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Merchant Banking in India

MERCHANT BANKING IN INDIA

INTRODUCTION
Financial services are an important component of financial system. The
smooth functioning of financial system depends upon the range of financial
services extended by the providers. Financial services in India have
witnessed remarkable changes in the recent past after the implementation of
“Liberalization, privatization and globalization”.

Funds are tapped from the capital market to finance various mega industrial
projects. In attracting public savings, merchant bankers play a vital role as
specialized agencies. The resources raising functions remains to be the
primary business of a merchant banker. The primary market holds the key to
rapid capital formation, growth in industrial productions and exports. There
has to be accountability to the end use of funds raised from the market. The
increase in the number of issues and amount raised the number of merchant
bankers. Therefore, the field became highly competitive market where it
requires a specialized skill in handling the situation. The merchant bankers
have a social responsibility to in building an industrial structure in India.

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Merchant Banking in India

Merchant bankers assist corporate in raising capital. They assist in issue of
Shares, syndicating loans, public issue of debentures. They do not provide
funds.
They only assist. They also actively arrange working capital, appraisal
Projects scrutinize & persuade merger proposals.

In BRITAIN merchant bankers & investment bankers are synonymous.

In the U.S., Merchant bank means as investment bank which is well-
equipped to handle multinational corporations.

In INDIA merchant bankers is a body corporate who carries on any activity
of the issue management, which consist of preparing prospectus & other
information relating to the issue. Merchant banks in India are not allowed to
conduct any business other than that related to securities market. There is no
official category in investment banking.

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Merchant Banking in India

DEFINITION:
In banking, a merchant bank is a financial institution primarily engaged in
offering financial services and advice to corporations and wealthy
individuals on how to use their money. The term can also be used to
describe the private equity activities of banking.

According to Cox, D. merchant banking is defined as, “merchant banks are
the financial institutions providing specialist services which generally
include the acceptance of bills of exchange, corporate finance, portfolio
management and other banking services”.

The Notification of the Ministry of Finance defines a merchant banker as,
“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 service in relation to such issue management”.
In short, merchant bankers assist in raising capital and advice on related
issues.

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Merchant Banking in India

History and Origin of Merchant Banking In India

ORIGIN
Merchant banking originated through the entering of London merchants in
foreign trade through acceptance of bill. Later, the merchants assisted the
Government of under developed countries in raising long – terms through
floatation of bonds in London money market. Over a period they extended
their activities to domestic business of syndication of long term and short
term finance, underwriting of new issues, acting as registrars and share
transfer agents, debenture trustees, portfolio managers, negotiating agents
for mergers, takeovers etc.

Merchant Banking in India – Historical Perspective:

Till 18th century moneylenders, moneychangers, village merchants
(maharanis), & saucers performed the function of banks & merchant banks.
They also issued & discounted bills of exchange (handiest) & bank draft.
They gave loans on mutual trust, on mortgage of lands, ornaments & other
property. JAGAT SHETH (1720-1773AD, BENGAL) HABIB & SONS
which is now HABIB BANK (founded in 1941, now is in PAKISTAN).
These were the organized merchant bankers in recent history of INDIA.
Merchant Banking is an activity that includes corporate finance
activities, such as advice on complex financings, merger and acquisition
advice (international or domestic), and at times direct equity
investments in corporations by the banks.

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Merchant Banking in India

Merchant banks are private financial institution. Their primary sources of
income are PIPE financings and international trade. Their secondary income
sources are consulting, Mergers & Acquisitions help and financial market
speculation. Because they do not invest against collateral, they take far
greater risks than traditional banks. Because they are private, do not take
money from the public and are international in scope, they are not regulated.

Anyone considering dealing with any merchant bank should investigate
the bank and its managers before seeking their help.

The reason that businesses should develop a working relationship with a
merchant bank is that they have more money than venture capitalists. Their
advice tends to be more pragmatic than venture capitalists. It is rare for a
merchant bank to fail. The last major failure was Barings Bank (1992). It
failed because of unsupervised trading of copper futures contracts and
buybacks. When the Dot Com Bubble burst in 2001, scores of venture
capital firms failed. The greatest merchant bank failure in history was the
Knights Templar. After the Crusades, the Order became immensely wealthy
controlling and funding the trade between the Middle East and Western
Europe. They foolishly loaned money to the French Government. To avoid
repaying the money, King Louie had the Pope declare the Order heretics.
Thousands of monks lost their lives, but France balanced its budget.

To understand Merchant Banks, you should know something of their
history. Modern merchant banking started in Italy during the 7th Century.
The

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Merchant Banking in India

banking practices evolved from the financing structure of the Silk Road
Trading that predates the Roman Empire.

The basic financing structure was the advance payment for goods by
merchant bankers at a great discount to the delivery value of those goods. In
the case of Italy and then Germany, wheat was the product. The merchant
banks purchased the wheat soon after planting. They accepted the risk of
crop failure.

They profited when they sold the wheat. In most countries today, the
national government accepts the risk through government crop insurance.

As the British Empire expanded in the 18th and 19th Centuries, merchant
banks prospered in London. For instance, merchant bankers funded
Canada’s Hudson Bay Company. This period saw the rise of such merchant
banks as Schroders, Warburgs or Rothschilds. Amsterdam benefited from
the trade created by the Dutch East Indian Company. Since the 18th century,
the role of the merchant banker has been considerably broadened to include
a composite of modern day skills. Such skills are inherently entrepreneurial,
managerial, financial and transactional.
Today, North American merchant banks have taken the form of "boutiques"-
whereby, each offers its own specialized services. The hallmarks of these
merchant bank boutiques are that they typically charge fees payable in cash
and/or the client's stock for each service rendered. You can find a merchant
bank that meets any reasonable set of needs.

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Merchant Banking in India

Merchant Banking in India – Post Independence:

In 1967, RBI issued its first merchant banking license to grind lays started
with management of capital issues, production planning, system design and
also market research. It provides management consulting services as well.
Citibank setup its merchant banking division in 1970. its scope includes
assisting new entrepreneur, evaluating new projects, raising funds through
borrowing and issuing equity. Indian banks started banking services as a part
of multiple services they offered to clients from 1972. State bank of India
started the merchant banking division in 1972. In the initial years the
objective was to render corporate advice and assistance to small and
medium entrepreneurs. Merchant banking activities are organized and
undertaken in several forms. Commercial banks and foreign development
finance institutions have organized them through formation of division;
nationalized banks have formed subsidiaries companies and share brokers
and consultancies constituted themselves into public ltd. Co. or registered
themselves as private ltd. companies. Some of them have equity stake of
foreign merchant bankers.

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Merchant Banking in India

Merchant Bank

A merchant bank deals with the commercial banking needs of international
finance, long term company loans, and stock underwriting. A merchant bank
does not have retail offices where one can go and open a savings or
checking account. A merchant bank is sometimes said to be a wholesale
bank, or in the business of wholesale banking. This is because merchant
banks tend to deal primarily with other merchant banks and other large
financial institutions.

The most familiar role of the merchant bank is stock underwriting.

