Bank and Trust

Commercial bank
When a term bank is quoted it generally refers to as a
commercial bank. The other type of banking sector generally
is known as Investment banking. An investment bank in its
basic nature like other form of bank does not lend money to
individual or business group. Instead it raises money by
getting the money invested in the form of stocks or bonds.
Varied banks exist across the globe.
Some major banks are
• Bank of America
• Citigroup
• HSBC
• JP Morgan Chase
• Credit Agricole Group

Financial Services Provided By Banks

Electronic funds transfer.

Electronic funds transfer or EFT refers to the computer-

based systems used to perform financial
transactions electronically.
The term is used for a number of different concepts:
• Cardholder-initiated transactions, where a cardholder
makes use of a payment

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 • Direct deposit payroll payments for a business to its
employees, possibly via a payroll services company

• Direct debit payments from customer to business,

where the transaction is initiated by the business with
customer permission.
• Electronic bill payment in online banking, which may be
delivered by EFT or paper check

• Transactions involving stored value of electronic

money, possibly in a private

• Wire transfer via an international banking network

(generally carries a higher fee)

• Electronic Benefit Transfer

EFT may be initiated by a cardholder when a payment

card such as a credit card or debit card is used. This may
take place at an automated teller machine (ATM) or point of
sale (POS), or when the card is not present, which covers
cards used for mail order, telephone order and internet
purchases.
Card-based EFT transactions are often covered by the ISO
8583 standard.EFT transactions requires communication
between a numbers of parties. When a card is used at a
merchant or ATM, the transaction is first routed to an
acquirer, then through a number of networks to
the issuer where the cardholder's account is held.

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 What Is EFT or Electronic Funds Transfer And
How Does It Work?

An electronic funds transfer (also known as EFT) is a system

for transferring money from one bank to another without
using paper money. Its use has become widespread with the
arrival of personal computers, cheap networks, improved
cryptography and the Internet.
Since it is affected by financial fraud, the electronic funds
transfer act was implemented. This federal law protects the
consumer in case a problem arises at the moment of the
transaction.

From Where Did It Come?

The history electronic funds transfer originated from the
common funds transfer of the past. Since the 19th century,
and with the help of telegraphs, funds transfers were a usual
thing in commercial transactions. Finally, it migrated itself to
computers and became the electronic money transfers of
today.

Where Do I Find EFT's

One of the most common EFT's is Direct Deposit. It is used
by employers for depositing their employees' salary in a
bank account. Other kind of EFT is the automatic charge to
your check or savings account. For example, when you are
paying a mortgage, the bank will discharge the monthly
payment from a pre-accorded bank account. The benefit is
that you won't have to go to the bank to do it. It's automatic.

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Another kind of EFT is a cash card. With this type of card you
can spend a prepaid amount of money until the balance is
zero. So, if you wish to make a gift certificate without tying
up your beneficiary with one store, you can buy a cash card
from your favorite bank.

ATM's are also used for EFT's. Since an automatic teller

machine is much cheaper than a group of bank tellers, it has
helped to bring costs down and beneficiate the costumer.

Points of sale (also known as POS) are also part of this group.
Those little blue or dark blue machines in which you pass
your card are doing an electronic fund transfer from your
account to the retail account. Imagine how the world without
them was. Slow, wasn't it?

What Are The Pros?

The main advantage of an electronic funds transfer is time.

Since all the transaction is done automatically and
electronically, the bank doesn't need to pay a person to do
it, a person to drive the loans to the other bank, the cost of
the transport, the cost of the maintenance of the transport,
online auto insurance and the gas of the transport. EFT's
have revolutionized modern banking.

Other benefit is immediate payment, which brings an up to

date cash flow. You won't hear either about lost checks
causes by the inefficiency of normal mail (nowadays known
as snail mail for its velocity compared to emails) and up to
date bookkeeping.

The good thing is that a lot of merchants and consumers

have found these advantages and have migrated to EFT's.
So it isn't 1995 when only some companies offered this
service and only some people used it for buying things and
paying their bills. And, as the consumer base increased, also
did the type of services and the reduction of transfer prices.

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EFT's are a good example of the wonders of an open market
economy.

The service is trusted and tested daily by the foreign

currency exchange specialists who deliver millions of pounds
worldwide.

Overdraft.

An overdraft occurs when withdrawals from a bank account

exceed the available balance. In this situation a person is
said to be "overdrawn".
If there is a prior agreement with the account provider for an
overdraft protection plan, and the amount overdrawn is
within this authorised overdraft limit, then interest is
normally charged at the agreed rate. If the balance exceeds

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the agreed terms, then fees may be charged and higher
interest rate might apply.

Reasons for overdrafts

Overdrafts occur for a variety of reasons. These may include:
• Intentional short-term loan - The account holder
finds themselves short of money and knowingly makes
an insufficient-funds debit. They accept the associated
fees and cover the overdraft with their next deposit.

• Failure to maintain an accurate account register -

The account holder doesn't accurately account for
activity on their account and overspends through
negligence.

• ATM overdraft - Banks or ATMs may allow cash

withdrawals despite insufficient availability of funds.
The account holder may or may not be aware of this
fact at the time of the withdrawal. If the ATM is unable
to communicate with the cardholder's bank, it may
automatically authorize a withdrawal based on limits
preset by the authorizing network.
• Temporary Deposit Hold - A deposit made to the
account can be placed on hold by the bank. This may
be due to Regulation CC (which governs the placement
of holds on deposited checks) or due to individual bank
policies. The funds may not be immediately available
and lead to overdraft fees.
• Unexpected electronic withdrawals - At some point
in the past the account holder may have authorized
electronic withdrawals by a business. This could occur
in good faith of both parties if the electronic withdrawal
in question is made legally possible by terms of
the contract, such as the initiation of a recurring service

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 following a free trial period. The debit could also have
been made as a result of a wage garnishment, an offset
claim for a taxing agency or a credit account or
overdraft with another account with the same bank, or
a direct-deposit chargeback in order to recover an
overpayment.

