Merchant Banking

EXECUTIVE SUMMARY
Although merchant banking activity was ushered in two decades ago, it was only in 1992 after the formation of Securities and Exchange Board of India that it is defined and a set of rules and regulations in place. Today a merchant banker is who has the ability to merchandise that is, create or expand a need and fulfill capital requirements. I have given an overview about the financial markets and the role of merchant bankers in the growth of these markets. My project covers how the merchant banks works, rules & regulations laid by SEBI & its impact on the merchant banking activities. Their importance in the economy is expected to grow even further in the coming years with an increasing proportion of household savings getting invested in corporate & other securities. Hence, my project covers the challenges and advantages, which India will get and is getting by merchant banking activities. I have covered several services provided by Merchant Bankers & the role of Merchant bankers in providing those services to the business world. Finally, the top players, which exist in merchant banking, are also covered; their services are also been focused. To get the practical knowledge about merchant banking activities I have interviewed visited State bank of India, Kotak mahindra bank and SPA Merchant bankers ltd.

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Merchant Banking

INDEX
SR.NO. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. CONTENTS Introduction History Definition Evolution & Emergence of Merchant Banking Merchant Banking in India Merchant banking past and present Need & Importance in India Role of Merchant Bankers Merchant Bankers Commission Commercial Banks & Merchant Baks Growth of Merchant Banks in India Problems of Merchant Bankers Current Scenario Merchant Banking Indian Scenario Merchant Banking International Scenario Merchant Banking Organisation Qualities of good Merchant Bankers Responsibilities of Merchant banker Registration of Merchant Banker Scope of services Services Rendered by Merchant Bankers Recent Trends Players in Merchant Banking Merchant Banking – Future Development Questionnaire Annexure Conclussion Bibliography PAGE NO. 1 2 4 5

7 8 9 11 12 13 14 15 16 17 19 20 22 24 26 27 39 41 48 51 53 62 63

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Merchant Banking

INTRODUCTION
The term Merchant Banking has its origin in the trading methods of countries in the late eighteenth and early nineteenth century when trade-taking place was financed by bill of exchange drawn by merchanting houses. At that time the merchants were merely financing their own activities. As international trade grew and other lesserknown names wanted to import goods from abroad, the established merchants ‘lent

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Consequently Amsterdam merchants became the first masters of the various financial techniques and developments which. in the course of time. involved in the ownership of commercial ventures. firm or proprietary concern. More recently. 4 . the Merchant Banks have been trading in the countries concerned and gained the confidence of Governments and other authorities in those countries. etc. Their role is wide ranging and they can now provide most of the financial services required by a company. Thus the second principal ingredient of Merchant Banking became and still is raising of capital through the issue of stocks and bonds. In many cases.Merchant Banking their names’ to the newcomers by agreeing to accept bills of exchange on their behalf. Acceptance business thus became and to a degree always has been hallmark of true Merchant Banks. This organization may be a bank. HISTORY OF MERCHANT BANKING During the seventeenth and most of the eighteenth century international finance was centered on Amsterdam. The acceptance houses would charge a commission for this service and thus there grew up the business of accepting bills of finance trade not merely of themselves. Merchant Banking started in the beginning of 20th century in UK and USA. Dictionary meaning of ‘merchant bank’ refers to an organization that underwrites corporate securities and advises such clients on issues like corporate mergers. corporate body. became identified with the emergent profession of ‘Merchant Bankers’. Therefore. the services offered by Merchant Banks have entered into the other areas of operations. Merchant Banks can be accepting houses or issuing houses or both. The second historical of Merchant Banks was the raising of capital for foreign Government. touching almost all aspects of establishing and running of industrial units on sound financial footing. but of others.

In today’s Scenario the Merchant banker and management consultants undertake advisory services to the corporate sector. (5) The holding and dealing in quoted and unquoted investment. mergers and acquisitions. money market operations including foreign exchange dealing. Investment advises and Bought out deals which are not the main activities of Merchant Bankers. The management consultant have a wide area operations like production. The Merchant Banker advices corporation and firms relating to opening of issues. on such diverse matters as new share and bond issues.Merchant Banking Commercial Banking and Investment Banking are often confused with Merchant Banking. 5 . capital reconstructions. The primary function of a commercial bank is to receive deposits from the public and lend the same to others. (1) Corporate financial advice. receiving loans etc. In many ways. unit trust. the functions of Merchant Banking may not widely vary from Investment Banking. (4) Acceptance credits and all forms of export finance. Commercial Banks can undertake some of the merchant banking activities like Issue Management whereas Merchant Banking Units can not undertake commercial banking activities. which the management consultants also do. (2) The taking of deposits and currency. but they lack statutory recognition to undertake capital market related activities which has enabled the merchant banker to cater to the needs of the Corporate Sector. in certain ways. corporate adviser services etc. However. A merchant bank may be considered as an institution which centres its operation on all or most of the following activities. the Investment Banker undertaken trading in securities. post issue services. Marketing. However. investment trusts and wealthy individuals. The Merchant Banker mainly deals with Issue Management. Merchant Banking is distinctly different from commercial Banking and Investment Banking. (3) Medium-term lending and syndication of loans. Personnel Relations. and (6) Fund management on behalf of clients. there may be similarities in their functions. most typically pension funds. of finance etc.

1922. buying or subscribing to Securities as Manager.Merchant Banking DEFINITION The first authoritative definition for the term ‘Merchant Banker’ has been given in the Rule 2 (e) of SEBI (Merchant Bankers) Rules. Accordingly. rendering Corporate Advisory Service in 6 . “A Merchant Banker means any person who is engaged in the business of Issue Management either by making arrangements regarding selling. Adviser of relation to such Issue Management”. Consultant.

repayable on demand or otherwise and withdrawable by cheque. order or otherwise”. there is a system of market makers who offer two way quotes on any scrip. Market making means that a trader or a company puts both buy and sell orders into the market. Merchant bankers and market making Many successful public issues get listed on the stock exchanges but later do not see any trade i. Most merchant bankers and brokers are significantly undercapitalized to perform 7 . and wait for people to trade with him on either sides. adviser or rendering corporate advisory service in relation to such issue management”. The Notification of the Ministry of Finance defines a merchant banker as. consult.e liquidity in the market. draft. “any person who is engaged in the business of issue management either by making arrangements regarding selling. so that continuous liquidity is provided to all scrips. 1949 defines Banking as “accepting. Listing remains a formality only and investors practically cannot buy/sell shares of that company for lack of liquidity (volume). In well organized markets. buying or subscribing to the securities as manager. Market making could be made compulsory at least for a period of six to twelve months after listing of issues.Merchant Banking Sec/5 (b) of the Banking Regulation Act. for the purpose of lending or investment of deposits of money from the public.

capital generation is the lifeblood of the capital market without which the health and soundness of the financial system cannot be geared and for which well-developed capital market as well as money market is essential. Derivatives financial instruments are also be added to the market shortly. underwent dramatic changes since the beginning of 1980s basically because of a progressive realization that the command economy on which the emphasis was placed could not lead to higher levels of economic development and that a slant towards a market-oriented economy is necessary. The importance of the financial sector reforms affirms an effective means for solving the problems of economic. 8 . This is the part of the assessment made by International Financial and Capital Market Institutions based on India’s economic and financial reforms initiated in 1991 and brought to fruition in various budget. India’s capital market is among the largest in the developing world. Malaysia. In fact. The progress of the Securities Industry of any country depends mainly on the flow of funds. Indian economy is no exception financial system of the country.Merchant Banking EVOLUTION & EMERGENCE OF MERCHANT BANKING India has entered the 21st century as one of the Asia’s most dynamic economies. The progress of any economy mainly depends on the efficient financial system of the country. The market is comprised of 24 stock exchanges transacting long-term debt. debentures and equity shares both electronic and physical forms. however. financial and social in India and elsewhere in the developing nations of the world. The capital market of the country. Singapore and Denmark. Market Capitalization of listed firms is 1980s was similar to Brazil. The number of firms listed on the Indian Stock Exchange is more than the USA.

Punjab National Bank and UCO Bank.Merchant Banking It is in the context of fast expanding economy and a liberalized and deregulated atmosphere that the growth of the Indian Stock Market activities has to be viewed.managing agents acted as issue houses for securities. Few share broking firms also functioned as merchant bankers. evaluated project reports. The merchant banking services were started by foreign banks. The need for specialized merchant banking services was felt in India with the rapid growth in the number and size of the issues made in the primary market. namely the National Grindlays Bank in 1967 and the City Bank in 1970. The merchant banking gained prominence during 1983-84 due to new issue boom. The State Bank of India was the first India Bank to set up merchant Banking division in 1972. 9 . merchant banking services were offered along with other traditional banking services. No wonder that the markets have registered a quantum jump judge by any standards. planned capital structure and to some extent provided venture capital for new firms. This marked the beginning of specialized merchant banking in India. Bank of Baroda. In the mid-Eighties. Canada Bank. MERCHANT BANKING IN INDIA In India prior to the enactment of Indian Companies Act. To begin with. The Banking Commission in its report in 1972 recommended the setting up of merchant banking institutions. the Banking Regulation Act was amended permitting commercial banks to offer a wide range of financial services through the subsidy rule. Later ICICI set up its Merchant Banking division followed by Bank of India. 1956.