A large company that wishes to raise money from investors through the
stock market can hire a merchant bank to implement and underwrite the
process. The merchant bank determines the number of stocks to be issued,
the price at which the stock will be issued, and the timing of the release of
this new stock. The merchant bank files all the paperwork required with the
various market authorities, and is also frequently responsible for marketing
the new stock, though this may be a joint effort with the company and
managed by the merchant bank. For really large stock offerings, several
merchant banks may work together, with one being the lead underwriter.

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By limiting their scope to the needs of large companies, merchant banks can
focus their knowledge and be of specific use to such clients. Some merchant
banks specialize in a single area, such as underwriting or international
finance.

Many of the largest banks have both a retail division and a merchant bank
division. The divisions are generally very separate entities, as there is very
little similarity between retail banking and what goes on in a merchant bank.

Although your life is probably affected every day in some way by decisions
made in a merchant bank, most people reading this article are unlikely ever
to visit or deal directly with a merchant bank. Merchant banks operate
behind the scenes and away from the spotlight.

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Importance and Need of merchant banking
Important reason for the growth of merchant banking has been
developmental activity throughout the country, exerting excess demand on
the sources of funds for ever expanding industry and trade, thus, leaving a
widening gap under bridged between the supply and demand of
inventible funds. All Indian financial institutions and experienced resources
constraint to meet the ever increasing demands for funds from the corporate
sector enterprises. In the circumstances corporate sector had the only
alternative to avail of the capital market services for meeting their long-term
financial requirements through capital issues of equity and debentures. With
the growing demand for funds there was pressure on capital market that
enthused the commercial banks, share brokers and financial consultant firms
to enter into the field of merchant banking and share the growing capital
markets. With the result, all the commercial banks in nationalized and public
sector as well as in private sector including the foreign banks in India have
opened their merchant banking windows and are competing in this field.
There has been a mushroom growth of financial consultancy firms and
broker firms doing advisory functions as well as managing public issues in
syndication with other merchant bankers.

Notwithstanding the above facts, the need of merchant banking institutions
is felt in the wake of huge public savings lying still untapped. Merchant
banks can play highly significant role in mobilizing funds of savers to
investible channels assuring promising return on investments and thus can

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help in meeting the widening demand for investible funds for economic
activity.

With the growth of merchant banking profession corporate enterprises in
both public and private sectors would be able to raise required amount of
funds annually from the capital market to meet the growing requirements for
funds for establishing new enterprises, undertaking
expansion/modernization/diversification of the existing enterprises. This
reinforces the need for a vigorous role to be played by merchant banks.

Merchant banks have been procuring impressive support from capital
market for the corporate sector for financing their projects. This is
evidenced from the increasing amount raised form the capital market by the
corporate enterprises year after year.

In view of multitude of enactments, rules and regulations, guidelines and
offshoot press release instructions brought out by the government from time
to time imposing statutory obligations upon the corporate sector to comply
with all those requirements prescribed therein, the need of skilled agency
existed which could provide counseling in these matters in a package form.
Merchant bankers, with their skills, updated information and knowledge,
provide this service to the corporate units and advise them on such
requirements to be complied with for raising funds from the capital market
under different enactments viz. Companies Act, Income-tax Act, Foreign
Exchange Regulation Act, Securities Contracts (Regulation) Act and various
other corporate laws and regulations. Merchant bankers advise the investors
of the incentives available in the form of tax relief’s, other statutory

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relaxations, good return on investment and capital appreciation in such
investment to motivate them to invest their savings in securities of the
corporate sector.

Role of Merchant Banker

The role of merchant banker is dynamic in the wake of diverse nature
of merchant banking services. Merchant banker’s dynamism lies in
promptly attending to the corporate problems and suggest ways and means
to solve it. The nature of merchant banking services is development oriented
and promotional to help the industry and trade to grow and survive.
Merchant banker is, therefore, dedicated to achieve this objective through
his dynamism. He is always awake to renew his skills, develop expertise in
new areas so as to equip himself with the knowledge and techniques to deal
with emerging new problems of corporate business world. He has to keep
pace with the changing environment where government rules, regulations
and politics affecting business conditions frequently change; where science
and technology create new innovations in production processes of industries
envisaging immediate renovations, diversifications, modernizations or
replacements of existing plant and machinery or other equipments putting
new demands for finances and necessitating overhauling of the capital
structure of the firms. Merchant banker has to think and devise new
instruments of financing industrial projects. He has to assume wider
responsibilities of saving industrial units from going sick and guiding
industries to be setup in industrially backward areas to eliminate regional
imbalances in industrial development of the country.

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He has to guide the wider section of the community possessing surplus
money to invest in corporate securities and other productive investment
channels. He has to help the industry in different forms to ensure that it runs
risk free and devoid of uncertainty by assisting the promoters with his
knowledge and skills to resolve the problems being faced by them. He has to
watch the interest and win over the confidence of the government, its
agencies, along with the entrepreneurs, the investors and the whole
community. He must bridge the communication gap between different
sections and resolve the problem being faced in different areas concerned
with the business world. To discharge the above role, a merchant banker has
to be dynamic.

In the days ahead, merchant bankers have very significant role to play
tuning their activities to the requirements of the growth pattern of the
corporate sector, the industry and the economy as a whole which is, in
it, a challenging task and to meet these challenges merchant bankers
will have to be more vigorous and strategic in playing their role. They
will have also to adopt new ways and means in discharging their role.

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The growth of Merchant banking in India
Formal merchant activity in India was originated in 1969 with the merchant
banking division setup by the Grindlays Bank, the largest foreign bank in
the country. The main service offered at that time to the corporate
enterprises by the merchant banks included the management of public issues
and some aspects of financial consultancy. Following Grindlays Bank,
Citibank set up its merchant banking division in 1970.The division took up
the task of assisting new entrepreneurs and existing units in the evaluation of
new projects and raising funds through borrowing and equity issues.
Management consultancy services were also offered. Merchant bankers are
permitted to carry on activities of primary dealers in government securities.
Consequent to the recommendations of Banking Commission in 1972, that
Indian banks should offer merchant banking services as part of the multiple
services they could provide their clients, State Bank of India started the
Merchant Banking Division in 1972. In the initial years the SBI’s
objective was to render corporate advice and assistance to small and
medium entrepreneurs.

The commercial banks that followed State Bank of India were Central Bank
of India, Bank of India and Syndicate Bank in 1977.Bank of Baroda,
Standard Chartered Bank and Mercantile Bank in 1978 and United Bank of
India, United Commercial Bank, Punjab National Bank, Canara Bank and

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Indian Overseas Bank in late ‘70s and early ‘80s. Among the development
banks, ICICI started merchant banking activities in 1973 followed by IFCI
(1986) and IDBI (1991).