• Merchant error - A merchant may improperly debit a

customer's account due to human error. For example, a
customer may authorize a $5.00 purchase which may
post to the account for $500.00. The customer has the
option to recover these funds through chargeback to
the merchant.

• Authorization holds - When a customer makes a

purchase using their debit card without using their PIN,
the transaction is treated as a credit transaction. The
funds are placed on hold in the customer's account
reducing the customer's available balance. However the
merchant doesn't receive the funds until they process
the transaction batch for the period during which the
customer's purchase was made. Banks do not hold
these funds indefinitely, and so the bank may release
the hold before the merchant collects the funds thus
making these funds available again. If the customer
spends these funds, then barring an interim deposit the
account will overdraw when the merchant collects for
the original purchase.
• Playing the Float - The account holder makes a debit
while insufficient funds are present in the account
believing they will be able to deposit sufficient funds
before the debit clears. While many cases of playing
the float are done with honest intentions, the time
involved in checks clearing and the difference in the
processing of debits and credits are exploited by those
committing check kiting.

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• Intentional Fraud - An ATM deposit with
misrepresented funds is made or a check or money
order known to be bad is deposited (see above) by the
account holder, and enough money is debited before
the fraud is discovered to result in an overdraft once
the chargeback is made. The fraud could be
perpetrated against one's own account, another
person's account, or an account set up in another
person's name by an identity thief.

• Bank Error - A check debit may post for an improper

amount due to human or computer error, so an amount
much larger than the maker intended may be removed
from the account. Same bank errors can work to the
account holder's detriment, but others could work to
their benefit.

• Victimization - The account may have been a target of

identity theft. This could occur as the result of demand-
draft, ATM-card, or debit-card fraud, skimming, check
forgery, an "account takeover," orphishing. The criminal
act could cause an overdraft or cause a subsequent
debit to cause one. The money or checks from an ATM
deposit could also have been stolen or the envelope
lost or stolen, in which case the victim is often denied a
remedy.

• Intraday overdraft - A debit occurs in the customer’s

account resulting in an overdraft which is then covered
by a credit that posts to the account during the
same business day. Whether this actually results in
overdraft fees depends on the deposit-account holder
agreement of the particular bank.

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 Underwriting.
Underwriting refers to the process that a large financial
service provider (bank, insurer, investment house) uses to
assess the eligibility of a customer to receive their products
(equity capital, insurance, mortgageor credit). The name
derives from the Lloyd's of London insurance market.
Financial bankers, who would accept some of the risk on a
given venture (historically asea voyage with associated risks
of shipwreck) in exchange for a premium, would literally
write their names under the risk information that was written
on a Lloyd's slip created for this purpose. Once the
underwriting agreement is struck, the underwriter bears the
risk of being able to sell the underlying securities, and the
cost of holding them on its books until such time in the
future that they may be favorably sold.
If the instrument is desirable, the underwriter and the
securities issuer may choose to enter into an exclusivity
agreement. In exchange for a higher price paid upfront to
the issuer, or other favorable terms, the issuer may agree to
make the underwriter the exclusive agent for the initial sale
of the securities instrument. That is, even though third-party
buyers might approach the issuer directly to buy, the issuer
agrees to sell exclusively through the underwriter. In
summary, the securities issuer gets cash up front, access to
the contacts and sales channels of the underwriter, and is
insulated from the market risk of being unable to sell the
securities at a good price. The underwriter gets a nice profit
from the markup, plus possibly an exclusive sales
agreement.

Also, if the securities are priced significantly below market

price (as is often the custom), the underwriter also
curries favor with powerful end customers by granting

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 them an immediate profit (see flipping), perhaps in
aquid pro quo. This practice, which is typically
justified as the reward for the underwriter for taking on
the market risk, is occasionally criticized as unethical,
such as the allegations that Frank Quattrone acted
improperly in doling out hot IPO stock during the dot
com bubble. Bank underwriting
In banking, underwriting is the detailed credit analysis
preceding the granting of a loan, based on credit information
furnished by the borrower, such as employment history,
salary and financial statements; publicly available
information, such as the borrower's credit history, which is
detailed in a credit report; and the lender's evaluation of the
borrower's credit needs and ability to pay. Underwriting can
also refer to the purchase of corporate bonds, commercial
paper, government securities, municipal general-obligation
bonds by a commercial bank or dealer bank for its
own account or for resale to investors. Bank underwriting of
corporate securities is carried out through separate holding-
company affiliates, called securities affiliates or Section 20
affiliates.

Bank underwriting
In banking, underwriting is the detailed credit analysis
preceding the granting of a loan, based on credit information
furnished by the borrower, such as employment history,
salary and financial statements; publicly available
information, such as the borrower's credit history, which is
detailed in a credit report; and the lender's evaluation of the
borrower's credit needs and ability to pay. Underwriting can
also refer to the purchase of corporate bonds, commercial
paper, government securities, municipal general-obligation
bonds by a commercial bank or dealer bank for its
own account or for resale to investors. Bank underwriting of
corporate securities is carried out through separate holding-
company affiliates, called securities affiliates or Section 20
affiliates..

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 Financial leasing.

What Is Leasing?

Leasing in its simplest form is a means of delivering finance,

with leasing broadly defined as “a contract between two
parties where one party (the lessor) provides an asset1 for
usage to another party (the lessee) for a specified period of
time, in return for specified payments.” Leasing, in effect,
separates the legal ownership of an asset from the economic
use of that asset.
Leasing is a medium-term financial instrument for the
procurement of machinery, equipment, vehicles, and/or
properties. Leasing provides financing of assets equipment,
vehicles rather than direct capital. Leasing institutions
(lessors)—banks, leasing companies, insurance companies,
equipment producers or suppliers, and non-bank financial
institutions purchase the equipment, usually as selected by
the lessee, providing the equipment for a set period of time
to businesses. For the duration of the lease, the lessee
makes periodic payments to the lesser at an agreed rate of
interest. At the end of the lease period, the equipment is
either transferred to the ownership of the business, returned
to the lessor, discarded, or sold to a third party.
Under financial leasing, the lessee typically acquires or
retains the asset. A finance lease is a contract that allows