as long as they are 10 . already profitable companies) and. Most particularly. As lenders to small and medium-sized companies. In the middle to late 1980s. or recapitalizations or provided subordinated debt in the form of bridge loans to facilitate the transaction. the decision to enter merchant banking was thrust on other banks and bank holding companies by unforeseen events. Also at about that time. most commercial banks began refocusing their private equity investments to middle-market and public companies (often low-tech. rather than providing seed capital. major commercial banks began once again focusing on venture capital. Often they did both. the Internet search engine Lycos was a 1998 investment of Chase Manhattan’s venture-capital arm. Commercial banks are permitted to report either realized or unrealized gains on their merchant-banking portfolios. At that time.Then. many banks received private equity from developing nations in return for their defaulted loans. takeovers. financed expansion or changes in capital structure and ownership. as a result of the LDC (less-developed-country) debt crisis. commercial banks were the largest providers of venture capital in the 1960s. In those years. banks become knowledgeable about individual firms’ products and prospects and consequently are natural providers of direct private equity investment to these firms. they took equity positions in LBOs. Commercial banks financed much of the LBO activity of the 1980s. where they had substantial expertise from their previous exposure to this kind of investment. particularly commercial lending. For example. Some of these recent venture-capital investments have been spectacularly successful. many of these banks set up merchant banking subsidiaries to try to get some value from this private equity.Merchant Banking MERCHANT BANKING: PAST AND PRESENT Many banks entered merchant banking in the 1960s to take advantage of the economies of scope produced when private equity investing is added to other bank services. As mentioned above. in the mid-1990s.

sectors would be able to meet the growing requirements for the funds expansion/modernization/diversification of the existing enterprises. 11 .  In India have opened their merchant banking windows and are competing in this field.Merchant Banking consistent in the reporting. the need of skilled agency existed which could provide counseling.  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. and also doing advisory functions as merchant bankers as well as managing public issues in syndication with other merchant bankers. rules and regulations. guidelines and for the corporate sector for financing their projects. undertaking to investible channels assuring promising return on investments activity. share brokers and financial consultancy firms to enter into the field of merchant banking and share the growing capital market. NEED & IMPORTANCE IN INDIA  Important reason for the growth of merchant banking is due to exerting excess Corporate sector had the only alternative to avail of the capital market demand on the sources of funds forever expanding industry and trade. This option makes it difficult for one to compare different entities’ financial results and could lead to an overly liberal reporting of profits.  Merchant banks can play highly significant role in mobilizing funds of savers With the growth of merchant banking profession corporate enterprises in both for establishing new enterprises.  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.  Merchant banks have been procuring impressive support from capital market In view of multitude of enactments.  public and private.

dedicated to achieve this objective through his dynamism. the merchant bankers help industry and trade to raise funds. where science and technology create new innovations in production processes of industries envisaging immediate renovations. He has to help the industry in different forms to ensure that it runs risk free and devoid of uncertainty by assisting the has to watch the interest and win over the confidence of the Government. and the investors to invest their saved money in sound and healthy concerns with confidence. The nature of merchant banking services is development oriented and promotional to help the industry and trade to grow and survive. He is always awake to renew his skills. diversification. Merchant banker has to think and devise new instruments of financing industrial projects. regulations and policies affecting business conditions frequently change. other statutory relaxations. therefore. Merchant banker is. He has to keep pace with the changing environment where Government rules. safety and organizations for higher yields. ROLE OF MERCHANT BANKERS The role of merchant banker is dynamic in the wake of diverse nature of merchant banking services. 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. 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. He has to assume wider responsibilities of saving industrial units from going sick and guiding industries to be set up industrially backward areas to eliminate regional imbalances in industrial development of the country. Merchant banker’s dynamism lies in promptly attending to the corporate problems and suggests ways and means to solve it.Merchant Banking  Merchant bankers advise the investors of the incentives available in the form of tax relief’s. good return on investment and capital appreciation in such investment to motivate them to invest their savings in securities. its 12 .  Thus. He has to guide the wider section of the community possessing surplus money to invest in corporate securities and other productive investment channels.

a merchant banker is sometimes. Further. a challenging task and to meet these challenges merchant bankers will have to be more vigorous and strategic in playing their role. In the days ahead.e. ROLE IN THE MARKET The Securities and Exchange Board of India (SEBI) has stated that merchant bankers must be involved more closely in the market making process as share brokers do not have the requisite expertise to evaluate the fundamentals of the scrips before taking over the role of market makers. A minimum of ten scrip’s has been proposed by SEBI for the market makers. one who never sits at one place. the SEBI has suggested that any member of the stock exchange along with one merchant banker registered with SEBI could act as a market maker. They will have also to adopt new ways and means in discharging their role.e. the investors and the whole community. along with the entrepreneurs.B i. the industry and the economy as a whole. imparting knowledge to others and acquiring new knowledge to maintain his supremacy in possession of latest information. He must bridge the communication gap between different sections and resolve the problem being faced in different areas concerned with the business world. His role depicts a personality cult. which is unique and envious to be followed by others. share brokers generally being partnership. The SEBI has felt that to ensure liquidity of scrip it was necessary to facilitate greater movement. called M. firms do not have the financial clout which is necessary for market making activity.attending meetings and meeting clients and constituents. Market makers would also create a market for the scrip’s by offering two way quotes to the investors. in it.. a merchant banker has t be dynamic. 13 . which could only be achieved through the institution of market makers. i. Resultantly.Merchant Banking agencies. For this reason. Moving Bottom. To discharge the above role. doing business and getting business by attending meetings and conferences. which is. always moving. merchant bankers have very significant role to play tuning their activities to the requirements of the growth pattern of corporate sector.

Government of India.50 1.25 crore. stamp duty etc.50 On on subscribed public 2. in connection with the issue can be reimbursed from its clients. (vi) Other expenses like advertising.5%. 5 lakh (b) Excess of Rs. Registrar’s expenses.Merchant Banking MERCHANT BANKERS COMMISSION As determined by the Finance Ministry.00 Devolving underwriters 2. 14 . 5 lakh 2. printing.Equity shares 2. (iii) A lead manager can claim a commission of 0.2% in excess of Rs.5% as the maximum as commission for whole of the issue.Preference share/debentures (a) Upto Rs. (iv) Underwriting Commission.25 crore and 0..00 1.5% up to Rs.50 amount by (v) Brokerage commission 1.50 2. Merchant Bankers are eligible to charge commission / fee from their clients as detailed below : (i) A Merchant Banker can charge 0. (ii) They can charge project appraisal fees. On amount Type of Security 1.

There in areas of activities capital include project counseling. managing. underwriting and supporting public issues and new issue market and acting as brokers and advisers on 15 . mergers.. discounting and rediscounting of short term paper in money markets. credit appraisal and loan sanctions.Merchant Banking COMMERCIAL BANKS AND MERCHANT BANKS There are differences in approach. They generally avoid risks. takeovers etc. their lending decisions are based on detailed credit analysis of loan proposals and the value of security offered against loans. and areas of operations between commercial banks and merchant banks. • Are management oriented. • financiers. corporate amalgamations. • Are asset oriented and with mainly funds raised through money market and capital market and the area of activity is ‘equity and equity related finance’. The differences between merchant banks and commercial banks are summarized below: • COMMERCIAL BANKS Basically deal in debt • MERCHANT BANKS Basically they deal related finance and their activities are appropriately arrayed around credit proposals. attitude. They generally are willing to accept risks of business. They are merely • counseling restructuring.

stability and liquidity of money markets. Chartered Bank also assumed the merchant banking activity in India. in the form of spate in ‘Foreign Exchange Regulation Act Issues’ eliciting interest of the investors by creating massive awareness about capital markets amongst the new class of investing public. Other foreign banks like City Bank. firstly. 16 . financial institutions. and broker’s firms entering in to the field of merchant banking. secondly. the largest foreign bank in the country. Both these Indian merchant bankers emerged as leaders in merchant banking having done significant business during the period of 1974-1987 in comparison to foreign banks. GROWTH OF MERCHANT BANKING IN INDIA Formal merchant banking activity in India was originated in 1969 with Merchant Banking Division set up by the Grindlays Bank. State Bank of India started merchant banking in 1973 followed by ICICI in 1974. The early growth of merchant banking in the country is assigned to the Foreign Exchange Regulation Act. This had caused two-pronged effect viz. 1973 (FERA) where under large number of foreign companies operating in India were required to dilute their foreign holdings in order to continue business in the country. merchant banking activity became attractive to banks and the firms of consultants and share brokers who entered into this fields vigorously to reap the advantages of the expanding capital markets.Merchant Banking portfolio exchange. The early and mid-seventies witnessed a boom in the growth of merchant banking organizations in the country with various commercial banks. 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. management This in stock have activities impact on growth.

Merchant Banking PROBLEMS OF MERCHANT BANKERS 1. 17 . specialized professionals into merchant banking business. SEBI guidelines have authorized merchant bankers to undertake issue related activities only with an exception of portfolio management. Non co-operation of the issuing companies in timely allotment of securities and refund of application money is another problem of merchant bankers. These guidelines have made the merchant bankers either to restrict their activities or think of separating these activities from the present one and float new subsidiary and enlarge the scope of its activities. 3. The entry is denied to young. They have to seek the cooperation of the issuing company to shoulder the responsibility. 2. Small but professional and specialized merchant bankers who do not have a net worth of Rs.1 crore for authorization of merchant bankers. The guidelines have put the responsibility on the merchant bankers. SEBI guidelines stipulate a minimum net worth of Rs.1 crore may have to close down their business.

international players with strong domestic partners such as DSP Merrill Lynch. 18 . it becomes increasingly necessary for us to look at this business in a more holistic manner. In 2006 deal activity was largely restricted to the IT and Telecom sectors. etc. Obviously.Merchant Banking CURRENT SCENARIO Merchant banking is an area that we need to build and grow in the years to come. while there is a steady flow of deals. Kotak Mahindra Capital. muscle. JM Morgan Stanley. are the ones who have expertise. Companies and private equity investors are sitting on large piles of cash.. there is now a shortage of talent to do the job. and placement power in a greater measure than relatively new entrants. Thus. The red hot economy is the obvious starting point. India is likely to end the year with GDP growth in excess of 7 percent. together with experienced organizations like Enam and institutional backed investment bankers such as ICICI Securities. As India forms part of the global village.