Organizational setup of merchant bankers in India
In India a common organizational setup of merchant bankers to operate is in
the form of divisions of Indian and foreign banks and financial institutions,
subsidiary companies established by bankers like SBI, Canara Bank, Punjab
National Bank, Bank of India, etc. Some firms are also organized by
financial and technical consultants and professionals. Securities and
Exchange Board of India has divided the merchant bankers into four
categories based on their capital adequacy. Each category is authorized to
perform certain functions. From the point of organizational setup India’s
merchant banking organizations can be categorized into four groups on the
basis of their linkage with parent activity. They are:

(A) Institutional Base

Where merchant banks function as an independent wing or as subsidiary of
various private/Central Governments/State Governments financial
institutions. Most of the financial institutions in India are in public sector
and therefore such setup plays a role on the lines of government priorities
and policies.

(B) Banker Base

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These merchant bankers function as division/subsidiary of banking
organization. The parent banks are either nationalized commercial bank or
the foreign banks operating in India. These organizations have brought

professionalism in merchant banking sector and they help their parent
organization to make a presence in capital market.

(C) Broker Base

In the recent past there has been an inflow of qualified and professionally
skilled brokers in various stock exchanges of India. These brokers undertake
merchant banking related operations also like providing investment and
portfolio management services.

(D) Private Base

These merchant banking firms are originated in private sector. These
organizations are the outcome of opportunities and scope in merchant
banking business and they are providing skill-oriented specialized services
to their clients. Some foreign merchant bankers are also entering either
independently or through some collaboration with their Indian counterparts.
Private sector merchant banking firms have come up either as the sole
proprietorship or public limited companies. Many of these firms were in
existence for quite some times before they added a new activity in the form
of merchant banking services by opening new divisions on the lines of
commercial banks and All India Financial Institutions.

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Requirements for setting up a merchant banking outfit
1. Formation of the Business Organization

SEBI act, 1992 does not prescribe any specific form of business
organization to carry on the activities as merchant banker. However, the
types of organizations are listed below:

a. Sole proprietorship
b. Partnership firm
c. Hindu Undivided Family (HUF)
d. Corporate Enterprises
e. Co-operative Society

Generally it is preferred that the Merchant Banking outfit be a registered
company. Merchant Banks are generally setup as subsidiary companies of
banks (Public or Private). For example, SBI caps, ICICI Securities etc.

2. Adoption of a viable business plan

All the basic tests required to find out whether the business to be undertaken
is viable or not are also applicable to a Merchant Banking setup. Capital
adequacy, profitability, growth opportunities and current market size are
some of the factors which need to be looked into.

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3. Registration of Merchant Bankers

a. 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 of the
merchant banker namely:-

• Category I, that is –

(i) to carry on any activity of the issue management, which will inter-alia
consist of preparation of prospectus and other information relating to the
issue, determining financial structure, tie-up of financiers and final allotment
and refund of the subscription; and

(ii) to act as adviser, consultant, manager, underwriter, portfolio manager.

• Category II, that is, to act as adviser, consultant, co- manager,
underwriter, portfolio manager;
• Category III, that is to act as underwriter, adviser, consultant to an
issue;
• Category IV, that is to act only as adviser or consultant to an issue.

To carry on the activity as underwriter or portfolio manager a separate
certificate of registration needs to be obtained from SEBI.

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b. Application to conform to the requirements

The application should conform to all the requirements under the SEBI
guidelines, otherwise it may be rejected.

c. Furnishing of information, clarification 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
for the purpose of disposal of the application. The applicant or its principal
officer may appear before the Board for personal representation.

d. Consideration of application

The Board shall take into account for considering the grant of a certificate,
all matters, which are relevant to the activities relating to merchant banker
and in particular the applicant complies with the following requirements,
namely: -

• the applicant shall be a body corporate other than a non- banking
financial company
• the merchant banker who has been granted registration by the Reserve
Bank of India to act as a Primary or Satellite dealer may carry on such
activity subject to the condition that it shall not accept or hold public
deposit

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• the applicant has the necessary infrastructure like adequate office
space, equipments, and manpower to effectively discharge his
activities
• the applicant has in his employment minimum of two persons who
have the experience to conduct the business of the merchant banker

• a person directly or indirectly connected with the applicant has not
been granted registration by the Board;
• the applicant 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 networth
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

• 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 been convicted for any offence involving moral turpitude or has
been found guilty of any economic offence

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• the applicant has the professional qualification from an institution
recognised by the Government in finance, law or business
management
• grant of certificate to the applicant is in the interest of investors.

e. Procedure for Registration

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.

f. 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 as provided in
Schedule II, the Board may suspend the registration certificate, whereupon
the merchant banker shall cease to carry on any activity as a merchant
banker for the period during which the suspension subsists.

The Merchant Bank can commence business on acquisition of a Certificate
of Registration from the SEBI after completion of the above mentioned
formalities.

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Main Objectives Of Merchant Bankers

Merchant bankers render their specialized assistance in achieving the
main objectives which are presented below:

1. To carry on the business of merchant banking, assist in the capital
formation, manage advice, underwrite, provide standby assistance,
securities and all kinds of investments issued, to be issued or
guaranteed by any company, corporation, society, firm, trust person,
government, municipality, civil body, public authority established in
India.
2. The main object of merchant banker is to create secondary market for
bills and discount or re-discount bills and acts as an acceptance house.
3. Merchant banker’s another objective is to set up and provide services
for the venture capital technology funds.
4. They also provide services to the finance housing schemes for the
construction of houses and buying of land.

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5. They render the services like foreign exchange dealer, money
exchange, and authorized dealer and to buy and sell foreign exchange
in all lawful ways in compliance with the relevant laws of India.
6. They will invest in buying and selling of transfers, hypothecate and
deal with dispose of shares, stocks, debentures, securities and
properties of any other company.

Obligations and Responsibilites

Merchant bankers have the following obligations and responsibilities.

1. Merchant banker should maintain proper books of accounts, records
and submit half yearly/annual financial statements to the SEBI within
stipulated period of time.
2. No merchant banker should associate with another merchant banker
who is not registered in SEBI.
3. Merchant bankers should not enter into any transactions on the basis
of unpublished information available to them in the course of their
professional assignment.
4. Every merchant banker must submit himself to the inspection by
SEBI when required for and submit all the records.

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5. Every merchant banker must disclose information to the SEBI when it
requires any information from them.
6. All merchant bankers must abide by the code of conduct prescribed
for them.
7. Every merchant banker who acts as lead manager must enter into an
agreement with the issuer setting out mutual rights, liabilities,
obligations, relating to such issues with particular reference to
disclosures allotment, refund etc.

Code of Conduct

According to the 13 Regulation of the SEBI of 1992 (Merchant
bankers), every merchant banker should comply with following codes of
conduct. They are:

a) The merchant banker must observe high integrity and fairness in all
his dealings.
b) He shall render at all times high standard of services, exercise due
diligence, exercise independent professional judgement.
c) If necessary, he must disclose to his clients the possible source of
conflict of duties and interests.

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d) The merchant banker should not indulge in unfair practice or unfair
competition with other merchant bankers.
e) He should not make any exaggerated statement about his capacity or
achievement.
f) He should always Endeavour to give the best possible advise and
prompt efficient and cost effective service.
g) He should maintain the secrecy of all the confidential information
received during the course of service to his client.
h) He should not engage in the creation of a false market or price rigging
or manipulation.