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the lessor, as owner, to retain ownership of an asset while
transferring substantially all the risks and rewards of
ownership to the lessee.2 A finance lease is also known as a
full payout lease, because payments made during the term
of the lease amortize the lessor’s costs of purchasing the
asset (there may be a residual value that usually does not
exceed 20% of the cost).The payments also cover the
lessor’s funding costs and provide a profit. Despite the legal
form of the transaction, the economic substance of a finance
lease transaction is one of pur-chase financing rather than a
mere rental.
In contrast, an operating lease is essentially a rental contract
for, usually, the short-term or temporary use of an asset by
the lessee. The maintenance and insurance responsibilities
(and most risks associated with the ownership of the asset)
remain with the lessor, who recovers the costs and profits
from multiple rentals and the final sale of the asset.
A finance lease or capital lease is a type of lease. It is a
commercial arrangement where:The lessee (customer or
borrower) will select an asset (equipment, vehicle, software);

• The lesser (finance company) will purchase that asset;

• The lessee will have use of that asset during the lease;

• The lessee will pay a series of rentals or installments for

the use of that asset;

• The lesser will recover a large part or all of the cost of

the asset plus earn interest from the rentals paid by the
lessee;

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 • The lessee has the option to acquire ownership of the
asset (e.g. paying the last rental, or bargain option
purchase price);

• The finance company is the legal owner of the asset

during duration of the lease.

However the lessee has control over the asset providing

them the benefits and risks of (economic) ownership.

Leasing is a process by which a firm can obtain the use of a

certain fixed assets for which it must pay a series of
contractual, periodic, tax deductible payments. The lessee is
the receiver of the services or the assets under the lease
contract and the lesser is the owner of the assets. The
relationship between the tenant and the landlord is called
a tenancy, and can be for a fixed or an indefinite period of
time (called the term of the lease). The consideration for the
lease is called rent. A gross lease is when the tenant pays a
flat rental amount and the landlord pays for all property
charges regularly incurred by the ownership.

Under normal circumstances, an owner of property is at

liberty to do what they want with their property, including
destroys it or hand over possession of the property to a
tenant. However, if the owner has surrendered possession to
another (i.e. the tenant) then any interference with the quiet
enjoyment of the property by the tenant in lawful possession
is unlawful.

Why Develop Leasing?

Leasing provides a means for delivering increased domestic

investment within economies. By developing additional

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financial tools such as leasing or mortgages, countries are
able to deepen the activities of their financial sector by
introducing new products and/or industry players.

The key benefit of leasing, is the access it provides to those

that do not have a significant asset base already by enabling
small enterprises to leverage off an initial cash deposit, with
the inherent value of the asset being purchased acting as
col-3 This manual does not address the pros and cons of
leasing versus secured lending. Preferences may vary
depending on a number of factors including legislative
framework, cost, level of financial market development,
availability of diverse financial instruments, etc.

Hire purchase

Hire purchase (frequently abbreviated to HP) is the legal

term for a contract developed in the United Kingdom and
now found in China, Japan, India, Australia, and New
Zealand. It is also called closed-end leasing. In cases where a
buyer cannot afford to pay the asked price for an item of
property as a lump sum but can afford to pay a percentage
as a deposit, a hire-purchase contract allows the buyer to
hire the goods for a monthly rent. When a sum equal to the
original full price plus interest has been paid in equal
installments, the buyer may then exercise an option to buy

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the goods at a predetermined price (usually a nominal sum)
or return the goods to the owner. In Canada and the United
States, a hire purchase is termed an installment plan;
other analogous practices are described as leasing or rent to
own.

Hire purchase differs from a mortgage and similar forms

of lien-secured credit in that the so-called buyer who has the
use of the goods is not the legal owner during the term of
the hire-purchase contract. If the buyer defaults in paying
the installments, the owner may repossess the goods, a
vendor protection not available with unsecured-consumer-
credit systems. HP is frequently advantageous to consumers
because it spreads the cost of expensive items over an
extended time period.

Business consumers may find the different balance

sheet and taxation treatment of hire-purchased goods
beneficial to their taxable income. The need for HP is
reduced when consumers have collateral or other forms of
credit readily available.

The seller and the owner

If the seller has the resources and the legal right to sell the
goods on credit (which usually depends on a licensing
system in most countries), the seller and the owner will be
the same person. But most sellers prefer to receive a cash
payment immediately. To achieve this, the seller transfers
ownership of the goods to a Finance Company, usually at a
discounted price, and it is this company that hires and sells
the goods to the buyer. This introduction of a third party
complicates the transaction. Suppose that the seller makes

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false claims as to the quality and reliability of the goods that
induce the buyer to "buy". In a conventional contract of sale,
the seller will be liable to the buyer if these representations
prove false. But, in this instance, the seller who makes the
representation is not the owner who sells the good to the
buyer only after all the installments have been paid. To
combat this, some jurisdictions, including Ireland, make the
seller and the finance house jointly and severally liable to
answer for breaches of the purchase contract.

(hire purchase (HP) A method of buying goods in which

the purchaser takes possession of them as soon as an initial
installment of the price (a deposit) has been paid and
obtains ownership of the goods when all the agreed number
of subsequent installments have been paid. A hire-purchase
agreement differs from a credit-sale agreement and sale by
installments (or a deferred payment agreement) because in
these transactions ownership passes when the contract is
signed. It also differs from a contract of hire.)

Characteristics of Hire-Purchase
• Hire-purchase is a credit purchase.

• The price under hire-purchase system is paid in

instalments.

• The goods are delivered in the possession of the

purchaser at the time of commencement of the
agreement.

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• Hire vendor continues to be the owner of the goods till
the payment of last instalment.

• The hire-purchaser has a right to use the goods as a

bailer.

• The hire-purchaser has a right to terminate the

agreement at any time in the capacity of a hirer.

• The hire-purchaser becomes the owner of the goods

after the payment of all instalments as per the
agreement.

• If there is a default in the payment of any instalment,

the hire vendor will take away the goods from the
possession of the purchaser without refunding him any
amount.