Consequent to the recommendations of Banking Commission in1972. Citi Bank set-up its Merchant Banking division in 1970. Several projects have been conceived since then and almost all the major groups in the country that have announced their intentions to set-up mega projects in infrastructure sector envisaging investment of thousands of crores. the needs of smallscale units it provided management constancy services to large and medium sized companies. Apart from meeting specially. Following Grindlays Bank. Management consultant services were also offered. trade and financial sector have paved the way for rapid development of the economy.Merchant Banking MERCHANT BANKING: INDIAN SCENARIO Merchant Banking activity was formally initiated into the Indian capital markets when Grindlays Bank received the license from Reserve Bank in 1967. The division took up the task of assisting new entrepreneur and existing units in the evaluation of new projects and raising funds through borrowing and issue of equity. the demand for a complete range of Merchant Banking services encompassing project advisory services. The economic reforms initiated by the Government since July 1991 in the files of industry. that Indian bank should start Merchant Banking Division in 1972. Grindlays which started with management of capital issues. 19 . This has led to a sharp growth in the Merchant Banking business in the last 2 years. recognized the needs of emerging class of entrepreneurs for diverse financial services ranging from production planning and system design to market research. With several large projects been set-up and many more on the drawing board. issue management and financial advisory services for corporate sector has increased considerably. In the initial years the SBI’s objective was to render corporate advice and assistance to small and medium entrepreneurs.

Since the end of Second World War commercial banks in Western Europe have been 20 . Undertake foreign security business. A Merchant Banker was primarily a merchant rather than his customers entrusted banker but him with funds. Their principle activity started with the acceptance of commercial bills pertaining to domestic as well as international trade.Merchant Banking MERCHANT BANKING: INTERNATIONAL SCENARIO The Merchant Banking scenario in developed countries like USA and UK are different from Indian Merchant Banking activities. The Merchant banker is also called as Investment Bankers. A brief outline of Merchant Banking in USA and UK has shown in the following paragraphs. and issue houses. Merchant Banks in UK In United Kingdom. Merchant Banks came on the scene in the late eighteenth century and early nineteenth century. Merchant Bankers initially included acceptance houses. discount houses. The acceptance of the trade bills and their discounting gave rise to acceptance houses. Manage individual funds. Issue capital. Industrial revolution made England into a powerful trading nation. Rich merchant houses that made their fortunes in a colonial trade diversified into banking. Merchant Banks in UK:      Finance foreign trade. They also used to finance sovereign government through grant of long-term loans. and Foreign loan business. discount houses and issue houses.

custody. British banks set-up division or subsidiaries to offer their customers Merchant Banking services. fund management and advisory services to governments and firms. They are largely responsible for the development of the Euro-dollar market in the securities and globalization of capital markets.Merchant Banking offering multiple services including Merchant Banking services to their individual and corporate clients. 21 . proprietary trading and market making. a strong balance sheet and a strong international network to play a global role. Merchant Banking in USA Merchant banks make the primary markets in USA. Merchant Banks have today a strong parent. They have a prominent presence in London and other European financial centers. arrange mergers and acquisitions. undertake global. niche business. The increased regulation and control of domestic operations gave a fillip to large US banks to undertake Merchant Banking functions in international capital markets. The US investments Banks have extended their operations to the international level.

tie-up of financiers. consultant. co-manager. The first category consists of merchant bankers who carry on any activity of issue management. The third category consists of those authorized to act as underwriter.. Securities and Exchange Board of India (SEBI) has divided merchant bankers into four categories. To act only as adviser or consultant to an issue Nil Merchant Bankers are classified into 4 categories as shown in the above table having regard to their nature and range of activities and their responsibilities to SEBI. the firm organized by the stock brokers. 20 lakhs an issue.. investors and issuers of securities. Indian Bank Merchant Banking services Ltd.50 lakhs underwriter. consultant. consultant. portfolio manager and underwriter.1crore and to act as adviser. and underwriter to an issue or portfolio manager.. underwriter.. The minimum net worth and initial authorization fee depends on the category. the financial and technical consultants and chartered accountants. can Bank Financial Services Ltd. adviser or consultant to Rs. advisor or consultant to an issue. advisor or consultant 22 . portfolio manager. subsidiary companies established by banks like SBI Capital Markets Ltd. Category II Category III Category IV To act as adviser. PNB Capital Services Ltd. portfolio manager. merchant banks operate in the form of Divisions of Indian and Foreign banks and financial institutions.. which are as follows: CATEGORIES Category I ACTIVITIES NETWORTH To carry on the activity of issue management Rs. etc. manager. Rs. The second category consists of those authorized to act in the capacity of comanager/advisor.Merchant Banking MERCHANT BANKING ORGANISATIONS In India. To act as underwriter. stock exchange dealers. determining financial structure.

Leadership is synonymous with followers who follow the one who leads. update knowledge to interact with the clients and effectively communicate. gathers information. forever. The fourth category consists of merchant bankers who act as advisor or consultant to an issue. A good merchant banker is one who does not allow his client to think anything outside except what has been advised. For the success of merchant bank’s operations. rude.  COOPERATION AND FRIENDLINESS:. intemperate and indifferent disposition or blunt out burst withdrew fortunate business opportunities Friendliness and cooperation must flow as natural traits in the merchant banker to win the trust of the clients. Aggressive merchant bankers are always looking for new business. Business of an honest business merchant banker spreads with geometrical propagation when he shares the thoughts of his clients with sympathetic gestures and offers pragmatic suggestions without greed or favours.aggressiveness is a personality trait of a good leader but in merchant banking it has a wider connotation.These two characteristics are the symbols of good leadership but it hardly needs to be stressed that cooperation and friendliness coupled with persuasiveness are the main instruments with which a merchant banker mixes with the people.  AGGRESSIVE ACTION:. the merchant banker has got to obtain the mandate for the merchant banking assignment from the clients at once which will depend upon his own communication skills. Once a business opportunity has been located. obtains business mandate and renders satisfactory services to the clients.Merchant Banking to an issue. QUALITIES OF GOOD MERCHANT BANKERS Merchant bankers are individual experts who organize and manage the merchant banks. 23 . the qualities which merchant bankers should have are discussed below: LEADERSHIP:– merchant banker should possess all relevant skills. influenced by the personality trait of these individuals. persuasiveness and the background of the organization to which he belongs. Very often. The operations of merchant banks are. therefore.

INFORMATION AND KNOLEDGE: – merchant bankers lice on their wits they earn by giving information to needy clients. they market. This is so important that it must be treated as a separate objective quality of a good merchant banker. Indian and foreign banks. financial institutions at Central and State levels. Merchant bankers should widen contacts and references and continue to maintain them with goodness. advocates and solicitors and members of the press whose services are availed of in executing merchant banking assignments. in school.Merchant Banking  CONTACTS :– success of merchant banker depends upon his sociable nature and the richness of wider contacts. promoters/directors/owners and chief executives of the private and public enterprises which would be prospective beneficiaries of merchant banking services. 24 . printers. their difficulties and their adverse circumstances is possible only when a person is skilled in human relations particularly the inter-personal and intra-personal behavior. honour and humour by meeting people. Effective communication and proper feedback are the pre-requisite for creating a positive attitude towards problem solving. brokers and stock exchange dealers. college and office. The scope of contact encompasses intimate contiguity and acquaintances within his own organization. advertising agencies. Therefore. Even client coming to him has got to return fully satisfied having consulted a merchant banker. Positive approach to understand the view points of others. A merchant banker is supposed to be acquainted deeply with all the constituents of merchant banking. they should keep abreast with latest information in the area of the service product. Central and State Government Offices where compliances under various relevant enactments are to be reported.  ATTITUDE TOWARDS PROBLEM SOLVING:– The most important personality trait of a merchant banker is his attitude towards problem solving. This is possible if merchant bankers possess the quality of inquisitiveness.  INQUISITINESS FOR ACQUIRING NEW SKILLS. Many persons are effective in this trait without any training for reasons of cultivating a habit from environment in which they have been brought up at home.

administrative capacities and salesmanship so as to understand the problems and sell the service product to the needy clients. All good qualities in merchant bankers are difficult to be defined so elaborately. 25 .Merchant Banking The above qualities of a merchant banker are only illustrative. Nevertheless. merchant banker should possess super business acumen. managerial abilities.

Protection is not to be conceived as that of compensating for the losses suffered. the project cost and the gestation period.  Pending litigation’s towards tax liabilities or any criminal/civil prosecution any of the directors for any offenses. the Merchant Bank undertakes a detailed evaluation of the project before taking up an assignment for issue management. ♦ Project Evaluation and due Diligence Due diligence and project evaluation is another major responsibility of the Merchant Banker. the cost of capital.Merchant Banking RESPONSIBILITIES OF MERCHANT BANKER ♦ To the Investors Investor protection is fundamental to a healthy growth of the Capital Maerket. 26 . ♦ Capital structuring The Merchant Bankers while designing the capital structure take into account the various factors such as Leverage effect on earnings per share. where the project has not been appraised by as bank/financial instituion. ♦ Legal aspect The factors that are looked into in case of the legal aspects are:  Compliance with the SEBI guidelinesand the various guidelines issued by the Ministry of Finance and Department of CompanyAffairs.  Fair and adequate disclosures in the prospectus. the considerations of management control. Where the project has already been appraised by a bank/financial institution. cash flow ability of the company. the Merchant Banker relies on the said appraisal before accepting an assignment. The responsibility of the Merchant Banker in ensuring the completeness of the disclosures is of paramount importance in view of the fact that entire reliance is based on offer Document either Prospectus or Letter of Offer because an independent agency like a Merchant Banker has done the scrutiny. These exercise are done mainly in order to meet the fund requirement of the company taking due cognizance of the investor’s preference. However. size of the company. and general economic factors.