Guidelines of SEBI

After the obligations of the CCI, the place was occupied by a legal organ
called as “Securities and Exchange Board of India”. The issue of capital and
pricing of issues by companies has become free of prior approval. The SEBI
has issued guidelines for the issue of capital by the companies. The
guidelines broadly covers the requirement of the first issue by a new or the
first issue of a new company set up by the existing company, the first issue
by the existing private companies and public issues by the existing listing
companies. The SEBI is the most powerful organization to control and lead
both the primary market and secondary market.

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The SEBI has announced the new guidelines for the disclosures by the
Companies leading to the investor protection. They are presented
below:

a) If any Company’s other income exceeds 10 per cent of the total
income, the details should be disclosed.
b) The Company should disclose any adverse situation which affects the
operations of the Company and occurs within one year prior to the
date filing of the offer document with the Registrar of Companies or
Stock Exchange.
c) The Company should also disclose the information regarding the
capacity utilization of the plant for the last 3 years.
d) The Promoters of the Company must maintain their holding at least at
20 per cent of the expanded capital.

e) The minimum application money payable should not be less than 25
per cent of the issue price.
f) The company should disclose the time normally taken for the disposal
of various types of investor’s grievances.
g) The Company can make firm allotments in public issues as follows:
 Indian mutual funds (20%),
 FIIS (24%),
 Regular employees of the company (10%),
 Financial institution (20%).

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h) The Company should disclose the safety net scheme or buy back
arrangements of the shares proposed in public issue. This scheme is
applicable to a limited number of 500 shares per allottee and the offer
should be valid for a period of at least 6 months from the date of
dispatch of securities.
i) According to the guidelines, in case of the public issues, at least 30
mandatory collection centres should be established.
j) According to the SEBI guidelines regarding rights issue, the
Company should give advertisements in not less than two news-
papers about the dispatch of letters of offer. No preferential allotment
may be made along with any rights issue.
k) The Company should also disclose about the fee agreed between the
lead managers and the Company in the memorandum of
understanding.

The Difference between

Investment banks and Merchant banks

Merchant banks and investment banks, in their purest forms, are
different kinds of financial institutions that perform different services.
In practice, the fine lines that separate the functions of merchant banks and
investment banks tend to blur. Traditional merchant banks often expand into

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the field of securities underwriting, while many investment banks participate
in trade financing activities.

In theory, investment banks and merchant banks perform different functions.

Pure investment banks raise funds for businesses and some
governments by registering and issuing debt or equity and selling it on a
market. Traditionally, investment banks only participated in underwriting
and selling securities in large blocks. Investment banks facilitate mergers
and acquisitions through share sales and provide research and financial
consulting to companies.

Traditionally, investment banks did not deal with the general public.

Traditional merchant banks primarily perform international financing
activities such as foreign corporate investing, foreign real estate
investment, trade finance and international transaction facilitation.

Some of the activities that a pure merchant bank is involved in may include
issuing letters of credit, transferring funds internationally, trade consulting

and co-investment in projects involving trade of one form or another.

The current offering of investment banks and merchant banks varies by the
institution offering the services, but there are a few characteristics that
most companies that offer both investment and merchant banking share.

As a general rule, investment banks focus on initial public offerings (IPO’s)

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and large public and private share offerings. Merchant banks tend to operate
on small-scale companies and offer creative equity financing, bridge
financing, mezzanine financing and a number of corporate credit products.
While investment banks tend to focus on larger companies, merchant banks
offer their services to companies that are too big for venture capital firms to
serve properly, but are still too small to make a compelling public share
offering on a large exchange. In order to bridge the gap between venture
capital and a public offering, larger merchant banks tend to privately place
equity with other financial institutions, often taking on large portions of
ownership in companies that are believed to have strong growth potential.

Merchant banks still offer trade financing products to their clients.
Investment banks rarely offer trade financing because most investment
banking clients have already outgrown the need for trade financing and the
various credit products linked to it.

Merchant banks and Commercial banks

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Merchant banks Commercial banks

1) Assist in raising capital in the form of Provide funds in the form of
equity, preference shares, and syndicated term loan and working capital.
loan working capital instruments.

2) Advisor not financer. Financing is the main business.

3) Do not accept chequable deposits. Demand deposits are the key
feature.
4) Mainly fees based business. Mainly fund based business

5) Being advisors, they are closer to the Being lenders, they are more
customers and get to know risks of the cautions, assess risks in lending
transaction s properly. They work on proposal and cannot afford to be
risks shields i.e. mitigation measures grossly relationship based and
close to the customer.

6) Most of work they get is about Commercial banks majority
management of equity issues in the business is of terms lending and
capacity of lead manager, underwriter, bank deposits.
piercing of issue, book running, and
liaisoning with SEBI.

Services of Merchant Bankers In India:-

Merchant bankers provide services as follows:

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Merchant Banking in India
Business planning stage: 1)project feasibility study
2)advice on capital structuring
Equity raising: 3)preparation of prospectus and
liaison with SEBI
4)pricing decisions
5)marketing in the capacity of lead
managers
6)underwriters to the issue
7)post issue management
8)assistance in ADR/GDR
Debt raising: 9)management of debenture issue
10)preparation of bankable proposal
and syndication of loan
Working capital raising: 11)assistance in arranging optimal
capital finance
Strategic advice: 12)advice on mergers and
acquisitions
13)corporate structuring advice

SERVICES PROVIDED BY MERCHANT BANKS: (in detail)

The development activity through the country had exerted excess demand on
the sources of funds by the ever expanding industry and trade which could
not be met by the All India Financial Institutions. In these circumstances, the
corporate sector enterprises had the only alternative to avail themselves of

31
Merchant Banking in India
the capital market services for meeting the long-term fund requirements
through capital issues of equity and debentures. The growing demand for
funds from capital market has enthusied many organizations to enter into the
field of merchant banking for managing the public issues.

The need of merchant banker is also felt in the wake of huge untapped
public savings as merchant bankers can play a highly significant role in
mobilizing funds from savers to invest in channels assuring promising return
on investments and thus narrow down the gap between demand for and
supply of investible funds.

Merchant bankers not only provide advisory services to corporate
enterprises but also advise the investors of the incentives available in
the form of tax relief and other statutory obligations. Thus, the
merchant bankers help industry and trade to raise funds, and the
investors to invest their saved money in sound and healthy concerns
with confidence, safety and expectation of higher yields.

Broadly a merchant banker can provide the following services:

1. Corporate Counseling
2. Project Counseling And Pre-Investment Studies
3. Credit Syndication And Project Finance
4. Issue Management

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Merchant Banking in India
5. Underwriting
6. Bankers
7. Portfolio Management
8. Venture Capital Financing
9. Leasing
10.Non-Resident Investment Counseling And Management
11.Acceptance Credit And Bill Discounting
12.Advising On Mergers, Amalgamations And Take-Over
13.Arranging Offshore Finance
14.Fixed Deposit Broking
15.Relief To Sick Industries

Let’s take a brief look at each of these functions:

Corporate Counseling

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Merchant Banking in India
It includes a whole range of financial services provided by a merchant
banker to a corporate unit a view to ensure better performance, maintain
steady growth and create a better image among investors.

