MERCHANT BANKING

Merchant banking primarily involves financial advice and services for large corporations
and wealthy individuals.
MERCHANT BANKING ACTIVITIES:

The Major Merchant Banking activities which the Bank offers to its clients are:

Issue Management - Management of Public Issues i.e. IPOs, FPOs, Right Issues,
etc. as Book Running Lead Manager
Bankers to the Issue
Payment of Dividend Warrants / Interest Warrants / Refund Orders
Debenture Trustee
Underwriting
Issuing & Paying Agent
Monitoring Agency

Besides promoting / marketing the above Merchant Banking Business in the Bank
through specialized Capital Market Services Branches, Merchant Banking Cells and
identified branches, the Merchant Banking Division also looks after the following
activities:
Marketing of Merchant Banking Business
Monitoring / Supporting Capital Market Service Branches
Refund Paid / Payable
MERCHANT BANKERS ASSIGNMENTS:

At present, the Bank is holding following Licenses from SEBI:

Merchant Banker
Banker to the Issue
Underwriting
Debenture Trustee
1. Bankers To The Issue (Collecting Banker):

'Bankers to the Issue' business as a part of Merchant Banking business is one

of the good source of low cost deposits and, therefore, concerted efforts are to
be made for its development. From time to time, Merchant Banking Division
is issuing instructions/ guidelines for the benefit of the field staff for the
efficient and effective handling of the Banker's to Issue assignments and for
the meticulous compliance of RBI / SEBI directives.

2. Payment Of Dividend Warrants / Interest Warrants (Paying Banker):

Assignment of payment of dividend warrants / interest warrants is another

opportunity for the bank to get short-term deposits at nominal cost. The
assignment of dividend payment not only provides the free of cost float fund but
also adds to the fee-based income of the Bank.
The Merchant Banking Division has also got enabled a functionality of a new
system in CBS branches for payment assignments, which is similar to Demand
Draft Payable Account under Finacle. The product has the following unique
features that ensure that the payment account of the corporate remains reconciled
at any point of time:
o Facility for upfront uploads of the instruments issued by the companies
into Core Banking system
o Online payment of the instruments by CBS branches
o Validation of instruments details by the system
o Online status update of paid instruments by the system
o Online MIS on paid/unpaid instruments at any point of time
o Facility to cancel lost instruments and to re-upload duplicate instruments
issued in lieu thereof
o MIS on cancelled instruments
o 100% reconciliation of the corporate dividend / refund order payable by
a/c by the system without manual intervention
Facility to provide MIS on paid / outstanding instruments in ASCII format, which
can be suitably converted by the corporate for updating their in-house database
This new facility will help in solving the major problem in handling these
assignments i.e. reconciliation of accounts. This will also help in reducing the cost
of reconciliation, postage and handling cost.
To remain in the fray and be competitive in the prevailing environment in Banking
Industry, Management has approved changes in policy for bidding/offer for "Banker to
Issue" / "Payment Assignment. The policy of sharing of expenses upto 80% of
notional income and waivement of the handling charges upto full extent while
bidding for securing business of Banker to Issue and Payment Assignment have
been approved by the authorities. Circle Offices are requested to forward the
proposals to CGM, MBD, HO for approval.
3. Payment Of Refund Orders:
As compared to the payment of Interest / Dividend Warrants, assignments for payment of
Refund Orders is more lucrative since it involves larger amount, which at times may even
run into several crores of rupees and Deposit float is likely to remain with the Bank for a
longer period of time as the beneficiaries are widely spread and the Bank gets free
publicity.
Normally the refund bankers are decided well before the issue opens. Circle
Offices should maintain close liaison with companies who are intending to come
out with public issues.

The detailed guidelines / procedures to be followed. Powers of the Branches /

Charges etc. for handling the assignments of Bankers to the Issue/ Payment of
Dividend warrants / Refund Orders etc. are available in the circulars of the
Division at the Banks website.

4. Underwriting:

Underwriting is a contingent liability and this is one sphere of Merchant banking

where outlay of funds on the part of the bank may be involved. As such, it is
necessary to be very careful in accepting / recommending such business.
Proposals that pose clear risk of devolvement should be declined at the outset
unless there is sub underwriting tie up directly or indirectly with promoters and
their related investment companies or a firm commitment of buy back on
reasonable terms.
Major aspects which need close scrutiny before underwriting can be considered
are the project and its viability, project location, promoters and their track record,
product and its marketability, past performance of existing companies in the same
line, Government Policy, projected financial performance, capital market
conditions, underwriting / sub underwriting / buy back arrangements, etc.