27 . Some of the factors are past financial performance of the company. The first stage is Pre-issue marketing for placement of the issue with the financial institutions. The Merchant Banker has a vital role to play in pricing of the instrument. FII’s and NRI’s. stock market performance of the shares. The duration of this transaction period has not officially been announced. ♦ Bought out Deals The concept of wholesale but out of public offerings by the Merchant Bankers started off with over the Counter Exchange of India where a Merchant banker acts also as a sponsor and either takes up the entire issue to be offered wholly of jointly with other co-investors and off-loads the same to the public at a later date by an offer for sale. The second stage is the marketing of the issue to the general public through various vehicles such as press. mutual funds. etc. ♦ Marketing of the Issue Marketing of the issue is a vital responsibility of the Merchant Banker. Book value per share.Merchant Banking ♦ Pricing of the Issue The Merchant Banker looks into the various factors while pricing the issue. Major amendments were made to the SEBI regulations regarding Merchant Bankers. brokers. banks.

With the increase in international trade. the origin of Merchant Banking is to be traced to Italy in late medieval times and France during the seventeenth and eighteenth centuries. Merchant Bankers were not banks at all and a distinction was drawn between banks. Institutions it was only banks that accepted deposits from public. No person s allowed carrying out any activity as a Merchant Banker unless he or she holds a certificate grated by SEBI. Passage of time money changers evolved into public or deposit banks whereas exchangers.Merchant Banking REGISTRATION OF MERCHANT BANKER The term ‘Merchant Banking’ originated in the 18th and early 19th centuries in the United Kingdom when trade between countries was financed by bills of exchange drawn on the principal merchant houses. Since they added banking business into the profession of Merchant activities and became a Merchant Banker. they also entrusted with the job of issuing bonds in the London market. They would charge a commission for the purpose and thus acceptance business became the hallmark of Merchant Bankers. who operated internationally. In the seventeenth century. Registration with SEBI is mandatory to carry out the business of merchant banking in India. Although Merchant Banking activity ushered in two decades ago. Moneychangers concentrate on the mutual exchange of different currencies. the established merchants started the practice of lending their names to the new comers and accepting the bills of exchange on their behalf. Once these banks had gained the confidence of the government. a Merchant Banker was a dealer in bills of exchange who operated with correspondents abroad and speculated on the rate of exchange. In fact. it was only in 1992. Merchant Banks and other Financial Institutions. Merchant Banker invested accumulated profits in all kinds of promising activities. Among all these. Initially. operated locally and later accepted deposits for security reasons. A distinction was existed in banking systems between moneychanger and exchanger. engaged in bill-broking that raising foreign exchange and provision of long-term capital for public borrowers. after the formation of SEBI that is defined and a set of rules and regulations governing it are in place. An applicant should comply with the following norms: 28 . in India. The exchanges were remitters and Merchant Bankers.

5 crores      29 .Merchant Banking   The applicant should be a body corporate The applicant should not carry on any business other than those connected with the securities market The applicant should have necessary infrastructure like office space. equipment. The applicant must have at least two employees with prior experience in merchant banking Any associate company. manpower etc. group company. subsidiary or interconnected company of the applicant should not have been a registered merchant banker The applicant should not have been involved in any securities scam or proved guilt for any offence The applicant should have a minimum net worth of Rs.

money market operations. GDR.. the Merchant Bankers are also undertake the activities like underwriting connected with the public issue management business. the scope of Merchant Banking services has extended to providing advisory services to companies to increase or divest their stakes. Bonds and other instruments. to organize and participate in international consortia. Merchant Bankers will have a key role to play in terms of appraising the projects and offering two-way quotes for market making in case of entrepreneur going for listing in the above exchange. public sector undertaking disinvestments. structure.g. Merchant Bankers act as a critical link between the corporate who are intend to raise funds and the investors who are interested to invest in securities Industry. amalgamation. Corporate Advisory services related to securities market (e. Managing/advising on International offerings of Debt/Equity i. With the OTCEI being operation now. etc. takeovers and acquisitions. Primary or Satellite dealership of government securities. venture capital. Syndication of rupee term loans and International Financial Advisory Services.Merchant Banking MERCHANT BANKING SERVICES: SCOPE In the present dynamic environment where public money is playing a vital role in financing a large number of projects. Merchant Banking has a significant role in managing the show and meeting the growing demands for funds by the corporate sector. to raise foreign currency loans and to offer advisory services on various matters related to finance. of the complexities involved in the above spheres. evaluation. Stock-Broking. Besides issue management. both in the public and private sectors. or have little knowledge or experience. Takeovers. They also play a useful role in the portfolio management. international issues.. acquisitions. investment. Merchant Banking includes a whole gamut of activities which meet the needs of both corporate and individual investors and which range from identification. Merchant bankers act as a guide for the entrepreneurs who are unaware. capital management.e. ADR. Private placement securities. In addition to the above. Advisory Services for projects. disengagement). leasing. etc. The services can be represented as follows: - 30 . mergers. promoting and financing of projects (both domestic and overseas) by raising resources in the equity and long-term loans.

These are also areas where compliance can be monitored and enforced.technical and financial. which are as follows: 31 . They affect investors' interest and. The services provided by merchant banks depend on their inclination and resources . Merchant bankers (Category 1) are mandated by SEBI to manage public issues (as lead managers) and open offers in take-overs. These two activities have major implications for the integrity of the market.Merchant Banking SERVICES RENDERED BY MERCHANT BANKERS Among the important financial intermediaries are the merchant bankers. It is quite common to come across reference to merchant banking and financial services as though they are distinct categories. Merchant banks are rendering diverse services and functions. therefore. The services of Merchant bankers have been identified in India with just issue management. transparency has to be ensured.

At one time it was constructed as the sole function. brokers. They are designated as managers to the issue. bonds etc. The merchant bankers help corporate to raise money from the markets through the issue of shares. To a large extent the type of issue would vary with the purpose for which funds are raised.  Holding road shows. advertisers. they retain the services of a merchant banker. The purpose of these shows is to answer queries from these people about the company and the project for which the funds are being raised. underwriters.  Deciding the branches where application money should be collected.  Obtaining subscription to the issue. They usually render the following services:  Drafting of prospectus and getting it approves from the stock exchanges. to sell the issue.  Obtaining consent/acknowledgement from SEBI. Merchant bankers were identified as issue houses. 32 . It was later perceived that they provide other financial services.  Deciding the dates of opening and closing of the issue.  Obtaining the daily report of application money collected at various branches.  Deciding the pattern of advertising. printers etc.  Appointing bankers.  After the close of the issue. debentures. These shows are held for the analysts. Their main business is to attract public money to capital issues.Merchant Banking  ISSUE MANAGEMENT: The public issue of securities is the core of merchant banking function. When companies seek to raise resources for implementation of a new project or finance expansion or modernization or diversification of an existing unit or fund long term working capital requirement. brokers & institutional investors. obtaining consent of stock exchange for deciding basis of allotment etc. Merchant bankers when retained as managers to issue will have to assist the company in all the stages connected with public issue.  Obtaining the consent of all the agencies involved in the public issue.

After all. Selection of bankers to the issue. In the issue management the merchant bankers have to coordinate the various agencies to the issue. Obtaining approval of the institutional underwriters and stock exchanges from SEBI. The pricing of the issue especially in a public issue is very important. The promoter also needs to decide whether to go in for a fresh issue or to go for a rights issue. as larger the premium lesser will be the requirement for borrowed funds. The success of the issue is dependent on the selection of the right type of security. In this matter. However this will depend mainly on the quantum of funds that the company needs to raise. Companies are free to appoint one or more agencies as Managers to an issue. The pricing has to be such. the expert advice of merchant bankers is of immense importance. The merchant bankers offer following services during the public issues:  Preparing an action plan and budget for the total expenses for the issue. who have to sell the issue at the decided price.      for publication of the prospectus. the pricing of issues is now freely decided by the company. Ordinarily. the premium can play a very role in deciding the company’s capital structure. that the investors will be attracted to invest in the issue at that price. with valuable inputs from the merchant bankers. Brokers etc. at the same time the company should get the premium that it is looking for. SEBI guidelines insist that all issues should be managed by at least one authorized merchant banker.Merchant Banking  CORPORATE ADVISORY SERVICES RELATING TO THE ISSUE In India. Selection of underwriters.  Preparation of application to SEBI and assistance in obtaining the consent Drafting of the prospectus. functioning either as the sole or lead manager to the issue. The success of the issue depends on the cooperation of all the agencies involved. Selection of advertising agency for publicity. not more than two merchant bankers should be associated as lead 33 .

100 crores. advisors and consultants to a public issue. To discharge this function the merchant bankers have to exercise due diligence independent by verifying the contents of the prospectus and the reasonableness of the views expressed therein. It is therefore important for the reputation of merchant bankers. With the introduction of Demat accounts the complaints about allotment have surely gone down.Merchant Banking managers. don’t have access to the market. It is the responsibility of the merchant bankers to get the securities listed on all the stock exchanges mentioned in the prospectus. the number could be up to a maximum of four. In issues of over Rs. securities to the investors. This in turn affects the functioning of stock markets both the primary and the secondary markets. The merchant bankers have to certify that they verified everything and that they believe it to be true. that the money that it requires for its project will It is the responsibility of the merchant bankers to ensure timely refunds and allotment of 34 . This assures the investing public about the safety of their investment. to only associate themselves with good issues. The responsibilities of merchant bankers in management of public issues are many. This has hurt the investors a lot and has also made investors nervous about stock market investments. It is therefore necessary that merchant bankers are satisfied with the viability of the project. which they can then sell to the investors with confidence. The precautions by the merchant bankers would ensure that all the fake companies. The merchant banker should act as the custodians of the investors money and this puts a lot of responsibility on them. Some of these are: We have seen that many unscrupulous promoters have raised money from the market. It is a guarantee to the issuing the company. whose intention is to defraud the investors.  UNDERWRITING Underwriting is like insurance against the failure of an issue.

