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MERCHANT BANKING SUBMITTED BY VINAY SHUKLA 66 VIVEK AGRAWAL 69 A VINASH KUMAR 86 BALAMURLI KRISHNA 87 ASHOK KUMAR MAITY 88 SUBMITTED TO K.K JINDAL SIR

Merchant Banking Final

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MERCHANT BANKING

SUBMITTED BY

VINAY SHUKLA 66

VIVEK AGRAWAL 69

AVINASH KUMAR 86

BALAMURLI KRISHNA 87

ASHOK KUMAR MAITY 88

SUBMITTED TO

K.K JINDAL SIR

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In banking, a merchant bank is a financial institution primarily

engaged in international finance and long-term loans for

multinational corporations and governments.[1] It can also be used

to describe the private equity activities of banking

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*Merchant Banking refers to negotiated private equityinvestment by financial institutions in the unregisteredsecurities of either privately or publicly held companies. A

bank that offers these services is called a merchant bank.Both commercial and investment banks may engage inmerchant banking activities. The original purpose of merchant banks was to facilitate and/or finance productionand trade of commodities and hence the name "merchant"

Commercial banks are the normal banks that provide day today banking services like checking/saving accounts, fixeddeposits, loans etc.

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*Key differentiators between Commercial Banking and

Merchant Banking

*Commercial banks verify and uphold savings accounts of 

individuals; provides loans and mortgages to individuals or

small-scale businesses. But, merchant banks operate as fiscal

consultants to large-scale companies. Commercial banking isusually reachable to everyone for elementary banking

requirements,

*whereas merchant banking is concerned to hand out primarily

large corporations and very wealthy persons.

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MERCHANT BANKING

Merchant banking may be defined as an ‘institution which covers awide range of activities such as underwriting of shares, portfolio

management, project counseling, insurance etc…They render all

these services for a fee

ORIGIN :

The term merchant banking originated from the London who started

financing foreign trade through acceptance of bills

Later they helped government of under developed countries to raise

long term funds

Later these merchants formed an association which is now

called”

Merchant Banking and Securities House Association”

 

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Merchant Banking: 

The merchant banker are those financial intermediary involvedwith the activity of transferring capital funds to those borrowers

who are interested in borrowing.

The activities of the merchant banking in India is very vast in

nature of which includes the following

a) The management of the customers securities

b) The management of the portfolio,

c) The management of projects and counseling as well as appraisald) The management of underwriting of shares and debentures

e) The circumvention of the syndication of loans

f) Management of the interest and dividend etc

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SERVICES OF MERCHANT BANKERS

PROJECT COUNSELLING :

It includes preparation of project reports,deciding upon the

financing pattern, appraising the project relating to its technical,

commercial and financial viability. It includes filling up of 

application forms for obtaining funds from financial institutions.

LOAN SYNDICATION :

Assistance is rendered to raise loans for projects after determiningpromoter’s contribution. These loans can be obtained from a single

institution or a consortium.

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 ISSUE MANAGEMENT :

Management of issues involves marketing of corporate securities

ie…equity shares, preference shares and debentures by offering them to

public.

Pre-issue activities:

They prepare copies of prospectus and send it to to SEBI and then file

them to Registrar of Companies

They conduct meetings with company representatives and advertising

agencies to decide upon the date of opening issue,closing issue,launching

publicity campaign etc..

They help the companies in fixing up the prices for their issues

Post-issue activities:

It includes collection of application forms,screening of 

applications,deciding allotment procedure,mailing of allotmentletters,,share certficates and refund orders

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*The basic function of merchant banker or investment bankeris marketing of corporate and other securities. In the process,he performs a number of services concerning various aspectsof marketing, viz., origination, underwriting, and

distribution, of securities. During the regime of erstwhileController of Capital Issues in India, when new issues werepriced at a significant discount to their market prices, themerchant banker’s job was limited to ensuring press coverageand dispatching subscripttion forms to every corner of the

country. Now, merchant bankers are designing innovativeinstruments and perform a number of other services both forthe issuing companies as well as the investors. The activitiesor services performed by merchant bankers, in India, todayinclude:

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*1. Project promotion services.

