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Section A

Landscape of Financial Services


Financial services are the economic services that are provided by the finance industry.
It encompasses a wide range of businesses which manage money, including banks,
insurance companies, credit unions, investment funds, stock brokerages, real estate
funds etc. Thus, it includes all activities involved in the transformation of savings into
investment. A well-developed financial services industry is absolutely necessary to
mobilize the savings and to allocate them to various invest able channels and thereby
to promote industrial development in a country.
The financial services are broadly classified into four categories which are sub-divided
into further parts. Figure 1 shows the types of financial services that are present.

The figure above explains the fundamental flow of funds between the lender/savers
and the borrowers/spenders. The principal lenders or savers are households,
government etc. whereas the borrowers or spenders are business firms, government
etc. There are two methods by which the borrowers can get money from the lenders,
these are Direct and Indirect ways.
Direct Methods:
Tries to raise capital by issuing financial instruments, for e.g. bonds, securities,
derivatives etc.
Investment banks also help the borrowers to target the investors to get
monetary help
Indirect Methods:
Banks are most common indirect method by which borrowers can get the
money.
It is also cheaper as compared to the direct methods but it is more regulated.

Global Scenario
The recovery from the 2008-09 financial crisis has begun. The financial services firms
appear to be on the surer footing, with sustained but slow growth returning to many
sectors. The US economy is also recovering and the slowly and steadily the US
government is pulling out the money which was pumped into the economy under the
disguise of quantitative easing also known as QE.
According to the Deloitte report on the financial services, the financial services
industry is divided into eight major sectors. These are:
1. Alternative Investments
2. Banking
3. Capital Markets
4. Commercial Real Estate
5. Life and Annuity
6. Property and Casualty
7. Mutual Funds
8. Private Wealth
There are various new avenues coming up in the above mentioned sectors for the
financial services firms. For eg: In the banking sector, there are seven trends that are
available, which are balance sheet efficiency, payment transformation, compliance and
risk management, data management etc. Similarly, in the capital market, there are new
upcoming trends of risk management and risk culture, client value optimizations etc.

Challenges
First and foremost, the most important challenge that the financial services sector is
facing is to maintain a consistent revenue stream so that the problem of credit crunch
can be sorted out. This problem is faced by almost all the firms in the developed
economies especially United Kingdom.
The second challenge is to rebuild the trust and confidence of the consumers in the
market. Interest and foreign exchange rate manipulation and commodities price fixing
have continued to damage the reputation of banks and asset managers.

The third challenge faced in front of the companies is one which is beyond control, the
macro political scenario of the world. Upheaval in Crimea and the Middle East has led
to international condemnation and stiff sanctions against states such as Russia who
have previously been accepted participants in international trade. The ongoing
democratisation of former Soviet states and continuing instability in both the Middle
East and North Africa further complicate the picture.
The fourth challenge faced is the change in the culture of risk management and
governance. Long term behavioural change is now recognised as key to limiting
exposure to financial crime risks. Regulators have taken the lead, encouraging and in
some cases forcing firms to address underlying organisational culture and be more
transparent in their governance.

Future Scope
There are various upcoming disruptive innovations in the financial services in the
future. These are:
1. Payments: Mobile Payments, Streamlined Payments, Mobile money, peer
to peer transfer etc.
2. Insurance: Self-Driving Cars, 3rd Party Capital, Smarter cheaper sensors
etc.
3. Deposits and Lending: Mobile Banking, Virtual Banking, Banking as
platform (API) etc.
4. Capital Raising: Alternative Adjudication, Empowered Angel investors.

Indian Scenario
The US$ 28 billion Indian financial sector has grown at around 15 per cent and has
displayed stability for the last several years, even when other markets in the Asian
region were facing a crisis. This stability has come through the resilience that the Incountry system and the finance companies have built over these years. The financial
sector has kept pace with the growing needs of corporate and other borrowers.
Banks, capital market participants and insurers have developed a wide range of
products and services to suit varied customer requirements.
The Indian financial services sector is divided into four major segments which are
further classified into several different parts. These segments are:

1. Corporate and Merchant Banking: This includes corporate lending,


syndications, capital markets, venture capital etc.
2. Consumer and Commercial Banking: This includes retail and consumer
finance, mid-market commercial, lending, leasing etc.
3. Private Banking: This includes wealth management and trust management
4. Financial & Operational Services: It includes brokerage, securities and
trading, derivative and optional product, IT services.