Demat

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Demat refers to a dematerialised account. Just as you have
to open an account with a bank if you want to save your
money, make cheque payments etc, you need to open a
demat account if you want to buy or sell stocks. In a demat
account, instead of cash, we hold shares and securities in
the electronic form. Demat Account is given to the investor
while registering with a broker or a sub broker. Demat
Account is provided with an Account number. This Account
would be used for all the transactions later on. Demat
Account is used to keep the shares safe which we bought in
the Exchange (BSE or NSE). In earlier days before the
commencement of Demat Account investors were given
relevant documents and certificates for the shares they
bought. These documents had to be kept safe and were to
be given to the buyer when selling. Problems such as misuse
and counterfeiting of the documents were not uncommon.
So SEBI planned to use the Demat Account in order to
prevent the misusing of share Documents by avoiding
trading in the physical form altogether. The account holder’s
shares are stored in the demat account in the electronic
form. The demat account is much more secure than share
documents since it is protected with an internet password
and a transaction password, and transfer of shares to a third
person without the knowledge of these passwords is not
possible. When we buy shares, they will be added to the
Demat Account automatically. When we sell, shares will
automatically be transferred from our Demat Account to the
Buyer’s demat account.

How to open a Demat Account?

Opening a Demat account is as simple as a bank account
opening. You can open a Demat account with any registered
depository participant (DP). The first step of opening an
account is to fill up an account opening form. Standard
Agreements are to be signed by the Client and the DP, which

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details the rights and obligations of both parties. The
charges for account opening, annual account maintenance
fees and transaction charges vary between DPs. The

client will be provided with an account number called BO ID

(Beneficiary Owner Identification Number).

Who can open a Demat account?

Any individual or corporate can open a demat account. It is
possible to open more than one demat account in identical
names. A demat account can be opened in more than one
names but can be operated only for dematerialization of
shares held in the same combination. No shares can be
credited by purchase or transferred from any other
account. Once a demat account has been started, it is not
possible to change the account name. In such case a new
demat account needs to be opened in the changed name,
securities are to be transferred from the old account to the
new account and the old account needs to be closed. Even
though a power of Attorney holder cannot open a demat
account, it is permissible to be operated by both the client
and the POA holder.
The different categories of accounts that can be opened
under an individual demat account are Ordinary Resident,
Hindu United Family (HUF), Non Resident Indian -
Repatriable, Non Resident Indian- Non Repatriable, Margin,
Promoter, Others. The different categories of accounts that
can be opened under a corporate demat account are Body
Corporate, Bank, Financial Institution, Foreign Institutional
Investor, Overseas Corporate Body & Others.
Some advantages of Demat
The demat account reduces brokerage charges, makes
pledging/hypothecation of shares easier, enables quick
ownership of securities on settlement resulting in increased
liquidity, avoids confusion in the ownership title of securities,
and provides easy receipt of public issue allotments. It also

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helps you avoid bad deliveries caused by signature
mismatch, postal delays and loss of certificates in transit.
Further, it eliminates risks associated with forgery,
counterfeiting and loss due to fire, theft or mutilation. Demat
account holders can also avoid stamp duty (as against 0.5
per cent payable on physical shares), avoid filling up of
transfer deeds, and obtain quick receipt of such benefits as
stock splits and bonuses.

Payment service.
A payment service provider (PSP) offers merchants
online services for accepting electronic payments by a
variety of payment methods including credit card, bank-
based payments such as direct debit, bank transfer, and
real-time bank transfer based on online banking. Some PSPs
provide unique services to process other next generation
methods (Payment systems) including cash payments,
wallets such asPayPal, prepaid cards or vouchers, and even
paper or e-check processing.

Typically, a PSP can connect to multiple acquiring banks,

card, and payment networks. In many cases, the PSP will
fully manage these technical connections, relationships with
the external network, and bank accounts. This makes the
merchant less dependent on financial institutions and free
from the task of establishing these connections directly -
especially when operating internationally.

Furthermore, a full service PSP can offer risk

management services for card and bank based payments,
transaction payment matching, reporting, fund remittance
and fraud protection in addition to multi-
currency functionality and services.

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PSP fees are typically levied in one of two ways: as a
percentage of each transaction or a low fixed cost per
transaction.

US-based on-line payment service providers are supervised

by the Financial Crimes Enforcement
Network (or FinCEN), a bureau of the United States
Department of the Treasury that collects and analyzes
information about financial transactions in order to
combat money laundering, terrorist financiers, and
other financial crimes.

List of on-line payment service providers

The following is a list of on-line payment service providers:

 24x7payments.com

 AlertPay

 Barclaycard ePDQ

 Beenz

 Bucks Net

 CyberBucks (of DigiCash),

26
  Cyber Coin

 Data cash

 eCa

Private banking
Private banking is a term for banking, investment and
other financial services provided by banks to private
individuals investing sizable assets. The term "private" refers
to the customer service being rendered on a more personal
basis than in mass-market retail banking, usually via
dedicated bank advisers. It should not be confused with
a private bank, which is simply a non-incorporated banking
institution.

Historically private banking has been viewed as very

exclusive, only catering for individuals with liquidity over $2
million, although it is now possible to open some private
bank accounts with as little as $250,000 for private
investors. An institution's private banking division will
provide various services such as wealth management,
savings, inheritance and tax planning for their clients. A
high-level form of private banking (for the especially
affluent) is often referred to as wealth management.

27
The word "private" also alludes to bank secrecy and
minimizing taxes through careful allocation of assets or by
hiding assets from the taxing authorities. Swiss and
certain offshore banks have been criticized for such
cooperation with individuals practicing tax evasion.
Private banking is another term for a financial service
company that targets at providing large margin loans to
reputed individuals or business houses.

Private bank rankings

The world's best private banks: Euromoney's annual private

banking awards rank private banks and wealth management
services by assets under management, profitability, ratio of
clients to relationship managers and services offered.
Results provide a qualitative and quantitative review of
private banking services across a number of categories.The
top 20 global banks in the 2006 results reported increases in
asset under management, with UBS Wealth Management
succeeding in increasing AUM by 19%.