*2. Project finance.

*3. Management and marketing of new issues.

*4. Underwriting of new issues.

*5. Syndication of credit.

*6. Leasing services.

*7. Corporate advisory services.

*8. Providing venture capital.

*9. Operating mutual funds and off shore funds.

*10. Investment management or portfolio management services.

*11. Bought out deals.

*12. Providing assistance for technical and financial collaborationsand joint ventures.

*13. Management of and dealing in commercial paper.

*14. Investment services for non-resident Indians.

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UNDERWRITING OF PUBLIC ISSUES :

Underwriting is an insurance to the company which makes public

issues.Raising of external resources is easy for the issues backedby well known underwriters.

MANAGERS,CONSULTANTS OR ADVISERS TO THE

ISSUE :

SEBI insist that all issues should be managed by atleast one

authorised merchant banker but not more than two.For an issue of 

100 crores,upto a maximum of four merchant bankers shall be

appointed.They help in listing of shares in stock exchange,

completion of formalities under Companies Act etc..

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PORTFOLIO MANAGEMENT :

Portfolio refers to investment in different kinds of securities such

as shares,debenture issued by different companies.It is acombination of assets but a carefully blended asset combination.

Portfolio management refers to maintaining proper combination

of securities in a manner that they give maximum return

Investors are interested in safety,liquidity and profitability of his

investment but they cant choose the appropriate securities.So

merchant bankers help their investors in choosing the

shares.They conduct regular market and economic surveys.

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NRI INVESTMENT :

NRIs has to follow lots of complicated rules for investing in the

shares in India.Merchant bankers help them in choosing the shares

and offer expert advice fulfilling government regulations thusmobilising more resources for corporate sector.

ADVISORY SERVICE RELATING TO MERGERS AND

TAKEOVERS :

Merger is a combination of two or more companies into a singe

company where one survives and other loses its existence

Takeover is the purchase by one company acquiring controlling

interest in the share capital of another company

Merchant banker acts as middlemen between offeror and

offeree,negotiates mode of payment and gets approval from

government.

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OFF SHORE FINANCE :

Merchant bankers help their clients in :

Long term foreign currency loan

Joint venture abroad

Financing exports and imports

Foreign collaboration arrangement

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BANKS PROVIDING MERCHANT BANKING SERVICES IN

INDIA

Commercial banks

Foreign banks like National Grindlays Bank, Citibank, HSBC bank 

etc..

Development banks like ICICI,IFCI,IDBI etc..

SFC , SIDCs

Private firms like JM Financial and Investment service , DSP Financial

Consultants, Ceat Financial Services,Kotak Mahindra, VMC ProjectTechnologies,Morgan Stanley,Jardie Fleming,Klienwort Benson etc… 

* Dsp Merrill Lynch Ltd

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*

Dsp Merrill Lynch Ltd. Merchant Banking, Stock Brokin... Prime Securities Ltd Debit and Equity Organisation.... Dash Impex Merchant Exporter & Importer... Desai Financial Services PL... Mercbanker Fin. Consultant Dsp Merrill Lynch Ltd Merchant Banking Emjay Enterprise Merchant Exporters Erudite Capital Creation Ltd Merchants Banking Esoffina Svcs Ltd Merchants Bankingdivn Associat... Everex Infotech P Ltd 

Merchant Exporter Expo Gas Containers P Ltd Merchant Exporters Exta Exprots Merchant Exporters Sicom Ltd Merchant Banking Division Asso... Tata Finance MerchantBanker... Finance Solutions V B Dalal & Co Merchant Bank Abn Amro Securities India P ... Merchant Bank Ak Capital Services Ltd Merchantile Banking Firm Allianz Securities Ltd Merchant Banker Arihant International General Merchandise Bahtco Essem Trading Co P Lt... 

