Financial Services

Course Code: SL FI 612

Module 1:
Introduction to
FinTech, FinTech
Regulation

Dr. Suneel Sharma

Overview of Learn - How to be part of the
the course – Financial Services Teams, and related
Digital and Innovation Teams

Gain - Practical awareness of Evaluate

and analyze the factors behind service
innovation in finance
Financial Services Kick Start Videos,
Participants, YOU!!! Class Participation,
have to make it Application
interesting! Exercises,
Group Projects.
(SL FI 612)
Interesting Facts
Out of the syllabus! about Students
and Faculty
 Power packed 5 Modules!
Module 1: Introduction to
Financial Services, Financial
Regulation
• Faculty Session 1-6
• Examples of Financial
Services, Innovative
Companies &
projects, Career in Financial
Services
• Leasing
Module 2: Reshaping the
Financial Services Industry
• Faculty Session 7-10
• Lease Evaluation
• Concept & Mathematics of
Hire Purchase:
• Industry Expert Session 11-
12: Introduction of Financial
Services Projects and
guidelines
Module 3: Evolving Credit
Products, Leverage Data &
Technology
• Faculty Session 13-18
• Factoring & Forfaiting
• Housing Finance
• Consumer Credit
• Financial services in Practice,
Cases
Power packed 5 Modules!
Module 4: Working in FinTech
companies, Requirement
Gathering
• Faculty Session 19-24
• Plastic Money
• Insurance, Banc assurance;
• Securitization – Mortgages and
Mortgage financing
• Preparation for FinTech Roles
Module 5: Online, Real-time,
Improved Customer Experience and
Accessibility
• Faculty Session 25-30
• Credit Rating
• Online Trading & Brokerage Houses
• Prudential Norms & Provisioning
for NBFCs
• Venture Capital, Private Equity and
Hedge Funds
• FinTech Projects & problem solving
• Application Exercise:

• Kick Start Discussion

• What are financial services?

• https://www.bain.com/industry-
expertise/financial-services/

• https://www2.deloitte.com/us/en/pag
es/financial-services/articles/future-of-
financial-services.html

• Which was the most interesting fact for

you?
• What is going to be changed by that?
 What are financial services?
• Financial services are economic services that provide individuals and
businesses with access to money and credit, and help them manage their
finances.
• Financial services as economic services provided by the finance industry, such
as banking, insurance, investment, etc.
• Importance of financial services for economic development, financial inclusion,
and consumer welfare.
• examples of financial services (products) in India, such as loans, deposits,
mutual funds, credit cards
• Examples of financial services include:
• Banking
• Insurance
• Investing
• Lending
• Payment processing
• Wealth management
 Basic types of
financial
services
• Categorize financial services into four broad types:
leasing, hire purchase, consumer finance, and portfolio management.

As a Financial Service Expert you : Define / Design / Execute / Re-shape

• Define each type and give set examples of products and providers in India.
• Design and draw the benefits and avoid drawbacks of each type for
consumers and businesses.
Basic types of financial services
• Leasing: a contractual arrangement where the owner of an asset
(lessor) allows another party (lessee) to use the asset for a specific
period of time in return for periodic payments.
• Leasing as a type of asset finance that allows firms or individuals to
possess and control an asset for an agreed term, while paying rent or
instalments to the owner (lessor).
• the features of leasing, such as no down payment, tax benefits,
flexibility, etc.
• examples of assets that can be leased, such as machinery, vehicles,
equipment, etc.
Basic types of financial services

• Hire purchase: a type of financing arrangement where the buyer agrees to

purchase an asset from the seller and pay for it in instalments over a period
of time.
• hire purchase as a type of asset finance that allows firms or individuals to
purchase an asset by paying an initial deposit and the remaining value in
equal instalments over a period of time.
• the features of hire purchase, such as ownership transfer, interest charges,
security deposit, etc.
• examples of assets that can be purchased through hire purchase, such as
cars, furniture, appliances, etc.
Basic types of financial services
• Consumer finance: a type of financing that is available to individuals to purchase
consumer goods and services.
• Instalment credit: a type of loan that is repaid in equal instalments over a period
of time.
• consumer finance as a type of personal finance that provides loans or advances
to consumers for various purposes, such as education, travel, medical expenses,
etc.
• instalment credit as a type of consumer finance that allows consumers to buy
goods or services and pay for them in fixed monthly instalments over a specified
period of time.
• features of consumer finance and instalment credit, such as convenience,
affordability, credit rating, etc.
• examples of consumer finance and instalment credit products and providers in
India, such as personal loans, education loans, travel loans, credit cards, etc.
Basic types of financial services