It covers the entire field of merchant banking activities i.e., project
counseling, capital restructuring, portfolio management and the full range of
financial engineering including venture capital, public issue management,
loan syndication, working capital, fixed deposits, lease financing,
acceptance credit, etc. However, the scope of corporate counseling is limited
to suggestions and opinions leaving to the client to take corrective actions
for solving its corporate problems.

A merchant banker finds out the problems of enterprise, which shall include
organizational goals for the enterprise, size of the organization and
operational scales, choice of a product, pricing, etc, and suggests ways and
means to solve those problems.

Project Counseling

34
Merchant Banking in India
Project counseling is an important merchant banking service which includes
preparation of project reports, deciding upon the financing pattern to finance
the cost of the project, appraising the project report with the financial
institutions/banks.

Project reports are prepared to obtain government approval of the project,
for procuring financial assistance from financial institutions and banks, for
ensuring market for the proposed product, for planning public issues, etc.

Financing the project cost is an important aspect of project counseling. The
two sources of funds available to finance the project cost are internal sources
of funds (or owners' funds) which includes promoter's contribution and
retained earnings; and external sources of funds which refers to the
borrowed funds in the form of loans from banks, private investors and
financial institutions and in the form of debentures from the public.

Merchant banker has to decide the financing mix of the internal and external
sources of funds keeping in view the rules, regulations and norms prescribed
by the government or followed by the term lending financial institutions.

While rendering project counseling services, the merchant banker has to
ensure that the application forms for obtaining the funds from financial
institutions are filled in with relevant and appropriate information and before
submitting the application, the merchant banker has to appraise the project
considering the various aspects as to the type of the project, location,
technical, commercial and financial viability of the project.

35
Merchant Banking in India
Credit Syndication

Once the client company has decided about the project proposed to be
undertaken, the next step is looking for the sources wherefrom the funds
could be procured to implement the project.

Merchant banker has to locate the sources of funds and comply the
formalities required to procure the funds. This service rendered by the
merchant banker in arranging and procuring credit from financial
institutions, banks and other lending and investment organizations for
financing the clients' project cost or meeting working capital requirement is
referred to as loan syndication or credit syndication.

Credit syndication in case of domestic borrowings is with the institutional
lenders and banks. Long and medium term funds are obtained from the All
India Financial Institutions like IFCI, IDBI etc., state level financial bodies
like SFC, SIDC etc., commercial banks, mutual funds etc. Short-term funds
are also required by the firm for purchase of raw materials, payment of
wages, salaries etc. Sources of financing these short term requirements or
working capital needs can be from internal sources like internal accruals
from working or operations and short term loans from friends and relatives;
or from external sources like short term borrowings from banks etc.

Issue Management and Underwriting

36
Merchant Banking in India
Management of capital issues is a professional service rendered by the
skilled and experienced merchant bankers. Previously, the managing agents
for a particular corporate used to manage public issues. The abolition of the
managing agency system, the growth in the public limited companies in
number and size, the imposition of new rules and regulations regarding the
public issue of securities made it necessary for merchant bankers to play a
definite role in the management of public issues.

Public issue management involves marketing of corporate securities by
offering the securities to the public, procuring private subscription to the
securities and offering securities to existing shareholders of the company.

As a manager to the public issue, the merchant banker, before the public
issue has to obtain the consent of the stock exchanges to the memorandum
and articles of association, appoint other managers, bankers, underwriters,
brokers etc. ,advice the company to appoint auditors, solicitors and board of
directors, draft the prospectus and obtain consent from the companies legal
advisors, board of directors and other concerned parties, file the prospectus
with registrar, make an application for enlistment with stock exchanges and
finally advertise for the issue.

A merchant bankers post issue activities include final allotment and/or
refund of subscription amount, calculation of underwriters liability in case
of under subscription and complying the necessary statutory requirements
for listing of securities on the stock exchange.

Under writing of public issue

37
Merchant Banking in India
A fully underwritten public issue spells confidence to the investing public,
which ensures a good response to the issue. Keeping this in view companies,
which float a public issue usually, desire a full underwriting of the issue.

Underwriting is only the guarantee given by the underwriter that in the event
of under subscription, the amount underwritten would be subscribed in
proportion by the underwriter. An underwriter of the issue gets the following
benefits:

• It earns a commission of the commitment given.
• It earns the right to be appointed as bankers of that issue.
• It expands its clientele by underwriting more and more issues.

Bankers to the Issue

The merchant banker can automatically become the banker to the issue in
the following cases:

• The bank is a broker to the company
• It has given underwriting commitments.
• It acts as a manger to the issue
• The function of a banker to the issue is to accept application forms
from the public together with subscription money and transfer them to
the account of the controlling branch.

Portfolio Management

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Merchant Banking in India
Portfolio refers to investment in different types of marketable securities or
investment papers like shared, debentures and debenture stocks, bonds etc.
from different companies or institutions held by individuals firm or
corporate units.

Portfolio management refers to managing efficiently the investment in the
securities held by professionals to others.

Merchant bankers take up management of a portfolio of securities on behalf
of their clients, providing special services with a view to ensure maximum
return by such investments with a minimum risk of loss of return on the
money invested in securities.

A merchant banker while performing the services of portfolio management
has to enquire of the investment needs of the client, the tax bracket, ability
to bare risk, liquidity requirements, etc. they should study the economic
environment affecting the capital market, study the securities market and
identify blue chip companies in which money can be invested. They should
keep record of latest amendment in government guidelines, stock exchange
regulations, RBI regulations, etc.

Advisory Services Relating To Mergers and Takeovers

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Merchant Banking in India
A merger is defined as a combination of two or more companies into a
single company where one services and other looses their corporate
existence. A merger is also defied as an amalgamation wherein the
shareholders of the combining companies become substantially the
shareholders of the company formed.

A takeover is referred to as an acquisition, which is the purchase, by one
company of a controlling interest in the share capital of another existing
company.

Merchant bankers are the middlemen settling negotiations between the
offered and the offeror. Their role is specific and specialized in handling the
mergers and taker over assignments. Being a professional expert, the
merchant banker is apt to safeguard the interest of the shareholders in both
the companies and as such his assistance is useful for both the companies,
i.e. the acquirer as well as the acquired company.

Based on the purpose of business objective, the search of the acquirer
company will start for a merger partner company. If the objective of merger
is growth oriented i.e. seeking expansion in production and market
segments, utilization of existing companies or optimum utilization of
resources, then the acquirer company will select a business related company
as a merger partner.

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Merchant Banking in India
If the objective is diversification in production line or business activities,
then it will select a non-related company as a merger partner.

Once the merger partner is proposed the merchant banker has to appraise the
merger/takeover proposal with respect to financial viability and technical
feasibility. He has to negotiate with the parties and decide the purchase
consideration and mode of payment. He has to comply with the legal
formalities like getting approval from the Government/ RBI; drafting the
scheme of amalgamation; getting approval of company Board, financial
institution, high court if required; arranging for the meeting etc.

