EVOLUTION OF

FINANCIAL SERVICES
 KINDS OF FINANCIAL SERVICES

• MORTGAGE & CAR LOANS CH 13

• HOUSING / VEHICLE FINANCE CH 9

 MORTGAGE
• Transfer of interest by pledging a property as security against
a loan or advance
• Transferor is Mortgager & transferee is Mortgagee
• There is transfer of interest (right to sell) & not ownership
(sell)
• There should be a specific immovable property
• That property is provided as security
• Money advanced is consideration
• Parties should be competent
• Mortgage by deposit by title deeds doesn’t require registration
 TYPES OF MORTGAGE
• SIMPLE
– Without delivering possession
– Mortgager binds himself to pay money
– Agree that if he fails, mortgagee can sell that property
• USUFRUCTUARY
– Delivers possession
– Authorises mortgagee to retain possession & enjoy rent/profits
– Allow to appropriate that rent in lieu of mortgage money
• ENGLISH MORTAGE
– Transfers the property absolutely to mortgagee
– Retransfer to mortgager on payment of mortgage money
 TYPES OF MORTGAGE

• EQUITABLE MORTAGE (EM)

– Deposit of title deeds
– Doesn’t require registration
– Mortgager delivers the lender titles of property
– No public notice is required
– Common & Indian bank does this type of Mortgage
 HYPOTHECATION
• Product of trade usage

• Kind of pledge where pledged goods remains in possession of

pledger (borrower)

• Hypothecator( borrower) holds such goods as an agent & not as

owner, liable to return in case of default

• In case of default lender cannot seize goods directly but he has

to obtain consent of borrower or court’s order

• Hypothecatee (lender) is not in actual possession of goods but

has to grant the use of those goods to borrower
 HYPOTHECATION & PLEDGE

• Pledged goods are stored in lock & key of bank & remain in
bank’s possession. Borrower has to take permission of bank if
withdrawals or addition is required

• While Hypothecated goods are allowed to kept in premises of

borrower & are in constructive notice of bank by way of returns
filed by borrower

• Pledged goods are in actual possession of the bank while

hypothecated goods are in possession of borrower
 KINDS OF FINANCIAL SERVICES

• LEASING CH 3 , 4 , 5

• HIRE PURCHASE CH 6
 LEASE
• Transfer of right in immovable property by lessor to lessee
enjoy possession for limited period of time (asset reverts
back to owner if lease is not renewed)

• Consideration is called as lease rent

• Dealt with TOPA
• Example plots allotted by Development Authority

• In sale ownership is transferred while in lease only interest

to enjoy possession is transferred
• Parties should be competent of contract
• Subject matter should be immovable property
 EVOLUTION OF LEASE
• 1973 FLCI ( First leasing company of India )
• 1979 Twentieth Century Leasing limited
• 1980s – Tandon & chore Committee forced companies to divert
LT funds in WC & this forced Manufacturing companies to find
alternative means
• Advantages
– Easy documentation
– Fewer restrictive covenants
– No dilution of ownership
– Availability of 100% finance
• 1983 - Industrial Credit & Investment Corporation of India
(ICICI)
• 1985 – 300 companies started operating including IFCI & IDBI
 EVOLUTION OF LEASE
• In 1983 RBI Act was amended & Banks could form subsidiaries viz SBI
Capital Markets Ltd , PNB Financial Services Ltd , Can Bank Financial
services Ltd
• ILFS formed by CBI ,HDFC & UTI
• Leasing Corporation of India by BOI & TCFCL
• India Equipment Leasing Company Ltd by SBI & Sundaram Finance
• Stan Chart Bank , first private foreign bank promoted Cholamandalam
Investment & Finance Company
• This competition brought fall in Lease rates & many small companies
entered in Bill discounting & consumer finance
• Industrial policy 1991 & abolition of MRTP allowed 51 % foreign equity
• 1994 RBI permitted all Banks to start Leasing & HP
• Post liberalization – GE increase number of foreign firms
 HIRE PURCHASE
• Selling goods by owner & finance their price

• Goods are lent on hire & price is paid in installment

• Hirer (who acquire possession of goods) may purchase goods after

paying all installments

• HP contracts are governed by Indian Contract Act 1872

• It is cancelable lease contract with call (purchase) option

• In loan/hypothecation ownership is transferred in beginning, In

lease it is not at all transferred while in HP it is transferred at
option of hirer at last installment.
 KINDS OF FINANCIAL SERVICES
• CONSUMER CREDIT CH 7
– Asset based financing plans that are offered primarily to
individuals for acquiring consumer durables
– Paying down payment / taking delivery / paying interest &
balance
• INVESTMENT BANKING
– Advising about raising of funds – its source & time
– Administrating documentation/prospectus/legal frame work
– Underwriting
– Distributes securities / printing / allotment
– Investment management guaranteeing returns
– Merger / acquisition
– Pension plans , hedging risks , real estate , foreign currency
 KINDS OF FINANCIAL SERVICES
• COMMERCIAL BANKING
• VENTURE CAPITAL
– Providing seed / start up & first stage financing or
funding expansion of potential companies with equity
– Seeing unexpected growth in US , India in 1985
conceptualised it in its Long term Fiscal policy
– Promoted by Banks /FI /private sector
• INSURANCE & M/F CH 14
– First MF was UTI US 64,
– Then SBI & Canera Bank broke monopoly
– 1993 – First private MF Kothari Mutual
– Now every MF floated should have at least one AMC
 KINDS OF FINANCIAL SERVICES
• CREDIT RATING CH 11
– Rating of Financial instruments & Risk
– Parameter includes track record ,Financials & range of
products
– USA 1986 Henry Poor
– India 1988 CRISIL & CARE
• BILL DISCOUNTING
– Financing the receivables
• STOCK BROKING
• FACTORING CH 8
• Transfer of receivables & related book keeping to intermediary
known as Factor
• PLASTIC MONEY – credit card / debit card/ other cards