• Portfolio management schemes: are investment schemes that invest in a

diversified portfolio of assets on behalf of their investors.
• portfolio management as a type of investment service that involves
creating and managing a collection of securities or assets according to the
objectives and preferences of investors.
• features of portfolio management, such as risk-return trade-off,
diversification, asset allocation, performance evaluation, etc.
• examples of portfolio management products and providers in India, such as
mutual funds, portfolio management services (PMS), wealth management
services (WMS), etc.
Differentiating features of different financial services
Nature of financial services

• Financial services are essential for the functioning of a modern

economy. They help individuals and businesses to:
• Save and invest for the future
• Manage their risk
• Access capital to grow and expand
• Finance their homes and other major purchases
Three-fold classification of non-banking
finance companies (NBFCs) in India
• NBFCs in India are classified into three categories:
• Deposit-taking NBFCs: These NBFCs are allowed to accept public
deposits.
• Non-deposit-taking NBFCs: These NBFCs are not allowed to accept
public deposits.
• Systemically important NBFCs (NBFC-SIs): These NBFCs are considered
to be too big to fail and are subject to additional regulations.
RBI directions to NBFCs relating to the
acceptance of public deposits
• The RBI has issued a number of directions to NBFCs relating to the
acceptance of public deposits. These directions include:
• NBFCs must have a net owned fund (NOF) of at least ₹2 crore to
accept public deposits.
• NBFCs must maintain a liquidity ratio of at least 15%.
• NBFCs must limit their investments in other NBFCs to 10% of their
NOF.
• NBFCs must invest a certain percentage of their deposits in
government securities.
Framework of regulations of credit
information companies (CICs) in India
• CICs are regulated by the Credit Information Companies (Regulation) Act, 2005.
The Act provides for the establishment of a Credit Information Board (CIB)
• regulatory framework for CICs under the Core Investment Companies (Reserve
Bank) Directions, 2016 as follows:
• Only those CICs that have total assets of not less than Rs.100 crore and raise or
hold public funds are required to obtain a CoR from RBI. They are classified as
systemically important core investment companies (CIC-ND-SI).
• The CIC-ND-SI have to comply with various prudential norms such as adjusted net
worth (ANW), leverage ratio, corporate governance, risk management, etc.
prescribed by RBI.
• The number of layers of CICs within a group is restricted to two irrespective of the
extent of direct or indirect holding or control exercised by one CIC over another
CIC.
Lease Financing
https://www.carbonminus.in/our-models/Lease-Financing
Eg MP reference framework, Ship Leasing
https://www.ndtv.com/business/reserve-bank-of-india-rbi-
unveils-four-layered-regulatory-framework-for-non-banking-
financial-companies-nbfcs-2584794
Document Examples from Grip / Jiraaf / Tapinvest
ACCOUNTING/
REPORTING
FRAMEWORK AND
TAXATION OF
LEASING
Leases
• Leases are contractual arrangements that allow one party
(the lessee) to use an asset owned by another party (the
lessor) for a specified period in exchange for periodic
payments.

