The following are the products in Indian financial market: 1. Alternative Investment Funds (AIFs) Hedge Funds 2. Innovative Banking Services 3. Venture Capital 4. Credit Card 5. Debit Card 6. Electronic Card 7. Smart Card 8. Securitization of Debt 9. RuPay.
Product # 1. Alternative Investment Funds (AIFs) Hedge Funds:
Alternative Investment Funds (AIFs) made a late entry into India, but are now rapidly gaining popularity. Earlier, foreign hedge fund managers did invest in Indian equity and debt instruments, but those who invested in foreign hedge funds were predominantly overseas investors. AIFs were first opened to domestic investors after SEBI issued the Alternative Investment Funds Regulation in 2012.
The Reserve Bank of India (RBI) on 16 November removed restrictions on alternative investment funds of which hedge funds are a sub-category based in India accepting foreign capital. This paves the way for India-based funds to capture a bigger part of the multi-billion dollar India-dedicated hedge fund assets.
However, with the minimum investment in these funds set at Rs 1 crore, this channel is closed for retail investors. As on March 31, 2016 there are 209 AIFs were registered with SEBI as per the data released on April 20, 2016.
Product # 2. Innovative Banking Services:
Banking industry in India has traversed a long path to assume its present stature. It has undergone a major structural transformation after nationalization of fourteen major commercial banks in 1969. During the last three decades of nationalization there has been a phenomenal expansion of branch network, particularly in the hitherto under-banked rural areas.
Core Banking Solution (CBS) is networking of branches, which enables customers to operate their accounts, and avail banking services from any branch of the bank on CBS network, regardless of where he maintains his account. The customer is no more the customer of a Branch. He becomes the Bank’s Customer. At present, the emphasis is on providing alternative channels of delivery like Automated Teller Machines, Telebanking and PC based proprietary systems.
Core banking technology is a term used generally to define mature bank office production systems used by banks to manage the core of their business.
Core banking is an integrated core solution that will provide functionality such as:
1. Automatic Teller Machine (ATM)
2. Banks Automated Clearing System (BAGS)
3. Tele Banking Services
4. Electronic Fund Transfer
5. Electronic Data Interchange (EDI)
6. Electronic Cheque System
7. Cyber Cash
8. Debit Card
9. Credit Card
10. Smart card
13. Mobile banking
Product # 3. Venture Capital:
Venture capital is a new type of financial intermediary which emerged during the 1970s in the US and spread, to other parts of the world. Today people talk of ‘venture capital industry’ or “venture capital market’ which comprises large number of venture capital funds (VCFs). It is a form of equity financing designed especially for funding high risk and high reward projects. This is combined with value addition in the form of management advice, marketing expertise and contribution to overall strategy.
SEBI guidelines in 1996 defines venture capital funds as a fund established in the form of a trust or company having a dedicated pool of capital which raises money through loan, donations, issue of securities or units as the case may be and makes or proposes to make investments in accordance with these regulations. The European Venture Capital Association describes it as risk finance for entrepreneurial growth oriented companies. It is investment for the medium or long-term, seeking to maximize medium or long-term return for both parties.
It is a partnership with the entrepreneur in which the investor can add value to the company because of his knowledge, experience and contact base. International Finance Corporation, Washington D.C. 17C (W) defines VC as an equity or equity featured capital seeking investment in new ideas, new companies, new products, new processes or new services, that offer the potential of his returns on investment It may also include investment in turnaround situations.
Thus, it could be seen that venture capital “provides seed, start-up and first stage financing” and also “funds the expansion of companies that have already demonstrated their business potential but do not yet have access to the public securities market or to credit oriented institutional funding sources”.
Product # 4. Credit Card:
Liberalization in the banking sector has encouraged the banks to bring out many new products. In fact, Banks are competing with each other in providing better services to the customers. Credit card is a commercial bank product which gives better service to the customers and at the same time bringing profit to the banks. They are in the priority list of both Indian and foreign banks.
Credit card is, a card made of plastic material which enables the card holders to purchase goods, travel or dine in a hotel without making immediate payments. The card carries specimen signature of the holder and other information. These can be recorded on an invoice or other documents. The holders can use the cards to get credit from banks upto 45 days.
The card relieves the customers from botheration of carrying cash or cheques. Instead of cash the card holders may give the card to the establishment for their purchases. They can be used only in those establishments which have agreed to accept them. The credit card organisation makes payment to the establishment concerned periodically and sends statement to the card holder.
There are mainly three broad categories of credit cards that are used as a substitute for cash or cheques when paying goods or services:
(i) Bank Credit Cards
(ii) Travel and Entertainment Cards
(iii) In-store cards.
Credit card is a convenience of extended credit without formality. It adds safety, prestige and credit facility. It empowers the holder to buy or borrow without making upfront payments. Embossed name of the card holder, signature of the holder, period of validity, photograph (in some cases) and other security measures are incorporated into the card. In short, credit card is basically in instrument by which individuals settle amount in credit. The seller gets the full payment immediately but the purchaser is not parting with immediate cash. The purchaser would settle his account with the banker who has issued him the card at a future date. Thus, the customers enjoy a lot of credit facilities from the bank. Of course, there is the limit of credit which is pre-determined.