"A poll of the heads of business at the top 20 global private

banks reveals three key determinants for the increase in
AUM: improved portfolio performance, development of
onshore business, and use of investment banking ties to
attract a larger share of a client’s wallet.

With almost 68% of private banks charging percentage fees

based on AUM, increased assets have resulted in improved
profitability. Universal banking groups have therefore
realized the value that private banking can offer."

Best private bank for ultra high net worth ($30m+) 2007.
This table displays results of one category of the Private
banking awards.

28
 1. UBS
2. Citigroup
3. HSBC
4. Credit Suisse
5. Merrill Lynch
6. Deutsche Bank
7. JP Morgan Chase
8. BNP Paribas
9. Société Générale
10. ABN Amro
The Future of Private Banking
Will come at a critical time for the private banking industry.
As economies show signs that the slow progress towards
recovery is beginning, the private banking sector needs to
rebuild client relationships and restore trust. Keeping pace
with the evolving requirements of high net worth individuals
will be critical to future success. This conference will bring
together high calibre speakers from private banks and family
offices to debate the challenges facing the sector and to
discuss how the industry can move forward.

Factoring

What is factoring?
Factoring is a financial option for the management of
receivables. In simple definition it is the conversion of credit
sales into cash. In factoring, a financial institution (factor)
buys the accounts receivable of a company (Client) and pays
up to 80 %( rarely up to 90%) of the amount immediately on
agreement. Factoring company pays the remaining amount
(Balance 20%-finance cost-operating cost) to the client when
the customer pays the debt. Collection of debt from the
customer is done either by the factor or the client depending

29
upon the type of factoring. We will see different types of
factoring in this article. The account receivable in factoring
can either be for a product or service. Examples are
factoring against goods purchased, factoring for construction
services (usually for government contracts where the
government body is capable of paying back the debt in the
stipulated period of factoring. Contractors submit invoices to
get cash instantly), factoring against medical insurance etc.
Let us see how factoring is done against an invoice of goods
purchased.

Characteristics of factoring:

1. Usually the period for factoring is 90 to 150 days. Some

factoring companies allow even more than 150 days.

2. Factoring is considered to be a costly source of finance

compared to other sources of short term borrowings.

3. Factoring receivables is an ideal financial solution for new

and emerging firms without strong financials. This is
because credit worthiness is evaluated based on the
financial strength of the customer (debtor). Hence these
companies can leverage on the financial strength of their
customers.

4. Bad debts will not be considered for factoring.

5. Credit rating is not mandatory. But the factoring

companies usually carry out credit risk analysis before
entering into the agreement.

30
6. Factoring is a method of off balance sheet financing.

7. Cost of factoring=finance cost + operating cost. Factoring

cost vary according to the transaction size, financial
strength of the customer etc. The cost of factoring varies
from 1.5% to 3% per month depending upon the financial
strength of the client's customer.

8. Indian firms offer factoring for invoices as low as 1000Rs

9. For delayed payments beyond the approved credit

period, penal charge of around 1-2% per month over and
above the normal cost is charged (it varies like 1% for the
first month and 2% afterwards).

Different types of Factoring

1. Disclosed and Undisclosed

2. Recourse and Non recourse

A single factoring company may not offer all these services.

Disclosed
In disclosed factoring client's customers are notified of the
factoring agreement. Disclosed type can either be recourse
or non recourse.
Undisclosed

31
In undisclosed factoring, client's customers are not notified
of the factoring arrangement. Sales ledger administration
and collection of debts are undertaken by the client himself.
Client has to pay the amount to the factor irrespective of
whether customer has paid or not. But in disclosed type
factor may or may not be responsible for the collection of
debts depending on whether it is recourse or non recourse.
How is factoring important?

It depends on what you are referring to. There are two main
definitions for Factoring:

1. Algebraic Factoring - Determining how one number

can be broken down into smaller numbers.

2. Invoice or Accounts Receivable Factoring - Obtaining

business financing through an advance on future
payments due to your business.
Algebraic Factoring serves a wide range of purposes,
while Invoice Factoring is primarily utilized by New
Businesses since traditional sources of financing & equity are
not available to them yet. There has also been a recent
increase in popularity for Factoring now that banks are more
hesitant to loan money in general, so established businesses
are more frequently turning to Factoring for a quick, hassle-
free funding source.

Merchant Banking.

Merchant banking primarily involves financial advice and

services for large corporations and wealthy individuals.
Merchant bank is a traditional term for an Investment Bank.
It can also be used to describe the private equity activities of

32
banking.

MERCHANT BANKING HISTORY

In late 17th and early 18th century Europe, the largest

companies of the world was merchant adventurers.
Supported by wealthy groups of people and a network of
overseas trading posts, the collected large amounts of
money to finance trade across parts of the world. For
example, The East India Trading Company secured a Royal
Warrant from England, providing the firm with official rights
to lucrative trading activities in India. This company was the
forerunner in developing the crown jewel of the English
Empire. The English colony was started by what we would
today call merchant bankers, because of the firm's
involvement in financing, negotiating, and implementing
trade transactions
The colonies of other European countries were started in the
same manner. For example, the Dutch merchant
adventurers were active in what are now Indonesia; the
French and Portuguese acted similarly in their respective
colonies. The American colonies also represent the product
of merchant banking, as evidenced by the activities of the
famous Hudson Bay Company. One does not typically look at
these countries' economic development as having been
fueled by merchant bank adventurers. However, the colonies
and their progress stem from the business of merchant
banks, according to today's accepted sense of the word.

What Is Merchant Banking?

Merchant banks invest their own capital in client companies

and provide fee-based advice services for mergers and

33
acquisitions, among other services they provide.

Merchant banking practices take care of the needs of

commercial international finance, stock underwriting, and
long-term company loans. This type of bank primarily works
with other merchant banks and financial institutions with its
prominent role being that of stock underwriting, and the
bank works in the realm of private equity where securities of
a company are not available for public trading.

Of the most common private equity investment strategies,

these include venture capital, leveraged buyouts, distressed
investments, growth capital, and mezzanine capital.
Leveraged buyouts generally obtain majority control over
existing or mature firms, whereas growth capital and
venture gains invest in younger or emerging corporations
without obtaining the majority of control.

