Merchant Banking Business

Made byMr. Vishal Narvekar

[S.Y.B.F.M .]

Table of contentIntroduction

History

Main services provided by merchant banks

Who can be merchant banker?

Requirements for setting up a merchant bank

Categories of merchant bankers

Qualities of A merchant banker

Merchant banking in India

Main merchant banking companies

Key foreign players

Merchant banking structure in India

Ranking of merchant banks in India

Conclusion

Introduction

According to SEBI Merchant Bankers rules 1992 & The Notification of the Ministry of Finance the

merchant banker is :-“Any person who is engaged in the business of

issue management either by making arrangements regarding selling, buying or

subscribing to securities as manager-consultant, advisor or rendering corporate advisory services

in relation to such issue management”

History Merchant banking started in Italy in late medieval

times Reached in France during the seventeenth century Italian merchant bankers introduced Merchant

banking into England in eighteenth century European bankers developed merchant banking In

USA In 1972, merchant banking started in South Africa In 1967, National Grindlays Bank started merchant

banking in India

Main Services Provided By Merchant Banks Corporate Counselling

Project Counselling

Loan Syndication

Managers to Issue

Underwriting

Portfolio Management

Non-Resident Investment

Advising On Mergers And Take-Over

Arranging Offshore Finance

Management of Debenture Issue

Assistance in issue of ADR/GDR

Main Services Provided By Merchant Banks Particular Summary

Corporate Counselling

Covers the entire field of merchant banking , of giving suggestions

Project Counselling

Preparing project report for govt. Approval , financial assistance

Loan SyndicationAssistance rendered to get term loan for project,

help client make appraisal, designing capital structure etc

Managers to Issue Drafting, completion of formalities, appoint Registrar etc

Underwriting Guarantee given by the underwriter, make raising of external resource easy

Portfolio Management

Investment in different kind of securities

Non-Resident Investment

Provide help in better and smooth trade to Non-Resident Investments

Advising On Mergers & Take-Over

Middlemen in setting negotiation, provide advise

Arranging Offshore Finance

Help in areas funds involving foreign currency

Management of Debenture Issue

As in public issue of shares, merchant bankers also undertake similar responsibilities in case of

public issue of debentures

Assistance in issue of ADR/GDR

Merchant bankers helps Corporate to issue ADRs/GDRs in US and other global markets

Who can be Merchant Banker?

Public sector

• Commercial banks

• FI• State

institutionsPrivat

e sector

• Banks• Finance /

investment companies

• Leasing companies

International banks

Requirements For Setting Up A Merchant Bank

Formation of the business organization

Adoption of a viable business

plan

Registration of merchant bankers

Registration of Merchant Bankers

Application for grant of certificate

Furnishing of information, clarification and personal representation

Consideration of application

Grant of a certificate

Payment of fees and the consequences of failure to pay fees

Application For Grant Of Certificate

An application for grant of a certificate needs to be made to SEBI

The application can be made for any one of the following categories :-Category ICategory IICategory IIICategory IV

For underwriter or portfolio manager a separate certificate of registration needs to be obtained from SEBI

Furnishing Of Information And Personal Representation

The Board may require the applicant to furnish further information or clarification regarding matters relevant to the activity of a merchant banker

The applicant or its principal officer may appear before the Board for personal representation

Consideration Of Application

Applicant complies with the following requirements:-The applicant shall be a body corporate other than

a non- banking financial company The applicant has the necessary infrastructure like

adequate office space, equipments, and manpower to effectively discharge his activities

The applicant has minimum of two persons as employ who have the experience in the business of the merchant banking

Consideration Of Application contd

The applicant, his partner, director or principal officer is not involved in any litigation connected with the securities market which has an adverse bearing on the business of the applicant and have not at any time found guilty for any economic offence

The applicant has the professional qualification from an institution recognized by the Government in finance, law or business management