Venture Capital Financing

Financing an emerging high-risk project is called venture capital financing.
Many merchant bankers are entering into this area by also financing viable
upcoming projects. The financing is by subscription to the equity capital,
while repayment is by selling the equity through stock market when the
shares are listed.

Leasing

Is there another lucrative area of financing where merchant bankers are
turning? Leasing is a viable source of financing while acquiring capital
assets. The services include arrangement for lease finance facilities for
leasing companies, legal; documents and tax consultancy.

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Merchant Banking in India
Non Resident Investment

To attract NRI investments in the primary and secondary markets, the
merchant bankers provide investment advisory services to the NRIs in terms
of identification of investment opportunities, selection of securities,
portfolio management, etc. they also take care of operational details like
purchase and sale of securities securing the necessary clearance from RBI
under FERA for repatriation of dividends and interest, etc.

Acceptance Credit and Bill Discounting

Though merchant bankers world over specialize in acceptance credit and bill
discounting, these services are not currently provided by merchant bankers
in India the principal reasoning being the lack of an active market for
commercial bills.

Arranging Offshore Finance

The merchant bankers also help their clients in the following areas involving
foreign currency financing:

1. Financing Of Exports And Imports
2. Long Term Foreign Currency Loans
3. Joint Ventures Abroad
4. Foreign Collaboration Arrangements

The assistance rendered as in the case of financial services covers appraisals,
negotiations, compliance with procedural and legal aspects etc.

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Merchant Banking in India
Management of Fixed Deposits of Companies

Recently, merchant’s bankers have begun to structure and mobilize fixed
deposits for their corporate clients. They take care of the procedural and
legal aspects, and also mange the collection and subsequent servicing of the
deposits. Advice with regard to the amount to be raised, interest charges,
terms of deposits and other related issues are also offered to the client.

Relief to Sick Industries

The services offered by merchant bankers to sick industries can be
summarized as follows:

1. Assessment of capital requirements and counseling on capital
restructuring;
2. Appraisal of technological, environmental, financial and other factors
causing sickness;
3. Preparations of programs and packages for rehabilitation of sick units;
4. Providing necessary assistance where the rehabilitation package
involves mergers or amalgamation;
5. Obtaining necessary approval for implementation the rehabilitation
package from the statutory authorities;
6. Monitoring the implementation of the scheme of rehabilitation.

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Merchant Banking in India
Qualities of merchant bankers:-
To be a successful merchant banker, following qualities are necessary:

1. Knowledge: Thorough understanding of technical issues related to

business, understanding of legal and statutory requirements, appreciation
of business acumen; financial expertise is a key thing a merchant banker
must know. Delivery of his services depends on his basic understanding
of these issues.

2. Capital market familiarity: Merchant banker should be well versed

with stock markets, their movements. He should track imp happenings in
the market on ongoing basis.

3. Liasioning ability: Merchant bankers are required to liaison with SEBI,

RBI, the stock exchanges, depositories and other government authorities
for public issue related duties. It is imperative that a merchant bank
maintains excellent rapport with all of them and also close relations even
at informal levels. This only can see speedy and favorable clearances by
the authorities.

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Merchant Banking in India

4. Innovation: Corporate may approach with unique requirements.

Standard solutions and products may not solve problems sometimes.
Merchant bankers should do out of box thinking and be able to do
financial engineering. They can device new financial instruments and get
approved from the authorities. Innovation is required even to address
stringent legal requirements.

5. Integrity: Merchant banker has valuable and confidential information of

its customers. Merchants bankers should take utmost care that the
information is not leaked and also not consumed for the purpose other
than for which it was disclosed to the merchant banker.

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Merchant Banking in India

Problems and hurdles:-
Not many but some problems are faced by Indian merchant bankers.

I. Industry compartmentalization: company which is in merchant banking
business would have expertise in underwriting, hire purchase, leasing, and
portfolio management, money-lending. But RBI does not permit merchant
banking firms to get into these activities. So the same promoters have to setup
different companies for different purposes. Management cost increases and
expertise pooling i.e. multiple use of same talent is not possible.

II. Malafide practices: India corporate culture is bettering. but still many

corporate have excessively friendly approach. Favored allotment of shares,
tampering with project appraisal report to bankers is common. Corporate
like to use merchant bankers for malafide intentions. This gives growth to
more boutique fly-by-day firms. Giant professional or multinational
merchant bankers are cautions in their approach to Indian market.

III. Regulations: though regulations are much better now, there is still scope
for further improvement. Merchant bankers can be made more accountable
and responsible. Professional qualification focused on merchant banking is
not available. Industry is not well organized and all the players do not play
the same tune. This is specifically evident in comparison with insurance
industry and mutual funds industry.

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Merchant Banking in India

Scope for merchant banking in India:-

Scope for merchant banking depends upon size of the market,
restriction-liberation, banking policies, corporate culture, and
corporate dynamics.

1. Size and dynamics of the market: Indian market is growing. In fact
India is one of the largest emerging markets. Obviously, public issues, FDI,
debt raising are on rise. Lots of new and green fried projects are happening.
Merchant bankers have lots space to contribute.

2. Restrictions-liberalization: more liberal the market is, more the

things left to be decided by the corporate. Merchant bankers assist in
decision making and hence their scope increases. With significant
market freedom, merchant bankers work has increased many folds.

3. Banking policies: RBI prefers that commercial banks do not indulge

in merchant banking business directly. They should setup a subsidiary
for the purpose. This limits scope of commercial banks and gives
space to merchant bankers. This policy also results in fair business
practices. Some countries allow commercial bankers to get involved
in IPO’s, placement of debentures, etc. Indian scenario is favorable to
merchant bankers.

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Merchant Banking in India

4. Corporate culture: corporate can do project appraisal, strategic

restructuring in house as well. If the corporate prefer third-party
independent assessment, then only they will engage merchant
bankers. Otherwise merchant banker’s role is only statutory as in
issue management. India inc. apparently prefers and is happy with
merchant bankers work.

5. Corporate dynamics: more happening in business gives more

opportunities to merchant bankers. Mergers, takeover acquisition,
new Greenfield projects, fund raising for government institutions,
active money market are all providing better business prospectus to
merchant bankers.