Underwriting involves the underwriter agreeing to subscribe directly.Merchant Banking definitely be raised. due to some reasons. then in future they can sell the shares in the market and get not only their money back. which bring separate companies together to form larger ones. corporate finance deals do the reverse and break up companies through spin-offs. he is paid commission. When they're not creating big companies from smaller ones. Many a times even existing companies may find it difficult to raise money. Wall Street investment bankers arrange M&A transactions. always face number of problems in raising funds from the market. Underwriters on their part need to satisfy themselves about the viability of the project and also about the integrity of the promoters of the company. Issuing companies therefore approach different underwriters with a request to underwrite the issue. New companies entering the markets for the first time. carve-outs or tracking stocks. the underwriters will make up the short fall. they show their full commitment to the issue that they are managing. or to procure subscription for the unsubscribe portion of the issue. For the risk that the underwriter takes. the underwriters will pick the shares and only if the project is good enough. It means that even if the issue is not fully subscribed to by the public. Role of Merchant Banker 35 . but can also make a decent profit as well. One of the biggest problems of course that the company is not well known to the investors and many of them will be unwilling to invest their money in such ventures.  MERGERS AND ACQUISITIONS Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate finance world. It must be noted that when an issue is under subscribed. which is not taken up. Every day. It is obligatory for the merchant bankers to accept a minimum 5% underwriting in the issue subject to a ceiling. By taking underwriting in an issue managed by them.

Negotiation with the parties for arriving at the suitable price or Assistance in obtaining necessary approval & addressing procedural & exchange ratio. skills and experience over others are able to render satisfactorily. ♦ Scope of services Project counseling services are needed by industrial entrepreneurs in India in the following areas:  Preparation of project report 36 . Financial & Technical appraisal of the merger/takeover proposal. Takeovers may be hostile or friendly in nature. and on the other hand for Corporate interested in non organic growth by acquiring companies/units for reason strategic or non strategic in nature.Merchant Banking Mergers & Acquisitions is an area where Merchant Bankers act as intermediaries in negotiating on one with corporate interested in hiving of divisions/companies which are not with in the purview of the long-term business strategy of the group/company. advice on technical parameters and also legal issues..  legal issues. Mergers can be beneficial for both the entities. The corporate seek advice in respect of identification of profitable investment opportunities in the related business areas (like forward/backward integration) or as part of diversification process. to enable the corporate in preparation of feasibility study may involve arrangement of a foreign collaboration. etc. hostile takeovers are without the consent of the company and company being takeover may work out an anti takeover strategy to counter the threat. Merchant Bankers provide following services in M&A:    Identification of potential takeover targets.  PROJECT COUNSELLING Project counseling is very important and lucrative merchant banking services which only very few merchant bankers having advantages of knowledge. The merchant bankers carry out detailed studies on product demand patterns. cost structures. as due to competition the companies unable to survive or prosper on their own may like to merge and face competition and achieve growth targets.

etc. reports on market surveys and market explorations.  Grant of subsidies and other concessions from the government at center or state levels or from government sponsored agencies. plant. on behalf of their clients. management profile. Merchant bankers advise the clients on project preparation.Merchant Banking   Deciding upon the financing pattern to finance the cost of the project. and marketing experts to prepare technical feasibility report and market survey reports. etc. engage technical consultants specialized in the specific area. ♦ Project report purpose Project report about the proposed activity is prepared to obtain government approvals particularly in the following areas:    Grant of industrial license to undertake specified industrial activity. Such loans may be obtained from a single development finance institution or a syndicate or consortium as in the case of large term loans. Grant import license for importing raw material. machinery and equipments. means of financing. location. Merchant banks can also help corporate clients to raise syndicated loans from commercial banks.  LOAN SYNDICATION It refers to assistance rendered by merchant banks to get mainly term loans for projects. Merchant bankers. Merchant bankers maintain the list of such experts approves by financial institutions and assign the work to these experts. Aspects of project appraisal with financial institutions/banks.  Grant of foreign exchange allocation for import of capital goods or raw materials. ♦Project report Project report consists of technical process. ♦ Scope of service 37 . Foreign investment and technology tie-up.

Loan syndication in the case of domestic borrowing is undertaken with the institutional lenders and the banks. 5. Industrial Finance Corporation of India (IFCI) ii. 4. Commercial banks: Commercial banks join in consortium loan being provided by the above institutions.Merchant Banking Once the client company has decided about the project proposed to be undertaken. i.  RESTRUCTURING SERVICES 3. The responsibility of locating the sources of finance. approaching these sources by putting in requisite prescribed applications and complying with all the formalities involved in the sanction and disbursal of loan rests with the merchant bankers who provide the service of loan/credit syndication. 1. Mutual Funds & Venture Capital Funds: these funds generally invest in equity but mutual funds contribute to the issues of Debentures/Bonds on private placement basis as well as subscribe to public issues. liaison and arrange loans working for and on behalf of their clients. Industrial Credit & Investment Corporation of India Ltd (ICICI) 2. the next step is looking for the sources wherefrom funds could be procured to implement the project. All India level investment institutions 38 . Industrial Development Bank of India (IDBI) iii. iii. ii. ii. iii. Amongst institutional lenders the following institutions are the main suppliers of the long and medium term funds with which the merchant bankers contact. State Financial Corporations (SFCs) State Industrial Development Corporations (SIDCs) State Industrial & Investment Corporations (SIICs) Life Insurance Corporation of India (LIC) Unit Trust of India (UTI) General Insurance Corporation of India (GIC) & its subsidiary companies. State level financial bodies i. All India financial institutions i.

The traditional merchant banker understands these capital limitations and can structure a transaction. capital includes costs.Merchant Banking Merchant bankers assist the management of the client company to successfully restructure various activities. In the short-run. which include mergers and acquisitions. He understands fully the risk versus return elements necessary to complete the capital procurement process. and operating effectiveness can often outweigh what might appear to be inexpensive capital with low interest rates.not just the capital source. Too often. some actions might be necessary.  CORPORATE ADVISORY SERVICES Merchant bankers offer customised solutions to solve the financial problems of their clients. Merchant bankers study the working capital 39 . sometimes utilizing internal sources from asset repositioning or cash creation from improvements in working capital. which force an entrepreneur or a business to undertake undesirable actions. but often in the long run are detrimental. Restrictions on availability. This includes all types of debt and equity financing available from both the domestic and international markets. which is beneficial to all sides of the table -. marketing. prepayment terms. divestitures. It should be understood that interest rates are not the only definition of capital costs. He also knows how to substitute one type of capital for another. Advice is sought in areas of financial structuring (as shown in the Modern Manufacturing case above). and help in searching for the right partner in the strategic decision and financial valuation of the proposal. joint venture among others. merchant banks offer a full understanding of all facets of the capital markets. management buyouts. the merchant banker participates in different activities at various stages which include understanding the objectives behind the strategy (objectives could be either to obtain financial.  CAPITAL ASSISTANCE In providing financial assistance. To help companies achieve the objectives of these restructuring strategies. or production benefits).

which would help companies to recover from their current position. The factor buys all the client’s outstanding invoices and takes over all the subsequent dealings with the buyer/importer/customer.  FACTORING SERVICE Factoring involves the outright sale of account receivable. By such sale a client (the exporter or manufacturer) transfers his/her ownership of the accounts to a factor (an organization. They also advise the company on rehabilitation and turnaround strategies. It is long-term debt financing. The whole process is done by the Special Purpose Vehicle (SPV). Here three parties are involved 1. the merchant banker for issuance of security bonds against the assets with a matching of time and terms between mortgage property and security bonds. Here the selection of asset is generally considered on the basis of the following: (I) Quality of assets 40 .Merchant Banking practices that exist within the company and suggest alternative policies.The importer/customer/buyer Role Of Merchant Banker In Factoring The merchant banker may act as factor organization with a view to earning a great amount of commission.The manufacturer/exporter/seller 3. It is short-term debt financing. firm). Here assets are converted into long-term bonds. (d) Maintenance of sales ledger (e) Provide further if necessary (f) Covering losses if there are any  ASSET SECURITIZATION It is a process through which some inactive assets (mortgage assets) are converted into cash/active assets. In this approach.The factoring organization /firms 2. The factor provides the following services: (a) Financing (b) Advisory services if necessary (c) Collection of bills/Account Receivable against sales proceeds.

Corporates therefore employ well-trained professionals to manage treasury and forex functions so that they can ensure competent management. share index and commodities affect the financial derivatives like futures. this makes treasury management as a very critical finance function. Merchant bankers assess various markets to advice Corporates or other banks that needs currency. monitors the current prices. forecasting. interest rates. Management of treasury profit center requires a wide variety of knowledge in the area of global money markets and financial instruments such as deposit certificates. The process of asset securitization takes place in the following firms:    Originating Institutions/Firm Special Purpose Vehicle (SPV) Merchant Banker (MB)  FOREX SERVICES This aspect of banking is becoming increasingly important as the forex flow in the country is increasing and the international markets are funding the operations of the corporate in India. makes predictions based on the analysis of trends etc  HIRE PURCHASE SERVICE It involves a system under which term loans for purchases of goods and services are advanced to be liquidated in stages through a contractual obligation. this service is provided to Corporates through merchant bankers. swaps and other tools of risk management. Treasury and risk management ensures cost effectiveness in planning strategies in this era of deregulation. treasury bills. source evaluation and cost of domestic and foreign currency funds. Merchant bankers constantly update about the policies of the regulatory bodies. The success of any business is measured by the fund management. Thus. Role of merchant banker in Forex function The currency values.Merchant Banking (ii) Certainty of repayment (iii) Good ranking from the credit rating agency. The goods whose purchases are thus financed may be consumer goods or producer 41 .

rapidly growing companies that have the potential to develop into significant economic contributors. foreign investors. endowment funds. Hire-purchase credit may be provided by the seller himself or by any financial institution. Venture capital is an important source of equity for start-up companies. The merchant bankers provide help in evaluating lease proposals. Leasing is mediumterm arrangement for finance. foundations. wealthy individuals. and the venture capitalists themselves. unlike in other countries. Professionally managed venture capital firms generally are private partnerships or closely-held corporations funded by private and public pension funds.Merchant Banking goods or they may be simply services such as air travel. He analyse the merits and demerits of lease finance with reference to a given proposal and leave it to their clients to decide on the appropriate source and type of finance. Role of Merchant Banker Merchant Banker undertakes the activity of financing for hire-purchase activities. However.  VENTURE CAPITAL Venture capital is money provided by professionals who invest alongside management in young. The user of the asset is known as the lessee. The merchant banker looks more to the credit-worthiness and business morality of the buyer than the value of security  LEASE FINANCE COMPANIES Lease finance companies provide finance to acquire the use of assets for a stipulated period of time without owning them. the emphasis in India is on the provision of instalment credit for productive goods and services rather than for purely consumer goods. and the owner of the asset is known as the Lessor. corporations. Role of Merchant Banker Merchant Bankers helps in assessing the credit risk of industrial borrowers. Role of Merchant Banker 42 . thus enlarging their range of choices and the variety of services available to them.