Merchant Exporter Bajaj Consultants P Ltd Merchant Bankers Bhavesh Traders Merchant Exporters

* Boom Exports International Merchant Exporter Bramco India P Ltd Merchant Exporter Dandy Exports Merchant Exporters French & International Bank Ho Merchant Bank Harvey Rud & Co Merchant Exporters Ind Bank Merchant Services L... Merchant Bank Jay Shree Trading Company Merchant Exporter Jaya Green Acres P Ltd 

Merchant Exporter Kena Exim Merchant Exporters Keymed Merchant Exporter Kinjal Export Merchant Exporter- Eng. Produ... Kk Thaker Merchant Exporter L& T Capital Ltd Merc. Banking Co. Corp Fina Meghraj Fincl Svcs i) P Limited( Merc. Bnk Fin. C... Mitul Exports Merchant Exporters Nouveau Finance Ltd Merchant Bankers/ Nse Brokers Priti International Merchants Exporters Puneet Advisory Services P L... Merchant Banking Sbi Capital Marketltd 

Fin Invt& Leas Compn Mrh Bnkg Sbi Coml & Intl Bank Ltd Banking, Branch, Ambika Enterprises Merchandising Service Merchand... Mehta Traders 

C A A G G A O S

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MERCHANT BANKING REGULATIONS :

Certificate from SEBI is a must.They are of four types:

Category I merchant bankers : Can act as Issue managers

Category II merchant bankers : can act only as co-managers

Category III merchant bankers : can act as co-managers but cannot

undertake portfolio management

Category IV merchant bankers :can merely act as consultant or

advisor to issue of capital

CAPITAL ADEQUACY NORMS :

Category I : Rs. 5 crores

Category II : Rs.50 lakhs

Category III : Rs.20 lakhs

Category IV : Nil

GUIDELINES FOR MERCHANT BANKERS

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GUIDELINES FOR MERCHANT BANKERS :

SEBI’s authorization is a must to act as merchant

bankers.Authorisation criteria include

Professional qualification in finace,law or business management

Infrastructure like office space,equipment and man power

Capital adequacy

Past track of record,experience,general reputation and fairness in all

transactions

Every merchant banker should maintain copies of balance

sheet,Profit and loss account,statement of financial position

Half-yearly unaudited result should be submitted to SEBI

Merchant bankers are prohibited from buying securities based on the

unpublished price sensitive information of their clients

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SEBI has been vested with the power to suspend or cancel the

authorisation in case of violation of the guidelines

Every merchant banker shall appoint a ‘Compliance Officer‘ to

monitor compliance of the Act

SEBI has the right to send inspecting authority to inspect books of 

accounts,records etc… of merchant bankers 

Inspections will be conducted by SEBI to ensure that provisions of theregulations are properly complied

An initial authorisation fee,an annual fee and renewal fee may be

collected by SEBI

A lead manager holding a certificate under category I shall accept a

minimum underwriting obligation of 5% of size of issue or Rs.25 lakhs

whichever is less

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CODE OF CONDUCT :

Should make all efforts to protect the interest of investorsShould maintain high standards of integrity,dignity and fairness in

conduct of business

Should fulfill all obligations in a professional and ethical manner

Should not discriminate among the clients

Should ensure that prospectus, letter of offer etc.. is available to

investors at the time of issue

Should render best possible advice to its clients

Any penal action taken by SEBI should be informed to its clients

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Should inform the board about any legal proceedings

initiated against it

Should abide by the rules of ‘‘Securities and Exchange

Board of India Regulations,2003 “ 

Shall develop its own internal code of conduct for

governing its internal operationsShould ensure that any person it employs should have the

capacity to be a merchant banker

It is responsible for the act of its employees and agents

Should not create false market

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SOME PROBLEMS OF MERCHANT BANKERS

SEBI stipulates high capital adequacy norms for

authorisation which prevents young,specialised

professionals into merchant banking business

Non co-operation of the issuing companies in timely

allotment of securities and refund of application of money

etc.. is another problem

Yet merchant banking is vast but should develop adequate

expertise to provide a full range of merchant banking

services

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