• There are primarily two types of leases, each with distinct

characteristics and accounting treatments:
Types of Leases
• 1. Finance Lease
• A finance lease, also known as a capital lease, is a lease in which
the lessee essentially assumes the risks and rewards associated
with ownership of the leased asset.
• 2. Operating Lease
• An operating lease is a lease arrangement where the lessee does
not assume the substantial risks and rewards of ownership.
Instead, it is a more straightforward rental agreement.
• Both finance leases and operating leases serve different purposes
and have distinct financial implications. The choice between them
depends on factors such as the lessee’s intended use of the asset,
risk tolerance, and accounting considerations, including the
treatment of the lease on the balance sheet.
Key Features of Finance Lease
• The important Features of finance lease include:
• 1. Lease Term Equals Asset’s Entire Economic Life: In a finance
lease, the lease term typically spans the entire economic life of
the asset, regardless of whether ownership or title is transferred.
• 2. Specialised Property: Finance leases often involve assets of a
specialised nature. For example, an ambulance may be leased
under a finance arrangement, and the lessee can use it without
making significant modifications to the asset.
• 3. Assets Handed to Lessee: Some finance leases involve the
lessor transferring the asset to the lessee at end of the lease term.
• 4. Full Coverage of Fair Value: The fair value for leased property
is also covered fully by the present value of min. Lease payments
or equivalent to it.
 Key Features of Operating Lease
• An operating lease is a lease arrangement where the lessee does not
assume most of the risks and rewards of ownership, and it is not
classified as a finance lease. Mentioned below are key aspects of
operating leases and the respective accounting treatment:
• Accounting in Books of the Lessor — In Context of Operating Lease:
• For lessors in operating lease arrangements:
• (i) Recognise Lease Income: The lessor must recognise the lease
income in the statement of profit and loss over the lease term, typically
on a straight-line basis, reflecting a steady income pattern.
 Key Features of Operating Lease
• (ii) Impairment and Provisions: The lessor should periodically
examine the leased assets for impairment and make provisions for
any expected losses or declines in value.
• (iii) Fixed Asset Classification: Assets under operating lease
arrangements should be listed under “fixed assets” on the balance
sheet of the lessor.
• (iv) Expenses and Depreciation: The lessor must include
expenses related to the leased asset in the statement of profit
and loss, which typically encompass any maintenance and
depreciation costs associated with the asset.
Lease Accounting
• Differences Between IFRS 16, IAS 17 and AS 19 in Lease
Accounting
• Lease accounting standards have evolved over the years,
and there are notable differences between IFRS 16,
Accounting Standard AS 19, and IAS 17 in terms of how they
recognise and account for leases.
Accounting Standard AS 19

• 1. Recognition of Lease: Accounting Standard AS 19 requires

the recognition of a lease at the start of the lease term, both
for finance and operating leases.
• 2. Sale and Leaseback Transaction (Finance Lease): In the
case of a sale and leaseback transaction involving a finance
lease, Accounting Standard AS 19 mandates that the seller
(lessee) defers as well as amortises excess of remaining sale
proceeds over the carrying price of asset over lease term,
and in proportion to what is the depreciation of the leased
asset.
IFRS 16

• 1. Lease Rentals in Operating Lease: IFRS 16 prescribes that all

lease rentals in the case of an operating lease must be recognised
as an expense in the profit and loss statement. This is a significant
change from IAS 17, where operating lease expenses were not
typically recognised as such.
• 2. Inflation-Linked Lease Rentals: IFRS 16 requires that if lease
transactions are structured to increase in line with anticipated
rising prices to compensate for the lessor’s expected inflation
rate, all lease rentals for operating leases must still be charged to
the profit and loss statement unless the changes in lease
payments are due to reasons other than normal depreciation. This
aligns with the principle of recognising expenses as they are
incurred.
IAS 17 (International Accounting Standard
17)
• 1. Recognition of Lease: IAS 17, similar to AS 19, mandates
the recognition of finance leases as assets and liabilities on
the balance sheet at the commencement of the lease period.
• 2. Sale and Leaseback Transaction (Finance Lease): IAS 17,
in the case of a sale and leaseback transaction involving a
finance lease, requires the seller (lessee) to defer as well as
amortise excess sale proceeds above carrying price of asset.
However, IAS 17 does not specify the method of amortisation,
providing more flexibility to the entity.
Summary

• The accounting standards governing lease transactions, such as

IFRS 16, Accounting Standard AS 19, and IAS 17, exhibit notable
disparities in their treatment of lease recognition, rental expense
recognition, and sale and leaseback transactions.
• IFRS 16 revolutionises lease accounting by mandating the
recognition of operating lease rentals as expenses, aligning with
the principle of recognising costs when incurred.
• On the other hand, Accounting Standard AS 19 and IAS 17 have a
more traditional approach, distinguishing finance and operating
leases with specific guidance on sale and leaseback transactions.
• Ultimately, these standards reflect the ongoing evolution of
accounting practices, addressing transparency, balance sheet
presentation, and the economic substance of lease agreements,
Links for Study

• https://cleartax.in/s/as-19-leases

• https://www.iasplus.com/en/standards/ias/ias17

• https://www.iasplus.com/en/standards/ifrs/ifrs-16
Links for Study

• Case:

• Income tax: How can you save Rs 1.23 lakh tax with car lease finance
as part of your salary?

• https://economictimes.indiatimes.com/wealth/tax/income-tax-how-
can-you-save-rs-1-23-lakh-tax-with-car-lease-finance-as-part-of-your-
salary/articleshow/104938254.cms