To seek assistance from venture capital funds or companies. They also provide technical.Merchant Banking  Merchant Bankers assist ventures proposals of technocrats. 43 . through loan support to supplement this may be extended. according to the Central Board for Excise and Customs (CBEC). with high technology.such as takeover regulations of the Securities and Exchange Board of India (SEBI) -. Merchant banks do not provide any consultancy on an M&A transaction. The assistance should mainly be for equity support.' The rationale accorded is that the role of such agencies is limited to compliance of any statute or regulation -. any service rendered in relation to an M&A transaction will be covered under the scope of taxable service provided by the management consultant and will be liable to service tax. Barring the services of merchant banks. which are new.Merchant banks' services not taxable The Finance Ministry has excluded services provided by merchant banks and other agencies in a merger and acquisition (M&A) transaction from the scope of taxable services provided by a `management consultant. but were in the nature of financial advisory service. the Board has ruled. but merely verify and submit a report to the authorities concerned. financial & managerial services & help the company to set up a track record. and high risk.and not governed by any contractual relationship with the advisee company.   RECENT TRENDS Merger & Acquisition transaction -. Industry representatives held that services provided in respect of M&A cannot be construed as a management consultancy service.

23 billion so far. Infrastructure related business. INDIA’S TOP 10 M&A PLAYERS PLAYERS Kotak/Goldman Sachs Rank ‘05 1 Rank ’04 4 Mkt share’ 05 17. Morgan Stanley retained its No 2 position. (ended September). the investment bank has increased its share by 420 basis points from 13. In the first nine months of 2005. having sewn up 11 deals worth $2. but in the end.2%. airlines and the auto component sectors as being prime for acquisitions. Its market share is up 50 basis points to 15.000 crore). The key to any deal is valuation. M&A are also getting hit because more & more companies are opting for the global depository receipts/foreign currency convertible bonds issue to sate their capital needs. M&A rankings will change depending on who has been able to close deals faster. RAPID RISE IN VALUATION IMPEDES M&As The surging stock market is creating an unusual problem: Mergers & Acquisitions (M&A) deals are becoming tougher to close as the two parties to a deal keep looking over their shoulders to figure out how the market is pricing their shares. The analyst sees pharmaceuticals.1 Value ($m) 2. And when the market booms. the deals go through if there are benefits to both parties.1% for last year to 17. merge or acquire an organisation. agreed valuations for proposed M&A are thrown into disarray.53 billion (about 11.3% now. Indian companies are also looking at overseas opportunities. Stock prices have gone up because of profitability.534 Deals 13 44 . Rapid valuation changes do cause some delays. information technology & engineering specifically auto ancillaries as the areas where an increasing amount of M&As will take place in India.Merchant Banking They further opined that acquisition or divesting of shareholdings was a purely financial transaction and distinct from the advice or service provided prior to taking a decision to divest. Kotak Mahindra/Goldman Sachs topped the heap by executing 13 deals valued at $2. 4 last year in the process. This bank was ranked No.3 Mkt share’ 04 13. In this scenario.

Their restructuring services includes Mergers & Acquisitions. ENAM ENAM was founded in1984 to provide knowledge-driven financial services at the time when Indian economy investors faced a bewildering array of options.7 6.9 12.8 4.4 4. value creation services and IPO’s advisory services which are represented below: 45 .Merchant Banking Morgan Stanley Merrill Lynch & Co.7 14 4.  ENAM also provide the seed stage services. ENAM’s long-term association with capital markets & primary markets has provided it with deep insights of the functioning of Indian financial institutions. Buyers services etc. ENAM offers promising & exciting companies the opportunity of assessing the public market equity finances.227 1.2 12. 2007 . ENAM is the one of the largest underwriters in India.6 6.4 3. PLAYERS IN MERCHANT BANKING 1. Debt restructuring.ENAM provides client with strategic and practical solutions to financial challenges.8 14. Standard Chartered Ernst & Young Citigroup Ambit Corporate Fin DBS Group ICICI Securities UBS 2 3 4 5 6 7 8 9 10- 2 3 9 1 6 8 5 - 15.2 - 2 . Takeovers.771 981 980 962 936 704 649 550 11 12 5 37 8 21 1 10 3 Rankings based on deals in up to 30th September.1 6. The merchant banking services provided by ENAM are:  Equity debt/syndication: Raising capital through a private placement of a company’s securities is an effective & timely offering to a public offering.7 6.8 16.9 11 4. ENAM represents the clients in the private placement of debt and equity with institutional & high net worth investors.  Corporate Restructuring: .

mergers.ICICI Securities Limited is at the forefront of capital markets advisory having been involved in most major book building and fixed price offerings over the last decade.  Equity Capital Markets: . and Singapore consists of professionals with expertise across a range of industries. It is amongst the leading underwriters of Indian equity and equity-linked offerings. London.ICICI Securities Limited has a dedicated infrastructure vertical focused on assisting clients in identifying and capitalising on the 46 .  Infrastructure Advisory: . acquisitions. Private Equity syndication.ICICI Securities Limited is amongst the first Indian investment Banks to form a dedicated M&A practice and continues to be a leader by providing innovative and unique solutions to achieve varied objectives of the client. and divestitures. We are experienced in every aspect of the business from domestic and international capital markets advisory. They offer a full range of advisory services. Restructuring and infrastructure advisory. ICICI SECURITIES ICICI Securities Limited is a leader across the spectrum of Merchant Banking. based across key cities in India and New York.Merchant Banking 2. to M&A advisory. ICICI SECURITIES provide following services:  Mergers and Acquisitions: . which include joint ventures. Our investment banking team.

automobiles. by offering structured finance solutions.Kotak Institutional Equities. oil.Merchant Banking opportunities thrown up by the all pervasive boom in the Indian infrastructure sector. among the top institutional brokers in India. to domestic and foreign institutional investors. It mainly covers secondary market broking and the marketing of equity offerings. KOTAK SECURITIES LIMITED Kotak Securities Limited. Kotak Securities is a corporate member of both The Bombay Stock Exchange and The National Stock Exchange of India Limited. Its operations include stock broking and distribution of various financial products . investors in case of public offerings. steel & metals and hotels. is the stock broking and distribution arm of the Kotak Mahindra Group. Thus the quality of analysis and client servicing standards. a subsidiary of Kotak Mahindra Bank.including private and secondary placement of debt and equity and mutual funds. including IPOs.  Structured Finance (Project Finance & Advisory Business): -KMCC has developed expertise in various vertical segments in the infrastructure sector including power. The company was set up in 1994. Currently. are a testimony to the quality of ICICI SECURITIES team. The equity group leverages research and distribution reach to domestic and foreign institutional 3. The company has four main areas of business:  Kotak Institutional Equities: . 47 . Advisor to one of the largest LNG projects on the Western coast of India. gas.ICICI Securities Limited assists global institutional investors to make the right decisions through insightful research coverage and a client focused Sales and Dealing team.  Dealing with Bulls and Bears: . ports. Some of the transactions executed by this team include:   Advisor to Ford on financial closure for its Car project in India. Kotak Securities is one of the largest broking houses in India with wide geographical reach.

Citibank has over $22 billion of custody assets under management.  It is India's largest foreign bank in the FX (foreign exchange) market with a 14 per cent market share. Our spectrum of services include:   Divestments Spin-Offs / Restructuring & Joint Ventures / Strategic Alliances 4. CITIGROUP Citigroup Corporate and Investment Banking achieve the extraordinary for our clients around the world. We create solutions for and provide the broadest possible capital and market access to thousands of issuer and investor clients. we provide our clients expertise and a comprehensive set of services that help them achieve their strategic and financial objectives. No financial institution is more committed to advancing the goals of its clients—our diverse and talented staff in more than 100 countries advises companies. And no institution better executes the increasingly complex payment and cash management solutions required in today's global economy. governments and institutions on the best ways to realize their strategic objectives.  Mergers & Acquisitions: -In the area of Mergers & Acquisitions. The features Citigroup are as follows:  Over the years. 48 . Citigroup has established a track record of outstanding business milestones such as Cash Management.  As the leading custodian. pioneered by Citigroup in 1986 and utilized by over 900 Corporates with through-puts totaling around $ 35 billion (8% of India's GDP).Merchant Banking  Financial advisors and loan syndications to British Gas and GAIL.