Product # 5. Debit Card:
Debit card is an electronic card, which is becoming more and more popular in all countries. Just like the credit card, the debit card holder can present the card to the merchant and sign the sales ship. The purchasing amount is automatically deducted or debited to the account of card holder electronically and would appear in the monthly statement of account. For the debit card, the customers have to open an account (SB account or Current account), which is not generally required in the case of a credit card. This system re-quires a terminal known as the Point-of-Sale terminal at every point of purchase.
Debit card is more advanced than ATM card in that, it can be used at specified Retail or Departmental Stores also in addition to specified bank branches. It can be used to make payments which automatically debit one’s account in the specified Bank. It helps to draw on one’s own assets or money whereas in the credit card, it provides a borrowing limit against which one can draw and pay interest and other charges. If one has own assets or a share portfolio with the bank, you can have an overdraft account against them. It means that you can use your own money rather than bank money through the ATM cum Debit Card.
The spending power depends on the drawing capacity, which in the case of Debit Card is own Assets with the bank. .But in the case of credit card, it allows a borrowing power on the bank, for which you have to pay some charges or fees.
Both Credit Cards and Debit Cards complement each other and are precursors to the electronic card which may be the gold card. Gold card consolidates all cash accounts in various branches of a bank, connected though the Bank Internet and allows one to manage payments most economically in tune with receipts and promotes efficient cash management. Debit card allows one to draw on existing assets and deposits with the bank while the credit card allows drawing on the bank up to the credit limit.
If one is averse to be a borrower, Debit card is an advantage. Here, there is no risk of over-spending as one can only spend what one have. In the case of credit card, borrowing is possible and you pay interest on the overdrawn amount. Debit card does not involve any interest payment or cost to the holder.
Debit Card avoids carrying cash or even travelers cheques. Debit card is as good as money in the accounts with one’s banker. Credit Card has the additional advantage of over-drawing if necessary- payments are made by the bank to the extent of purchases and if they exceed the limit, one has to pay interest on the excess amount or in worst case on the total amount.
Product # 6. Electronic Card:
The Master Card issued by a bank is being converted into electronic cards. Through an electronic tape, it records all transactions done through it and can be used only in places and branches where electronic scan and identification is possible. The plastic money leaders, Master card have launched an electronic card, which is claimed to be the first of its kind in India. The waiting time of customers is reduced by this.
The card can be accepted at points of sale with electronic authorization terminal. The electronic programme offers Indian consumers the flexibility, designed to work at all points of sale with this facility. It gives added convenience of a new payment product and financial facility for easy transactions.
Product # 7. Smart Card:
Smart Card is a relative new comer in the retail payment system. It is an e-money with huge potential usage. It has an integrated circuit with a microprocessor chip, embedded in it, which gives it wide capacity in performing many calculations, faster and accurately than an accountant. It does maintain records, statements and acts as an electronic purse, storing e-money. It is usable for drawing cash and making payments with automatic facility of keeping accounts of balances of the party.
During a loading operation, the deposit account of card holder is debited and credit is given to a centralized card account. In Europe banks generally issue these cards but in the U.S.A., non-banks also issue these cards. The issuers must have a strong and efficient supervisory system to re-duce the systemic risks. Recently, the government of India has embarked upon large scale implementation of Smart Card services in India,
Product # 8. Securitization of Debt:
Debt or asset Securitization is an innovative instrument developed during the past decade in the financial market for fund-enhancement. Globalization of corporate activities along with the growth of financial markets paved the way for the development of this instrument.
The process of economic liberalization has opened up new vistas for the growth of financial service sector. Increased competition and the requirements of a fast growing economy prompted the companies and fund managers to innovate customized products that could channelize funds from the investor. Securitization is one such instrument.
Securitization is essentially conversion of loans and receivables into negotiable instruments to raise debt. Pools of financial assets like receivables are converted into marketable securities in this process. Receivables or mortgages and the like are illiquid assets.
Backed by the pool of such assets the issuer (financial institution) creates securities against them, gets them rated and sells them to investors at large. Thus, an illiquid asset is transformed into a liquid security with a secondary market. The asset portfolio along with the attendant credit risk has been transferred to a diverse investor base.
Thus, securitization is a process where an owner of receivables (the originator or seller) sells of its receivables to a third party (the purchaser or special purpose vehicle SPV) in return for a price payable immediately on sale. In this process the long-term assets of a lending institution are replaced with liquid cash.
Product # 9. RuPay:
A new card payment scheme launched by the National Payments Corporation of India (NPCI), has been conceived to fulfill RBI’s vision to offer a domestic, open-loop, multilateral system which will allow all Indian banks and financial institutions in India to participate in electronic payments.”RuPay”, the word itself has a sense of nationality in it.
“RuPay” is the coinage of two terms Rupee and Payment. The RuPay Visual Identity is a modern and dynamic unit. The orange and green arrows indicate a nation on the move and a service that matches its pace. The color blue stands for the feeling of tranquility which is the people must get while owning a card of the brand ‘RuPay’.