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Merchant Banking in India

Progress of Merchant Banking in India:-
Upto 1970, there were only two foreign banks which performed
merchant banking operations in the country. SBI was the first Indian
commercial bank and ICICI the first financial institution to take up the
activities in 1972 and 1973 respectively. As a result of buoyancy in the
capital market in 1980’s some commercial banks set – up their subsidiaries
to operate exclusively in merchant banking industry. In addition, a number
of large stock broking firms and financial consultants also entered into
business. Thus, by the end of the end of 1980’s there were 33 merchant
bankers belonging to three major segments viz., commercial banks, all
India financial institutions, and private firms. Merchant banking
functions of these institutions was related only to management of new
capital issues.
Merchant banking industry which remained almost stagnant and
stereotyped for over two decades, witnessed an astonishing growth after the
process of economic reforms and deregulation of Indian economy in 1991.
The number of merchant banks increased to 115 by the end of 1992-93 300
by the end of 1993-94 and 501 by the end of August, 1994. all merchant
bankers registered with SEBI under four different categories include 50
commercial banks, 6 all Indian financial institutions – ICICI, IFCI, IDBI,
IRBI, Tourism Finance corporation of India, infrastructure Leasing and
Financial Services Ltd. and private merchant bankers.
In addition to Indian Merchant Bankers, a large number of reputed
international Merchant Bankers like Merrill Lynch, Morgan Stanley,

49
Merchant Banking in India
Goldman Sachs, Jardie Fleming Kleinwort Benson etc. are operating in
India under authorization of SEBI. As a result of proliferation, Indian
Merchant

Bankers are faced with severe competition not only among themselves but
also with the well developed global players.

CURRENT AFFAIRS
 RBI allows cash withdrawal from merchant banker terminals
Besides ATMs, customers can now also withdraw cash up to Rs1000 from
terminals at different merchant establishments, the Reserve Bank. As a
further step towards enhancing the customer convenience in using the plastic
money, it has been decided to permit cash withdrawals at POS (point of
sale) terminals. To start with, this facility will be available for all debit cards
issued in India, up to Rs1000 per day," RBI said in a statement issued here.
The use of debit cards at POS terminals at different merchant establishments
has been steadily increasing, it said. This facility is available only against
debit cards issued in India.
At present cash withdrawal facility using plastic cards is available only at
Automatic Teller Machines (ATMs) with the number of ATMs in the
country at 44,857. There are 4,70,237 POS terminals in the country.
This facility may be made available at any merchant establishment
designated by the bank and would be available whether the card holder
makes a purchase or not.
 Morgan Stanley makes i-banking comeback
The joint venture between JM Financial and Morgan Stanley was inked in
1997 and formalized in 1999. The JV had investment banking operations

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Merchant Banking in India
other than equity broking, research, wealth management and advisory and
securities distribution operations. Post the split, JM Financial acquired the
investment banking company together with its subsidiaries, which were
engaged in fixed income, equity broking, wealth management, advisory and
distribution businesses of $ 20 million. The Indian partner sold its 49%
holding in JM Morgan Stanley Securities (JMSPL), the institutional equity
broking company to Morgan Stanley for $ 445 million.
Bulge bracket investment banking major, Morgan Stanley has re-entered
investment banking business on its own, after parting ways with JM
Financial — its former Indian partner.

 PNB aims profit of 7,500crore by 2013
The country's second largest public sector lender Punjab National Bank aims
to double its profit to Rs7,500 crore in the next four years.
"The bank has set a target to expand total business to Rs10crore and earn net
profit of Rs7,500 crore by 2013," said PNB Chairman and Managing
Director K C Chakrabarty, who is charge of Deputy Governor of RBI.
The growth driver would be better asset liability management, thrust on
recovery, focus on customers and financial inclusion, he had said. Besides,
the bank plans to open new line of businesses in the current fiscal including
merchant banking subsidiary.
PNB Investment Services aims to provide investment consultancy and
merchant banking services and would be operational in the next three
months. Currently, these operations are run by a division of the bank.

 ICICI Bank to oversee mergers and acquisitions

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Merchant Banking in India
ICICI bank and its merchant banking arm, ICICI Securities (I-Sec), have
entered into an agreement, whereby all M&A deals will be done out of
ICICI Bank. The agreement goes on to define an M&A deal as one which
involves change in management control.

This arrangement replaces the earlier practice of both I-Sec and ICICI Bank
working together on M&A deals. “Since a predominant number of people,
who wish to be advised on M&A, also look for acquisition finance, it was
decided that the business should be housed in the bank,” I-Sec MD Madhabi
Puri Buch told ET. “Now, if a corporate is seeking a sell mandate or a buy
mandate, where the transfer of controlling interest takes place, the deal will
be done by ICICI Bank.”

ICICI Bank had initially entered the investment banking space in 2006. Over
the past couple of years, both the bank and its subsidiary have been vying
for deals. The new deal has taken into effect between both the entities from
April 1.

 Birla Capital and Financial Services gets SEBI merchant banking
license
Birla Capital & Financial Services Ltd has been granted a merchant-banking
license by the Securities and Exchange Board of India. The license will
enable the company to offer a wide range of on-shore investment banking
advisory and underwriting services in the Indian market.

The company, which is a part of the Yash Birla conglomerate, will initially
concentrate on regulated services like initial public offerings, takeover,

52
Merchant Banking in India
buybacks, delisting and valuations. It also offers non-regulated services like
PE Syndication, M&A Advisory and other corporate advisory.

Birla Capital & Financial Services Ltd. is part of the 3,000-crore Yash Birla
Group that has diversified interest in sectors like auto & engineering, textiles
& chemicals and power & electrical, education & IT.

 Primary market slowdown, affects merchant bankers’ wallet
The recent slowdown in the primary market has impacted not only investors
but merchant bankers as well, as there has been a significant decline of
nearly 60 per cent in their percentage fees so far this year.
"There is a clear drop in the merchant banking fees to Rs 216crore in
comparison to Rs. 771crore for the calendar year 2007, indicating a drop of
57.9 per cent on annualized basis," Nexgen Capitals, the merchant-banking
arm of brokerage firm SMC Global Securities.
Merchant bankers are those who advise the issuer about the public offer and
manage the issue.
The average percentage fees has declined to 1.21 per cent so far this year
from 2.24 per cent in 2007, the report added.
Reliance Power IPO of Rs 11,563 crore during this year with the merchant
banking fee of Rs 50.6 crore, amounting to 0.44 per cent of the issue size
had a great bearing on this trend.

 Nomura launches its investing banking operations in India

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Merchant Banking in India
Nomura Financial Advisory and Securities (India) Private limited ('Nomura
India'), a wholly-owned subsidiary of Nomura Holdings, Inc. ('Nomura'),
has launched its equity sales and trading and investment banking operations
in India.

In October 2008, Nomura, a global investment bank, acquired the majority
of Lehman Brothers' employees in India, including the equities sales and
trading, equity research, fixed income liquid markets sales and trading, and
investment banking teams.

By integrating the former Lehman Brothers India franchise and obtaining its
merchant banking licence and stock exchange memberships, Nomura India
said in a statement it has significantly expanded its capabilities in India
through a wide range of onshore financial solutions spanning securities
brokerage, securities underwriting and advisory services.

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Merchant Banking in India

Association of merchant bankers in India (AMBI):

Association of merchant bankers in India is a professional non-profit
company setup to represent the industry. It is expected to set code of ethics
and facilitate dialogue between the industry and regulatory bodies. Training
and awareness programs are also expected from AMBI. Because of lack of
support from the members and non-initiative from SEBI/government, AMBI
is dormant at present.