Merchant Banking Then and Now

Merchant banking began practice during the middle Ages in

Italy and was introduced by grain merchants, making them
the original banks.

In today’s world, merchant banking involves many activities

to include credit syndication, portfolio management, mergers
and acquisitions counseling, and acceptance credit, etc.
Today’s merchant banks do not have the same
characteristics of their predecessors.
Merchant banking has been a very lucrative-and risky-
endeavor for the small number of bank holding companies
and banks that have engaged in it under existing law.
Recent legislation has expanded the merchant-banking
activity that is permissible to commercial banks and is
therefore likely to spur interest in this lucrative specialty on
the part of a greater number of such institutions. Although

34
for much of the past half-century commercial banks have
been permitted (subject to certain restrictions) to engage in
merchant-banking activities, the term merchant
banking itself is undefined in U.S. banking and securities
laws and its exact meaning is not always clearly understood.

35
 Investment Banking

Investment banking is a field of banking that aids companies

in acquiring funds. In addition to the acquisition of new
funds, investment banking also offers advice for a wide
range of transactions a company might engage in.
Traditionally, banks either engaged in
commercial banking or investment banking. In
commercial banking, the institution collects deposits from
clients and gives direct loans to businesses and individuals.
In the United States, it was illegal for a bank to have both
commercial and investment banking until 1999, when the
Gramm-Leach-Bliley Act legalized it.
Through investment banking, an institution generates funds
in two different ways. They may draw on public funds
through the capital market by selling stock in their company,
and they may also seek out venture capital or private equity
in exchange for a stake in their company.
An investment banking firm also does a large amount of
consulting. Investment bankers give companies advice
on mergers and acquisitions, for example. They also track
the market in order to give advice on when to make public
offerings and how best to manage the business' public
assets. Some of the consultative
activities investment banking firms engage in overlap with
those of a private brokerage, as they will often give buy-and-
sell advice to the companies they represent.
The line between investment banking and other forms
of banking has blurred in recent years,
as deregulation allows banking institutions to take on more
and more sectors. With the advent of mega-banks which
operate at a number of levels, many of the services often
associated with investment banking are being made
available to clients who would otherwise be too small to
make their business profitable.

36
There are two sides to investment banking: the "buy-side"
and the "sell-side"
• The sell-side: deals with trading securities for cash or
securities (i.e., facilitating transactions, market-
making), or the promotion of securities (i.e.,
underwriting, research, etc.)
• The buy-side: deals with the pension funds, mutual
funds, hedge funds, and the investing public who
consume the products and services of the sell-side in
order to maximize their return on investment. Many
firms have buy and sell side components.
The last two major bulge bracket firms on Wall Street were
Goldman Sachs and Morgan Stanley until both banks elected
to convert to traditional banking institutions on September
22, 2008, as part of a response to the U.S. financial crisis.
Barclays, Citigroup, Credit Suisse, Deutsche Bank, HSBC, JP
Morgan Chase, and UBS AG are "universal banks" rather
than bulge-bracket investment banks, since they also accept
deposits.

37
Investment banks are organized into "Front Office", "Middle
Office", and "Back Office" operations.

• Front Office
o Investment banking: helping customers raise
funds in the capital markets and advise on
mergers and acquisitions
o Investment management: professional
management of various securities and other
assets
o Sales and trading: buying and selling financial
products with the goal of making money on each
trade
o Structuring and origination: creating and
marketing financial products
o Research: researching industries, companies, and
products

38
 • Middle Office
o Risk management: analyzing credit and market
risk for the bank
o Compliance: making sure operations are
complying with regulations
o Finance: responsible for capital management and
risk monitoring
• Back Office
o Operations: making sure the bank runs smoothly
by submitting trades, maintaining databases, and
transacting required money transfers
o Technology: the information technology
department

Online banking
History
The concept of online banking as we know it today dates
back to the early 1980s, when it was first envisioned and
experimented with. However, it was only in 1995 (on
October 6, to be exact) that Presidential Savings Bank first
announced the facility for regular client use. The idea was
quickly snapped up by other banks like Wells Fargo, Chase
Manhattan and Security First Network Bank. Today, quite a

39
few banks operate solely via the Internet and have no 'four-
wall' entity at all.
In the beginning, its inventors had predicted that it would be
only a matter of time before online banking completely
replaced the conventional kind. Facts now prove that this
was an overoptimistic assessment - many customers still
harbor an inherent distrust in the process. Others have
opted not to use many of the offered facilities because of
bitter experience with online frauds, and inability to use
online banking services.
Be that as it may, it is estimated that a total of 55 million
families in America will be active users of online banking by
the year 2010. Despite the fact that many American banks
still do not offer this facility to customers, this may turn out
to be an accurate prediction. The number of online banking
customers has been increasing at an exponential rate.
Initially, the main attraction is the elimination of tiresome
bureaucratic red tape in registering for an account, and the
endless paperwork involved in regular banking. The speed
with which this process happens online, as well as the other
services possible by these means, has translated into a
literal boom in the banking industry over the last five years.
Nor are there any signs of the boom letting up - in historical
terms, online banking has just begun.

What is online banking?

Online banking (or Internet banking) allows customers to

conduct financial transactions on a secure website operated

40
by their retail or virtual bank, credit union or building
society.
Online banking solutions have many features and
capabilities in common, but traditionally also have some that
are application specific.
The common features fall broadly into several
categories Transactional (e.g., performing a financial
transaction such as an account to account transfer, paying a
bill, wire transfer... and applications... apply for a loan, new
account, etc.)