This Transaction heralds DSPML as a key player in the private equity market.  A diverse client base made up of India's most prestigious private and public sector corporations and multinational corporations have rendered DSPML a commanding presence in the Indian capital market.Merchant Banking DSP MERRILL LYNCH LTD. Equity & Debt Brokering.. financial management and advisory company. is a culmination of a long standing relationship between DSP Financial Consultants Ltd. Euro money Magazine has ranked DSPML as the "Best Domestic Securities firm in India" for the last four consecutive years. the leading international capital raising. and Investment Advisory services. DSP Merrill Lynch Limited (DSPML). distribution. and Merrill Lynch & Co. 49 .  DSPML has consistently brought reputable issues to the capital markets. The service features of DSPML are as follows:  DSPML has consistently been rated as one of India's leaders in origination. Capital Raising. among India's leading investment banking and brokerage company.. Securities Research. and trading of equity and debt securities. DSPML is a full service investment bank and broking company with leadership position in M&A.

advises its clients for various advisory services such as capital Structuring. By leveraging their extensive knowledge of local markets and global resources. 1. Advisory services: UPFC. they have delivered innovative and customized solutions to their clients. UPFC also underwrites the issue. with its long experience. This is a specialized activity of the Corporation. Underwriting: In order to provide a protective umbrella to the public issues of its clients. Subscription to equity share: UPFC subscribes to the equity shares reserved under FI quota. In order to meet the challenges of liberalized policy of the Government & Changed economic Scenario. 5.Merchant Banking  Through direct market's group. UPFC has started Merchant Banking & other financial Services to serve its valued clients. DSPML offers investors access to every major initial or subsequent public offering. it has already managed Public Issues as a lead Manager with great success. several smallscale units nurtured by UPFC has groomed into big enterprises. by providing term loan assistance to small & medium scale units. 5. UPFC. to enable the company to market the public issue effectively.  DSP Merrill Lynch is the leading underwriter of Indian equity and equity-linked offerings across domestic and international markets. Since then it has acquired a matured professional approach in Industrial Financing. Project certification: UPFC also certifies the projects going to capital markets for raising funds. 4. a category-I Merchant Banker with unmatched expertise in project appraisal and term lending offers a whole gamut of Merchant Banking Services. 3. 2. Issue management: UPFC provides expert services to manage public issues of the companies successfully.P. UPFC(Uttar Pradesh Financial Corporation) Scheme for merchant banking & financial services Decades ago UPFC has taken a humble step for the industrial development of U. 50 . loan syndication etc.

high net-worth individuals and retail investors across a wide range of financial products. etc to meet diversified requirements of it's clients 6. It have the merchant banking and underwriting licenses from the Indian securities market regulator. Some of the recent transactions of JM Morgan Stanley  US$ 20MM fund raising for Nipuna Services (a BPO subsidiary of Satyam Computer Services)  Rs.Merchant Banking 6. 3. Brand Equity loan. The services of JM Morgan Stanley are:  JM Morgan Stanley has a dedicated group that regularly interacts with JM Morgan Stanley offers research-based investment advisory and over 40 financial investors in India as well as overseas.  equity broking services to corporates. UPFC also offers Bill Discounting. 51 . JM Morgan Stanley Investment Banking focuses on capital raising. the Securities and Exchange Board of India. Other financial services: As a part of its commitment to provide professionalized financial services to its clients. Through innovation and value-added services.term loan. acquisitions. Equipment Leasing & Hire Purchase Services. Short. Bajaj Auto Limited. restructuring and financial advisory and private equity for Indian corporates in the international and domestic capital markets. the firm has contributed immensely to the overall development of the capital market and mergers and acquisitions in India. mergers.219 MM preferential allotment of equity shares/ warrants in Bajaj Auto Finance Limited to financial investors and the promoter.

though needed for smooth working of the securities Industry. rekindle his enthusiasm. and reinforce his faith. This helps in raising private equity capital for the companies. MERCHANT BANKING-FUTURE DEVELOPMENT Time and again the Merchant banking Industry in India witnessed. No doubt. Issue after issue as failed to capture his imagination. It needed an extraordinary effort and skill the drive the small 52 . In recent past. The very purpose for which these firms are commences their services should be taken care of and they should mould their policy decision and activities to move in tune with the main objectives of Investor’s protection and to create healthy environment in capital markets. And this when all these years millions have though capital market. experienced and underwent significant changes. ate capital market and dreamt capital market. proves to be detrimental to the very existence of the Merchant Banking system in the country. The SEBI’s Act 1992 confers power upon SEBI to supervise and control the affairs of the Merchant Banking firms in India. frequent changes and /or amendments to policies and control measures. He has lost all hopes of appreciation of his investment. Merchant Banking firms are subject to a host of control measures. No single study has been emerged so far pertaining to the evaluation of Merchant Banking firms and in-depth study on their activities as well as operational and financial performance in the light of changing regulatory environment. A robust deal-flow across sectors has allowed them to build significant traction with the financial investors. regulations and rules framed and guided by SEBI.Merchant Banking  They are known for lead managing some of the most complex and innovative and large equity and debt offerings in India and abroad by the Indian issuers. the small investor has turned his back on the primary capital market. The various studies which had been undertaken in India for evaluating the performance of Merchant Banking firms and the implications of these on securities industry. To some extent.

With the coming to SEBI. all working against his interests. All this has been done perhaps because the corporate and intermediaries is to follow the practices of Western capital markets here. But these hopes were soon belied.Merchant Banking investor away! High premiums. SEBI has taken a retrograde step. hopes ran high that the small investor would now have a safe playing field. he was believed to be the king. which forms the backbone of the capital market. Now 50 million potential investors are deprived of official and authentic information given by the Issuer. in systems and in the number of participantsFreedom of commercial expression could be exploited by some to serve their own ends. Far from guarding the interests of the investing public. there are larger issuers arising out of SEBI’s action. As a result of the ban. SEBI’s this action has caused the closure of an information window. A market 53 . SEBI embarked on a course of action. From the point of view of liberalisation of the economy. just a s freedom of speech and expression could be abused but this has not led our Government to put arbitrary restrictions on our freedom. Besides. especially the small investor it is this class. an organisation that was ostensibly brought into existence to guard the interest of the small investor. the small investor would be deprived of the opportunity to study the corporate profile of the Issuer. there is reason to believe that it may be based on a wrong perception of the role for corporate advertising. they will have to depend on manipulated facts and information fed by unreliable sources. This would make an observant student of the stock market infer that there is some game plan afoot to dethrone the small investor from his prominent. But the worst sufferer would be the investor. It is hard to understand reasons for this drastic and totally uncalled for action. oblivious of the fact that our capital markets are altogether different in structure. which has positively hurt them. then of minimum subscription. While there has been no official explanation for this fiat. The professed protector of his interests first laid down the dictum of proportionate allotment. Merchant Bankers have reason to believe they will be handicapped without the marketing support. The latest fiat of EBI bans corporate advertising after the receipt of acknowledgement card by a company wanting to go public. In the absence of adequate information. false premiums and gray market operations.

Merchant Banking

economy flourished through bigger markets, higher sales and lesser profits.

To

achieve this performance, a company needs an aggressive marketing plan and advertising effort is the main thrust to such a plan. No marketing plan can be worthwhile unless it is backed by an effective advertising plan. The ban imposed by SEBI nips the marketing plan in the bud. The Indian primary capital market is basically a retail market. It consists of

innumerable investors who take own individual investment decisions. Whatever, the system, it is this market that will bring in the funds. If these markets destabilised, the investors will look for alternative avenues to invest their funds. SEBI in its one of the first documents on “SEBI and Investor Protection, Development and Regulation of Securities Market” clearly specifies significance of regulating capital market and its future plans for fulfilling the twin objectives viz., Development of capital market and investor protection are explained in introductory paragraphs. It speak out that, “The decade of the 1980 witnessed a phenomenal growth and development of the securities market, demonstrated its potential not only to mobilize the savings of the horseshold sector but also to allocate it with some degree of efficiency for industrial development. The dilution of the holdings of the multinational companies at affordable prices in the latter part of the 1970s had generated considerable interest, which was, carries well into the next decade. Several companies’ came in the early part of the 1980s and successfully raised large resources from the market especially through debt instruments, which further sustained investor interest. There were several changes in Government policy, which significantly influenced industry and aided the market. India was then entering the phase of liberalization and decontrol which was to accelerate and gather momentum in the 1980s. By the end of the decade, the securities market in India came to be firmly integrated with the financial system of the country. With the corporate sector increasingly relying on the securities market for meeting their long-term requirement of funds, the securities market their long-term requirement of funds; the securities market competed on equal terms with the Development Financial Institutions, which were the traditional purveyors of long-term capital. The emergence of the securities markets into the main stream of the financial system of the country was thus one of the major economic processes of the 1980s – an inevitable outcome of the maturing process of

54

Merchant Banking

the financial system. They brought about notable changes in the capital structure of the companies across industries, gave birth to new intermediaries and institutions in the securities market and created a new awareness and interest in investment opportunities in the securities market among investor. In spite market, its quality lagged far behind and there was absence of adequate professionalism and fair competition among the various players in the market. Besides, the regulatory framework then prevailing was fragmented difficult, if not effective.