ARTICLES:-

AMBI-SEBI talks on SRO

ENS ECONOMIC BUREAU

MUMBAI, May 8: The Association of Merchant Bankers of India (AMBI)
is proposing to have an exhaustive dialogue with the Securities and

55
Merchant Banking in India
Exchange Board of India (SEBI) on its functioning as a self-regulatory
organization (SRO).

This follows a feeling among AMBI members that it is being sidestepped
when decisions relating to merchant bankers are being taken. AMBI was
given SRO status in 1995, but it has not really been officiating as one.

Recently the association was really piqued when SEBI asked one of its
members to stop taking up further assignments without so much as giving it
any notice. AMBI feels that the member should have been given a fair
hearing and also feels that AMBI as the SRO should have been informed
about the decision. A committee has subsequently been set up by AMBI to
go into the matter. Then there was the issue of asking all merchant bankers
to furnish details of employees to SEBI. This was also demanded without
consulting/informing AMBI.

The association has already made its disappointment clear to SEBI and the
proposed dialogue is reportedly being undertaken to clear all
misunderstandings.

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Merchant Banking in India

EXAMPLE:-

MERCHANT BANKING SERVICES
INTRODUCTION
Canara Bank is also one of the leading Merchant Bankers in India, offering
specialized services to Banks, PSUs, State owned Corporations, Local
Statutory bodies and corporate sector.

Its SEBI registered Category I Merchant Banker / Underwriter to carry on
Issue Management (Public / Rights / Private Placement Issues),
Underwriting, Consultancy and Corporate Advisory Services etc.

They also hold SEBI registration Certificate to act as "Bankers to an Issue"
with network of exclusive Capital Market Service Branches to handle

57
Merchant Banking in India
“Capital Market" related assignments.

They undertake "project appraisals" with resource raising plans from Capital
Market/ Debt Markets and facilitate tie-ups with Banks / Financial
Institutions and Potential Investors.

Their uniqueness is extending services under single window concept
covering the following areas:

1. Merchant Banking

2. Commercial Banking

3. Investments

4. Bankers to Issue - Escrow Bankers

5. Underwriting

6. Loan Syndication

As leading Merchant Bankers in India, they have associated with issues
ranging from Rs.1crore to Rs.1500 crores, involving various types of
industries, banks, statutory Bodies etc. and have an edge in handling Private
Placement issues – both retail & HNIs.

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Merchant Banking in India

SPECTRUM OF SERVICES:-

1. Equity Issue (Public/Rights) Management

2. Debt Issue Management

3. Private Placements

4. Project Appraisals

5. Monitoring Agency Assignments

6. IPO Funding

7. Security Trustee Services

8. Agriculture Consultancy Services

9. Corporate Advisory Services

10. Mergers and Acquisitions

11. Buy Back Assignments

12. Share Valuations

13. Syndication

ISSUE MANAGEMENT SERVICES:-

1. Project Appraisal

2. Capital structuring

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Merchant Banking in India
3. Preparation of offer document

4. Tie Ups (placement)

5. Formalities with SEBI / Stock Exchange / ROC etc.,

6. Underwriting

7. Promotion /Marketing of Issues

8. Collecting Banker / Banker to an issue

9. Post Issue Management

10. Refund Bankers

11. Handling of Dividend Warrant/Interest Warrant Payments

12. Debenture Trusteeship

Investment Criteria:-

A wide range of later stage opportunities are considered. Targeted
companies include the following characteristics:

1. Having weathered the start-up process and established a core business
model that is sustainable;

2. Proven management team;

3. If not already profitable, visibility to profitability within a 12-month
period;

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Merchant Banking in India
4. Having established business partnerships that give it a major position in a
market space;

5. Significant barriers to entry; and

6. Technology or business that is scalable with global applications.

They look for opportunities for synergistic consolidation and/or companies
that are on the verge of extraordinary growth.

STATE BANK OF INDIA

SBI’s Merchant Banking Group is strongly positioned to offer perfect
financial solutions to your business. They specialize in the arrangement of
various forms of Foreign Currency Credits for Corporate.

They provide the resources, convenience and services to meet your needs by
arranging Foreign Currency credits through:

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Merchant Banking in India
• Commercial loans
• Syndicated loans
• Lines of Credit from Foreign Banks and Financial Institutions
• FCNR loans
• Loans from Export Credit Agencies
• Financing of Imports.

They are internationally the most Preferred Bank by Export Credit Agencies
for Guarantees in case of the Indian Clients or Projects.

SBI being an Indian entity has no India exposure ceiling. Their Primary
focus is On Indian Clients. SBI’s seasoned Team of professionals provides
you with Insightful credit Information and helps you Maximize the Value
from the transaction.

PRODUCTS AND SERVICES

1] Arranging External Commercial Borrowings (ECB)
2] Arranging and participating in international loan syndication
3] Loans backed by Export Credit Agencies
4] Foreign currency loans under the FCNR (B) scheme
5] Import Finance for Indian corporates.

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Merchant Banking in India

PUNJAB NATIONAL BANK
India’s one of the Leading Nationalized Bank established in 1895, serving
over 3.5crore customers through 4520 branches and 439 extension counters
is the largest amongst Nationalized Banks. The Bank has recently been
ranked 21st among top 500 companies and 9th among top 50 brands by the
Economic Times. All the Branches of the Bank have been computerized.
The Bank has a concept of "Any Time, Any Where Banking" through the
introduction of Centralized Banking Solution (CBS) and over 2511 offices
have already been brought under its ambit.

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Merchant Banking in India
The Bank is registered with SEBI as Category – I Merchant Banker for
providing all the major Merchant Banking services. Our gamut of Merchant
Banking services includes:

• Issue Management Services – to act as Book Running Lead
Manager/Lead Manager for the IPOs /FPOs/Right issues/Debt issues
• Project appraisal
• Corporate Advisory Services
• Underwriting of equity issues
• Banker to the Issue/Paying Banker
• Refund Banker
• Monitoring Agency

• Debenture Trustee
• Marketing of the issue through a strong network of
QIBs/HNIEs/Corporates and Retail investor. The Bank itself is one of
the major investor in the market having a treasury of 45000 crores.

Their Software for handling the Refund Banker is one of the best systems in
the industry. Its unique features provides online payment of the instrument
by our 2470 branches in 733 centers, online status of paid instruments,
100% reconciliation at any point of time etc.

The Bank has an exclusive and specialized Capital Market Service Branch at
New Delhi for providing Merchant Banking Services to the Corporate

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Merchant Banking in India

CONCLUSION

The merchant banker plays a vital role in channelising the financial
surplus of the society into productive investment avenues. Hence before
selecting a merchant banker, one must decide, the services for which he is
being approached. Selecting the right intermediary who has the necessary
skills to meet the requirements of the client will ensure success.

It can be said that this project helped me to understand every details
about Merchant Banking and in future how it’s going to get emerged in the
Indian economy. Hence, Merchant Banking can be considered as essential
financial body in Indian financial system.

Market development is predicted on a sound, fair and transparent
regulatory framework. To sustain the growth of the market and crystallize

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Merchant Banking in India
the growing awareness and interest into a committed, discerning and
growing awareness and interest into an essential to remove the trading
malpractice and structural inadequacies prevailing in the market, and
provide the investors an organized, well regulated market.

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