5. Debenture Trustee:

In terms of SEBI guidelines, all debenture issues (public rights) of the companies
with the maturity period exceeding 18 months are required to have "Debenture
Trustee" and its name must be stated in the prospectus of the issue.
The necessity of creation of debenture trust is to organize the large number of
debenture holders and facilitate interaction by the companies issuing debentures
with a single entity rather than individual debenture holders. Merchant Bankers
(holding valid Registration with SEBI as debenture trustee) act as Trustees for the
debenture holders to accept security created by the company, to secure the
repayment of principal and payment of interest thereon, taking action for
safeguarding their interest and enforcing their rights in times of needs.
As per SEBI guidelines lenders cannot act as Trustees to debentures/bond the
issues of the Companies who are their borrowers. Therefore, branches of the
Bank must not obtain 'Debenture Trustee' assignments of the
parties/companies which are availing Credit facilities from our Bank.

6. Issuing & Paying Agent (IPA):

Commercial Paper now being a stand alone product coupled with the complexity
of legal frame work and in order to protect the interest of various market players /
participants for ensuring smooth flow of the transactions in the CP market, the
Issuing and Paying Agent has been made to play a prominent role and hence made
more accountable.

Risk Management Division HO has issued detailed guidelines with regard to

issuance of Commercial Paper through L&A Circular No. 31 dated 30.3.2007,
inter-alia, providing therein the system for issuance of Commercial Paper (CP)
and providing standby facility to the issuer of Commercial Paper.
In order to ensure that the guidelines prescribed are diligently followed by issuers
of CP, only a schedule bank has been permitted to act as an Issuing & Paying
Agent (IPA) for issuance of CP. Our Bank being a scheduled bank can act as an
IPA for issuance of CP.
For the Functions and Role and Responsibilities of Issuing and Paying Agent
(IPA) and other guidelines, kindly refer to Cir. No. 24/2007 dated 9.4.2007 of
Merchant Banking Division available on the e-circular site of the Bank.

7. Monitoring Agency:

In terms of SEBI (DIP) guidelines, the Company issuing the shares to public shall
make arrangements for the use of proceeds of the issue to be monitored by one of
the financial institutions, in case of issues, which exceed Rs.500 crores.
Though, in terms of SEBI guidelines, it is mandatory for the issuers to appoint
'Monitoring Agency' if the issue size is more than Rs.500 crores, on the insistence
of Merchant Bankers and Stock exchanges, the issuers of issues of less than Rs.
500 crores are also appointing monitoring agency.
Monitoring Agency is required to monitor timely implementation of project and
submit return on half yearly basis to SEBI as per the format specified by SEBI
Monitoring Agency is therefore responsible to act as under:
1.
Make arrangement to ensure the monitoring of issue proceeds.
2.
Ensure that the proceeds collected is being utilized for the project it was
raised.
3.
Where the amount is being parked/invested till utilized for the project.
4.
Cost of the project as mentioned in the offer document and revision if any to
be reported to the SEBI
5.
The source for financing the revision in the cost of the project
6.
Keep a track on the expenditure incurred from the amount collected.
7.
If total cumulative amount raised is more than the expenditure incurred on
the project, how the surplus funds are utilised/ proposed to be utilised.
8.
Reasons for delay in implementation to be reported to SEBI.
9.
To ensure that the Government/ statutory approvals related to the project as
disclosed in offer document are being complied with
10. The deviation if any, from the offer document is to be reported to the
company and the SEBI.
Since financial institutions only have been permitted to act as "Monitoring Agency",
many companies have shown interest in appointing our Bank as Monitoring Agency
though they are not offering us any other role in their issue. Bank can act as monitoring
agency provided bank is banker to the issuer. SEBI being the regulator for the Monitoring
Agency assignments, the assignment of Monitoring Agency be negotiated judiciously and
preferably with the existing clients of the Bank and try to have the proceeds of the issue
parked with us. Utmost attention is required for monitoring the proceeds, submission of

statement as per SEBI guidelines to the company reporting of defaults etc. after
acceptance of the assignment.
The guidelines to be observed before accepting assignment of Monitoring Agency are
given in respective circular available in e-circular site of the Bank.