• Electronic bill presentment and payment - EBPP

• Funds transfer between a customer's

own checking and savings accounts, or to another
customer's account

• Investment purchase or sale

• Loan applications and transactions, such as repayments

• Non-transactional (e.g., online statements, check links,

co browsing, chat)

Bank statements
• Financial Institution Administration –

• Support of multiple users having varying levels of

authority

41
 • Transaction approval process

• Wire transfer

Features commonly unique to Internet banking

include
• Personal financial management support, such as
importing data into personal accounting software. Some
online banking platforms support account
aggregation to allow the customers to monitor all of
their accounts in one place whether they are with their
main bank or with other institutions.
OR
Financial services accessed via the Internet's World Wide
Web. An Internet bank exists only on the Internet, the global
network of computer networks without any "brick and
mortar" branch offices. By eliminating the overhead
expenses of conventional banks, Internet banks theoretically
can pay consumers higher interest rates on savings than the
national average. Banks use the Internet to deliver
information about financial services, replace transactions
done in branch offices, which eliminates the need to build
new branches, and to service customers more efficiently.
Internet banking sites offer the prospect of more convenient
ways to manage personal finances, and such services as
paying bills on-line, finding mortgage or auto loans, applying
for credit cards, and locating the nearest ATM or branch
office. Some Internet banks also offer 24-hour telephone
support, so customers can discuss their needs with bank
service representatives directly.

42
 Bill Discounting.

Definition of Bill Discounting:

Business activities across borders are done through
letter of credit. Letter of credit is an instrument
issued in the favor of the seller by the buyer bank
assuring that payment will be made after certain
timer frame depending upon the terms and conditions
agreed, it could be either sight, 30 days from the Bill
of Lading or 120 days from the date of bill of lading.
Now when the seller receives the letter of credit
through bank, seller prepares documents and
presents the same to the bank. The most important
element in the same is the bill of exchange which is
used to negotiate a letter of credit. Seller discounts
that bill of exchange with the bank and gets money.
Discounting bill terminology is used for this purpose.
Now it is seller’s bank responsibility to send
documents and bill of exchange to buyer’s bank for
onward forwarding to the buyer for the acceptance
and the buyer finally, accepts bill of exchange drawn
by the seller on buyer’s bank because he has opened
that LC. Buyers bank than get that signed bill of
exchange from the buyer as guarantee and release
payment to the sellers bank and waits for the time
span will buyer will pay the bank against that bill of
exchange.

Discounting of bills :

Meaning of the word discounting:

•a contract

43
•source of short-term finance

•the process of calculating the present value of some future

amount

Bill Discounting

When a firm holds other drawer’s bills of exchange with

distant terms of payment and is money short, the amount of
the bill shall be subject to a discount. Discounting is a special
form of lending, when a bank buys a bill prior to maturity at
a price lower then the nominal amount of the bill of
exchange (with a discount).

Discounting bills indicates the operation by means of which a

bank, having previously deducted the interest, advances to
its client - the creditor - the amount corresponding to the
value of one or more bills bearing a future date which the
client cedes to the bank by endorsement. The discounting of
bills are a widely used source of short-term finance.
Commercial bill discount refers to the service that the holder
commercial acceptance draft transfers his draft to bank for
obtaining funds before the day of draft maturity. The cash
received is posted to the bank account and the bill of
exchange charges are posted to the appropriate expense
account. If the drawee does not pay the bill of exchange on
the date of maturity, it is protested.

The grounds for discounting the bill

Bills of exchange are discounted before their maturity date.

The grounds for discounting the bill before its maturity date
is Bank’s consent for discounting, written request addressed
to the chairman of board by the drawer, and the bill of
exchange itself.
Before the bills can be discounted they are checked for
juridical authenticity and legitimacy of the drawer (the
number of valid endorsements is considered, though the last

44
endorsement may be the blank endorsement). Discounting
of bills means purchase of bill by the Bank from the drawer
before the due date.
All discount transactions are performed by the Bank basing
on agreement concluded between the Bank and the drawer.
Pricing for bills discounting is determined basing on the bill
discount rate and is specially agreed with the drawer for
every separate bill. The Bill Discounting operations include
presentation of bills, application of conditions, dispatch of
Bills to the concerned banks for collection and dispatch of
unpaid bills to the notary for protest

Charges

A fee is charged as payment is made before the due date is

reached. In other words face value minus the fee will be
paid. the fees charged by the bank for accepting the bill of
exchange. The minimum charge for bill discounting tends to
vary according to the credit-worthiness of the companies.
The pricing for bill discounting is determined individually. A
discount house buys a bill or security for less than its face
value. Rather than receiving interest, the discount house
waits till the bill matures, and collects the money (at the face
value). The amount paid for the bill depends on the time till
maturity and the short-term rate of interest.

Discount Rate: the rate used in calculating the

present value of some future monetary amount. Discount
period: the period between the date of discounting and the
future due date of the receivable.

Discounting fee: the discount fee is the difference

between the nominal value of bill of exchange bought
by the Bank from a client and the sum credited to the

45
client's bank account. The difference, made up of the
time-proportionate interest up until the due date plus
the risk-based charge, which varies according to the
risk involved, is deducted as the bank's fee (discount
rate).

A Bank Draft.

If you have to make a large purchase, and do not

carry credit cards or cash with you, a private or public seller
may ask you to pay by bank draft. This term is more
commonly used in the UK than it is in the US, where it is
roughly equivalent to the word cashier’s check. Essentially,
up to a certain amount of money, a genuine bank draft or
cashier’s check is guaranteed.
When you withdraw funds from your account to get a
cashier’s check, you are essentially purchasing
the bank draft. Once you’ve purchased the cashier’s check,
or money order, the money in your account is gone and can’t
be spent on other things. This can add extra security to the
person selling you something, because it can guarantee that
your check will not bounce. The same cannot be said of