Grant of certificate to the applicant is in the interest of investors

Consideration Of Application contdThe applicant must fulfils the capital adequacy

requirement is as follows :-The capital adequacy requirement should not be less than

the net worth of the person making the application for grant of registration

The net worth shall be as follows:-

Category Minimum Amount

Category I Rs. 5, 00, 00, 000

Category II Rs. 50, 00, 000

Category III Rs. 20, 00, 000

Category IV Nil

Grant Of A Certificate

The Board on being satisfied that the applicant is eligible shall grant a certificate

On the grant of a certificate the applicant shall be liable to pay the fees as prescribed

Payment Of Fees And The Consequences Of Failure To Pay Fees

Every applicant eligible for grant of a certificate shall pay such fees in such manner and within the period specified

Where a merchant banker fails to pay the Annual fees, the Board may suspend the registration certificate

A merchant banker has to pay to SEBI :-Applicant fee of 25000Registration Rs 10 lakhsRenewal fee of Rs 5 lakh 3 years from the 4th year from

the date of initial registration

Categories Of Merchant BankersCategory Role Fees charged

Category IIssue managementAdvisor ConsultantManagerUnderwriter Portfolio manager

• 2.5 lakhs for first two years

•1.50 lakhs for 3rd year

Category IIAdvisorConsultantUnderwriterPortfolio managerCo-manager

• 1.5 lakhs for first two years

• 50,000 for 3rd year

Category III UnderwriterAdvisorconsultant

• Minimum 50,000

Category IV AdvisorConsultant • Minimum 50,000

Qualities of a Merchant Banker

Ability to analyse

Abundant knowledge

Innovative approach

Integrity

Capital Market Familiarity

Merchant Banking In India

Foreign bank National Grindlays Bank started merchant banking in 1967

Then Citibank in1970 & State Bank of India in 1972 started merchant banking

Later ICICI set up its merchant Banking Division followed by Bank of India, Bank of Baroda, Canara Bank etc..

Main Merchant Banking companies

Public

Sector

•SBI capital markets ltd •Punjab national bank •Bank of Maharashtra •Karur Vysya bank ltd •State Bank of Bikaner and Jaipur.•IFCI financial services ltd.

Private Sector

•ICICI Securities Ltd •Axis Bank Ltd •Bajaj Capital Ltd •Reliance Securities Limited •Kotak Mahindra Capital Company Ltd •Yes Bank Ltd

Key Foreign Players

Goldman Sachs (India) Securities Pvt. Ltd.

Morgan Stanley India Company Pvt. Ltd.

Barclays Securities (India) Pvt. Ltd.

Bank Of America

Citigroup Global Markets India Pvt. Ltd.

DSP Merrill Lynch Ltd.

Merchant Banking structure in IndiaMerchant banks

PUBLIC SECTOR

COMMERCIAL BANKS (24)

FINANCIAL INSITUTION (6)

STATE INSITUTIONS (4)

PRIVATE SECTOR

BANKS (10)

FINANCE AND INVESTMENT (231)

INTERNATIONAL BANKS(10)

Ranking Of Merchant Banks in IndiaMerchant Banker

Overall Excellence

Financial Soundness

Quality of Product &Service

Quality Management

Innovativeness

ICICI Securities 4 4 4.2 3.8 4.3

IDBI 4.2 3.2 4.5 4 4.8

SBI Caps 4.4 3.9 4.6 6.7 5.2

DPS 6.1 5.7 6 6 5.3

IFCI 6.1 5.7 6 6 6.3

Webliography Webpage Link

Wikipedia.org http://en.wikipedia.org/wiki/Merchant_banking

Fdic.gov http://www.fdic.gov/bank/analytical/banking/2001sep/article2.html

ukessays.com http://www.ukessays.com/essays/english-language/merchant-banking-in-india.php

investopedia.com http://www.investopedia.com/terms/m/merchantbank.asp#axzz2EqgN9tfw

THANK YOU