Key Trends
Banking in India has transformed into technology intensive and customer
friendly model with a focus on convenience. The sector is set to witness the
emergence of financial supermarkets in the form of universal banks providing
a suite of services covering almost all the verticals.
The Indian capital markets have witnessed a transformation over the last
decade, leading India to be counted among the mature markets of the world.
Key progressive initiatives taken by the Indian market institutions has been
the depository and share dematerialization systems that have enhanced the
efficiency of the transaction cycle. Many new instruments have been
introduced in the markets, including index futures, index options, derivatives
and options and futures in select stocks.
According to a survey conducted by Thomson Financial and Prime Database,
India ranked as the third most active venture capital market in Asia Pacific at
the start of 20th century. There is an increased interest in India. The amount
has grown nearly twenty fold in the past five years.

Challenges
The financial services industry is in a period of transition globally. Regular market
shifts, fierce competition, and technological developments are ushering in
unprecedented changes in the global financial services industry. Organizations in this
highly competitive and increasingly regulated industry will especially need to focus
on making themselves more:
Adept to face increasing transaction volumes, regulation and the integration
of previously disparate global markets

Agile at identifying and managing risk


Optimized in both business & technology, operationally efficient
Financial professionals with knowledge of Business/Industry and technical
competence
To enhance their competitive advantage in this changed environment, financial
services institutions are increasingly harnessing senior executives with right
knowledge of business/ industry and technical competence, who can spearhead new
business initiatives with better IT Technologies to provide superior customer
offerings and streamline internal processes. Today's dynamic marketplace demands
that financial services sector emphasize on technologically advanced, feature-rich
solutions, that can operate in real-time and with the highest degree of precision and
reliability.

Section B
An Investment Bank is a financial institution which acts as an intermediary between
the providers and users of capital. The providers of capital funds can be individuals,
pension funds, sovereign wealth funds etc. and the users of these funds can be
government, corporates and municipalities.
Chinese

Wall

Strategic advisory
Securities Underwriting

Users of
Capital

Investment
Banking

Sales &
Trading

Providers of
Capital

Research

Private Side

Public Side

The Investment banks perform a variety of crucial functions in the financial markets:
1. Equity capital-raising
2. Debt capital-raising
3. Mergers & Acquisitions
4. Restructuring
5. Ratings
The main role of an investor banker is to do:

Client Relationship Management


o

Ongoing dialogue on financial markets, industry developments, new products

Long-term relationship as advisor to Senior Management and Boards

Idea Generation and Problem Solving


o

Strategic Alternatives

Capital Raising

Optimizing Capital Structure

Risk Management, Dividend Policy

Assessment of opportunities is the market

Career Trajectory
The career trajectory of an Investment Banker basically consists of five stages:
Managing Director
Director(Executive)
Vice President
Associate
Analyst

Generally, fresh undergraduates out of colleges joins the investment banks as Analyst
whereas MBA graduates joins the investment banks as Associates. It takes almost two
to three years for Analyst to get promoted to Associate. Associate and analyst works
closely. The associate checks and assigns work to the analyst. Sometimes there can be
the requirement of handholding in some tasks.
There are three factors which determines the career path of a candidate.
1. Graduation College: A college plays a very important role in the
development of a candidate. It more or less decides the pool of companies that
the candidate will be joining after his/her completion of the course. For eg:
Colleges belonging to Ivy League and other top B-Schools of the world assists
the candidate in joining firms like Goldman Sachs, Deutsche Bank, J.P. Morgan
etc. whereas tier-2 colleges will only be able to provide some boutique firms.
2. Firms that the candidate joins: It is the second factor that determines the
career path of a candidate. The growth in a Boutique firm is much faster than
compared with big firms like J.P. Morgan, Goldman Sachs etc. But at the same
time the exposure is much more in these too big to fail firms than in boutique
firms.
3. Capabilities of the candidate: According to me this is the most important
factor which decides where a candidate would be after ten or fifteen years. A
highly capable candidate can reach the position of Managing Director in any
firm whereas a candidate who is not very capable might just be able to make it
to the Vice President.