46
personal checks, which offer no guarantee that money exists
in the account to cover the check.
The face of the bank draft, cashier’s check or money order is
changing with so many people now banking with ATM cards.
Further, software currently exists that can automatically
deduct funds from your bank account. This is increasingly in
use in retail locations, and chances are it may become
standard at some future point. There are thus only a few
reasons why you might need to use a bank draft instead of a
standard check or an ATM or credit card. If you’re purchasing
or renting something from an individual, instead of from a
store or a large company, that individual is not likely to have
the means of determining whether a personal check is valid,
and probably doesn’t have the ability to take credit card or
ATM transactions.
For example, you might need a bank draft as part of a
deposit to hold a house you plan to rent, or you might need
cash or a cashier’s check to pay for a car you plan to
purchase from a private seller. While some people might
prefer to pay with cash, this is not always a good idea.
Getting a bank draft at the least provides you with a record
of a transaction, whereas cash does not.
The draft is usually made out to the individual to whom you
are making the payment, and this is also recorded. You can
show you withdrew cash from your account, but you may not
be able to prove that you then gave it to a third party. It can
cost a little money to purchase a cashier’s check, usually a
couple of dollars per hundred US Dollars (USD) withdrawn.
Many find the security of researchable records is well worth
the cost.
In recent years there have been some unfortunate scams
involving bank drafts that are phony. Since printers are now
so capable of creating very realistic appearing checks,
people have been fooled into taking bank drafts that don’t
truly have any value. To avoid this, you might want to
accompany the buyer to his or her bank to see
the bank draftwritten out, or you might ask for a cash

47
payment instead. Another way of checking is to call
the bank from which the draft originates and verify that
the draft is indeed real. If you’ve never heard of
the bank before, get the phone number independently from
your telephone operator or phone book, instead of using the
number on the check.

BANCASSURANCE.
The Banking and Insurance industries have changed
rapidly in the changing and challenging economic
environment throughout the world. In this
competitive and liberalized environment everyone is
trying to do better than others and consequently
survival of the fittest has come into effect.

48
This has given rise to a new form of business wherein
two big financial institutions have come together and
have integrated all their strength and efforts and
have created a new means of marketing and
promoting their products and services
On one hand it is the Banking sector which is very
competitive and on the other hand is Insurance sector
which has a lot of potential for growth. When these
two join together, it gives birth to BANCASSURANCE.

Bancassurance is nothing but the collaboration

between a bank and an insurance company wherein
the bank promises to sell insurance products to its
customers in exchange of fees. It is a mutual
relationship between the banks and insurers. A
relationship which amazingly complements each
other’s strengths and weaknesses. It is a new buzz
word in India but it is taking roots slowly and
gradually.It has been accepted by banks, insurance
companies as well as the customers. It is basically an
international concept which is spreading all around
the world and is favored by all.

Bancassurance is defined as ‘Selling Insurance

products through banks’. The word is a combination
of two words ‘Banc’ and ‘assurance’ signifying that both
banking and insurance products and service are
provided by one common corporate entity or by
banking company with collaboration with any particular
Insurance company. In concrete terms bancassurance,
which is also known as Allfinanz - describes a package
of financial services that can fulfill both banking and
insurance needs at the same time.

49
 The Benefits of
Bancassurance:
• Banks enjoy several advantages compared to insurance
companies that make them ideal vehicles to carry the
message of insurance to the masses, across a wide
cross section of society, and in the process increase
their business and improve their bottom-line. By
marketing a whole range of insurance products in the
life and non life sectors, Banks, not only spread
awareness of these products and facilities among the
people, but also make a handsome amount of money
by extending this service.

• It is felt that Banks have a more personal relationship

with the public and a better understanding of their
financial needs. Hence people are more responsive to
their Banker's advice.

• Bank personnel are familiar and comfortable with

financial language and terminology, and so can easily
learn the subject of insurance, in order to sell these
products. Further they are good at number crunching
and making a sales pitch that gives them a distinct
advantage.

• Banking and Insurance products can often be combined

to offer a better product mix to the consumer, in order
to leverage the benefits of both the products and
services.

• The provision of insurance products through the

banking channel enables the insurance companies to
depend less upon the agents to sell their products. It
costs the insurance companies a lot to select, train,
motivate, and remunerate the insurance agents to push
their products.

50
• It is mutually beneficial for the Banks and the Insurance
companies, when Banks cross-sell insurance products,
as both of them can leverage each others' products and
services.

• Banks get an additional source of income from

commissions and fees from their insurance business.
Especially the excessive competition for interest based
products has affected the bottom-line of the Banks who
are trying to build up alternative sources of income,
through provision of non banking products and
services.

• Banks cater to both categories of customers- the

classes and the masses. Insurers can take advantage of
this by pushing relevant products through these
distribution channels. Simple products for the masses,
and more sophisticated ones for the classes.

The Flip side of Bancassurance:

• Bancassurance is not rosy all the way for both Bankers

as well as insurers. There are several issues that both
of them are concerned about.

• One of the most important issues and indeed the fear of

Bankers are losing business to the Insurers, in relation
to similar products. For instance, a basic banking
product like a fixed deposit may be placed at a
disadvantage compared to a money market related
insurance product that offers both growth as well as
insurance cover.

51
 • Insurers have their own perceptions of Bankers as their
marketers and feel that often Bankers do not do
enough to push their products.

• Banks feel that insurers gain more from Bancassurance,

as they do not incur expenditure on infrastructure,
manpower, etc., whereas, the returns accruing to Banks
from this business are not worth the trouble taken by
them.

• When Banks are trying to cut costs by providing more

and more services offsite, it is felt that servicing
insurance clients onsite (by Banks), may not be
practicable, as it only adds to their costs.

• Banks also stand the risk of facing the wrath of the

customers for poor follow up service, like claim
settlement, etc., on part of the insurers.

• Bankers may not appreciate certain finer points of

insurance products they sell, and consequently face
administrative and legal hassles from the customers.

These are some of the issues related to Bancassurance from

the angle of both the Bankers and the Insurers. The success
of this service depends upon how well the concerned parties,
i.e. Bankers and Insurers sort out their problems mutually,
and get ahead with the business of making money, without
cutting into each others' cake.

Effect Of Bancassursnce:

On Banks:

52
 • Improvement in profitability & productivity of
banks,

• Increase in loyalty of customers,

• Increase in ROA without increasing ‘A’,

• Increase in shareholder value,

• Hedging of credit risk upto certain extent,

• Increase in retention of customers,

• Deployment of surplus manpower due to

computerization,

• Creation of sale oriented culture among bank

employees.

On Insurance:

• Lower cost of customer acquisition,

• Penetration in virgin territory,

• Creation of brand equity

• Increase in profit.

On Customer:

• One stop shopping of financial services,

• Lower cost of insurance products,

53
• Variety of new products

• Hassle free post sale services.

54