Section - C
Investment Banking is considered to be the one of the most demanding job in terms
of sheer hard work and skills. Everybody expects an Investment Banker to be well verse
in terms of knowledge and capabilities. The basic skills required in an Investment
Banker are:
Strong communication skills (written and oral)
Quantitative / technical skills
Teamwork and leadership skills
Motivation and strong work ethic
Self-confidence and positive attitude
Time management skills
Personality (sense of humor, enthusiasm and ability to adapt to different
situations)
Knowledge of firm and industry
Ability to work well under pressure
Creativity
But we would like to categorize these skills with some sort of framework which would
help us to clearly differentiate among these capabilities. In order to do so, we would be
using the Blooms Taxonomy.
Bloom's Taxonomy was created in 1956 under the leadership of educational
psychologist Dr Benjamin Bloom in order to promote higher forms of thinking in
education, such as analysing and evaluating concepts, processes, procedures, and
principles, rather than just remembering facts (rote learning). It is most often used
when designing educational, training, and learning processes. Benjamin Bloom gave
three domains of learning namely- Cognitive, Affective and Psychomotor. The
cognitive domain involves knowledge and the development of intellectual skills. This
includes the recall or recognition of specific facts, procedural patterns, and concepts
that serve in the development of intellectual abilities and skills. There are six major

categories of cognitive processes, starting from the simplest to the most complex which
are represented in the figure below.

1) Remembering: An Investment Banker should be able to recall or retrieve all


the previously learned information. He/she is expected to have knowledge
about different firms in different sectors. This means that he/she must have
sharp memory.
2) Understanding: After gathering all the information it is very important to
make sense out of that information, there comes the understanding aspect. An
Investment Banker must be able to comprehend and interpolate the
information that he has received. This required technical and comprehending
skills.
3) Applying: After remembering and understanding the information, it is very
important that the candidate must be able to apply it in a real life situation. All
the gathered knowledge and understanding goes for a toss if the candidate is
unable to apply his knowledge into a real life situation.
4) Analyzing: After applying the next category that comes is analyzing. An
Investment Banker is expected to be able to separate material or concepts into
component parts so that its organizational structure may be understood. He
must be able to distinguish between facts and inferences. This required good
analytical and critical reasoning skills.
5) Evaluating: This category involves making judgement about value of ideas or
materials. An Investment Banker is expected to evaluate the results after doing
the thorough analysis of any report or project. He is expected to make critical

judgements and also make other people understand the rationale behind his
decisions. This require the candidate to have strong communication skills,
quantitative skills and confidence in his capabilities.
6) Creating: This is the most complex category which only few people can
achieve. It requires strong understanding of each and every processes involved
in the domain of Investment Banking. All the Managing Directors in a big shot
Investment Bank has this quality as common.
Challenges in Investment Banking
Investment Banking job is perceived as very high paying job but with high pay comes
different and difficult challenges every day. Some of these challenges are:
Long working hours
Need of continuous improvement
Need to face strong personalities (demanding seniors)
High stress or pressure environment
Sometimes involves a lot of travelling
Less personal time

Section D
Dream Job in Investment Banking
My dream job in the Investment Banking sector would be to assist the corporations in
the mergers and acquisitions. The most fundamental skill required for M&A is to know
how the businesses are valuated. One has to be very careful while assisting
corporations in the M&A deals as it can be make or break for the company. Once a
corporation acquires another company or merges with another organisations there is
no looking back. There have been various examples where M&A have been failures
whereas there has been M&A where companies have grown leaps and bounds after it.
Secondly, one has to be adept at various financial modelling software and needs to
have good presentation and communication skills.
The mentioned skills can be acquired by understanding what are financial services,
how businesses are evaluated, reading a lot about different sectors of market and
making one sector as your forte. Financial Modelling and presentations skills can be
honed by practicing on excel and power point respectively.
The institute would help me in gaining the knowledge about financial services and
business valuation whereas honing my financial modelling and presentation and
communication skills is something that I have been working on myself.