QUESTIONAIRE
STATE BANK OF INDIA BANK 1) Details of the person Interviewed Name:- Vasudha Waman Joshi Qualification:- Graduate in Maths Name:- Chandrakala Gururani Qualificatin:- B.com Graduate & MBA(ICFA) Experience:- 23 years Experience:- 1 years KOTAK MAHINDRA

2) Which activities does your Company/Bank undertakes? Import/Export, Remittances, Issue of Bank guarantees and letter of credit Home loan, Personal loan, over drafts, etc. But not into credit card 3) What are the service provided? On presentation of Documents in case of physical Import/Export. Required proof in case of remittances. 4) According to you what is the need for Merchant Banking? Overdraft facilities, settlement of Cash. Bank to bank sercices

55

Merchant Banking

Facilities to the banks like funds, Infrastructure,etc so that more and more banks can have this facility in there bank and provide more services related to the same

support from government to aware the banks and compani es about the schemes available

5) What is Importance of Merchant Banking? Due to this people will enjoy those services which are not provided by commercial banks 6) Names of the company with which you crack deals Shiv shakti plastic, Inglobe and shreeram Industries,etc Vijayan Group of Hotels, Shree nath hunday and other small companies This helps the mergers

56

57 . 1992 (REGULATION 3) APPLICATION FOR GRANT OF CERTIFICATE / RENEWAL OF CERTIFICATE ADDITIONAL INFORMATION FOR FRESH REGISTRATION NAME OF APPLICANT CATEGORY: CONTACT NAME ______________________ TELEPHONE NO: _____________________ INSTRUCTIONS FOR FILLING UP FORM 1. Is important that this application form should be filled in accordance with the regulations.Merchant Banking ANNEXURE SCHEDULE I .FORMS FORM A SECURITIES AND EXCHANGE BOARD OF INDIA (MERCHANT BANKERS) REGULATIONS.

Private/Public. Application for registration will be considered provided it is complete in all respects. Pin code: ______________________ Telephone No:________________ Telex No:______________________Fax No:______________________ (B) Address for Correspondence: Pin code:______________________Telephone No:________________ Telex No:______________________Fax No:______________________ (C) Address of Branch Offices: 2. PARTICULARS OF THE APPLICANT 1.1 Name of the Applicant: 1. 2.Information.2 Date and Place of Incorporation: Day Month Year Place 2. 6. 5. proprietary.2 (A) Address . may be given on separate sheets. Applicants must submit a completed application form together with appropriate supporting documents to the Board. which should be attached to the application form. ORGANISATION STRUCTURE (Organization Chart separately showing functional responsibilities of Merchant Banking activities to be enclosed). partnership.Merchant Banking 2.3 Status of the Applicant: (e.1 Objectives:(To be given in brief along with copy of Memorandum and Articles of Association). If listed. unlimited company. 4. 3. Answers must be typed. which needs to be supplied in more details.Principal Place of business / Registered Office of the Company. others. names of Stock Exchanges and latest share price to be given).g.4 Particulars of all Directors/Partners/Proprietors:Name Qualification Experience in Merchant Banking & Financial Services related areas Share in applicants firm company Directorship in other companies 58 . 1. 2. 2. limited company .All signatures must be original.

6 Name and activities of associate companies/concerns Name of Company Address/firm Type of activity handled Nature of Interest of Promoter/Director Nature and interest of Applicant Company 3.1 History.3 Experience in other financial services rendered:3.Merchant Banking 2. major events and present activities: 3.4 Business handled during the last three years: a) Issue Management Name of client Type of Issue Size of Issue Year of Issue Times subscribed Name of lead merchant banker Functional responsibilities b) Investment Adviser: Name of Client Year for which services are rendered Nature of services rendered c) Underwriting Name of client Type and size Amount underwritten of Issue 59 . 3.2 Details of Experience in Merchant Banking activities.5 Particulars of Key Management Personnel: (Particulars of merchant banking division) Name Qualification Experience with particular reference to merchant banking Date of appointment Functional areas 2. BUSINESS INFORMATION 3.

2 (a) If the applicant is proposing to engage in Merchant Banking activities for the first time.1 List of major clients with address Name Services Rendered 4. 5. FINANCIAL INFORMATION 5. equity research and database available with the applicant. 4. CLIENT INFORMATION 4. Name of Key management personnel Qualification Previous positions held Experience particularly in respect of merchant banking activities 4.Merchant Banking % Age of issue under Year of Issue Whether there was any devolvement written d) Portfolio Management Name of Scheme Features of the Scheme Number of Clients Total Volume of Funds managed Average Returns e) Consultants/Advisors to the Issue Name of the Client Year of Issue Type and Size of Issue Nature of services rendered Name of Lead Merchant Banker(s) 4. business plan of the company with projected volume of activities and income for which registration is sought to be specifically given.4 Any other information considered relevant to the nature of services rendered by the applicant.2 If the applicant is proposing to engage in Merchant Banking activities for the first time. in lakhs) 60 . 4. the experience of key management personnel to be indicated.1 Capital Structure (Rs.3 Details of infrastructure including computing facilities.

In case of partnership or proprietary concerns. 61 .3 Major Sources of Income: (Rs. please indicate range within which fees have been charged.1. In case of partnership or proprietary concerns. 5.Merchant Banking Year prior to the preceding year of current year a) Paid-up capital b) Free reserves Preceding year Current year (excluding re. Loans & Advances made to Associate Companies/ firms where Promoters/ Directors have an interest be separately given). and networth of the partners. in lakhs) Year prior to the preceding year of Preceding current year (a) Issue Management (b) Underwriting (c) Portfolio Management (d) Consultant/ Advisor to Issue (e) Investment Adviser (f) Others year Current year *Fees charged as % of issue *As fees charged by the merchant banker may vary from issue to issue. please indicate capital minus drawings. 5. please indicate the financial position.valuation reserves) c) Total (a) + (b) Note: . means. 2.2 Deployment of Resources (Rs. in lakhs) Year prior to the preceding year of current year (a) Fixed Assets (b) Plant & Machinery and Preceding year Current year Office Equipment (c) Quoted Investments (d) Unquoted Investments (e) Details of Liquid Assets (f) Others (Details of Investments.

6. I/We warrant that I/We have truthfully and fully answered the questions above and provided all the information which might reasonably be considered relevant for the purposes of my registration. Where unaudited reports are submitted. I/We declare that the information supplied in the application form is complete and correct. audited statement of accounts of a later date also be submitted.4 Net Profit Year prior to the preceding year of current year 5. 5.Merchant Banking 5. 5.2 Indictment of involvement in any economic offences by the applicant or any of the Directors. 62 . TWO PARTNERS OR THE SOLE PROPRIETOR AS THE CASE MAY BE Preceding year Preceding year Current year Current year I/We hereby apply for registration. 6. If minimum networth requirement has been met after last audited annual accounts. of Shares held % age of total paid up capital of the company 5. OTHER INFORMATION 6. 5 Dividend Year prior to the preceding year of current year Amount Percentage Note: Please enclose three years of audited annual accounts.7 Name and Address of the Principal bankers of the applicant. give reasons.1 Details of all settled and pending disputes: Nature of dispute Name of the party Pending/settled. DECLARATION THIS DECLARATION MUST BE SIGNED BY TWO DIRECTORS.8 Name and address of the Auditors.6 List of major shareholders (holding 5% and above of applicant directly or along with associates – Applicable only to limited companies) Shareholding as on: ______________________________ Name of shareholder No. or key managerial Personnel in the last three years.

read with the rules and regulations made there under the Board hereby grants a certificate of registration to ______________________________ as a merchant banker in Category I subject to the conditions in the rules and in accordance with the regulations to carry out the following activities: 1. 6. (*Delete whichever are not applicable) II. 1992 (REGULATION 8 CERTIFICATE OF REGISTRATION) In exercise of the powers conferred by sub-section (1) of section 12 of the Securities and Exchange Board of India Act. Place Date 63 . Investment Advisor. Managers. 2. 5. Management of any issue. final allotment and refund of excess application money. tie up of financiers. 1992. gathering information relating to the Issue. This certificate shall be valid from _____________ to _________ and may be renewed as specified in regulation 9 of Securities and Exchange Board of India (Merchant Bankers) Regulations.Merchant Banking For and on behalf of -----------------------------------------. Consultant or Adviser to any issue including corporate advisory services. 1992.(Name of Applicant) Director/Partner or Sole Proprietor Director/Partner ___________________ (Name in Block Letters) (Name in Block Letters) _______________________ Date FORM B SECURITIES AND EXCHANGE BOARD OF INDIA (MERCHANT BANKERS) REGULATIONS. determining financing structure. including preparation of prospectus. Registration Code for the merchant banker is MB / / / III. Consultant or Advisor.

fair and adequate to enable the investors to make a well informed decision as to the investment in the proposed issue. materials and papers relevant to the issue. WE CONFIRM that: (a) the draft prospectus/letter of offer forwarded to SEBI is in conformity with the documents. SUB: ISSUE OF ____________________ BY _______________________ LTD. We have while finalizing the draft prospectus/letter of offer pertaining to the said issue have examined various documents and other material as for adequate disclosures to the investor. other agencies. SECURITIES AND EXCHANGE BOARD OF INDIA Dear Sirs. and (c) the disclosures made in the draft prospectus/letter of offer are true. We. (b) all the legal requirements connected with the said issue have been duly complied with. 1992 (REGULATION 23) DUE DILIGENCE CERTIFICATE To. On the basis of such examination and the discussions with the company.Merchant Banking By Order Sd/For and on behalf of Securities and Exchange Board of India FORM C SECURITIES AND EXCHANGE BOARD OF INDIA (MERCHANT BANKERS) REGULATIONS. 2. 64 . independent verification of the statements concerning objects of the issue the contents of the documents and other material furnished by the company. its directors and other officers. the under noted Lead Manager(s) to the above mentioned forthcoming issue state as follows: 1.

Portfolio Manager Service" after the words "1. The words "3. A list of documents and materials examined may be forwarded along with this certificate. 1996 published in the Official Gazette of India dated 06.06. Underwriting of Issue" and "4. 1996 published in the Official Gazette of India dated 06. B.Merchant Banking PLACE: DATE: LEAD MANAGER (S) TO THE ISSUE N. Investment Adviser" in paragraph 1 in Form B of Schedule I were deleted by the SEBI (Merchant Bankers) (Amendment) Regulations.1996.06. The figures "II/III/IV" after the word "Category I" and before the words "subject to the conditions" in paragraph 1 in Form A of Schedule I were deleted by SEBI (Merchant Bankers) (Amendment) Regulations. 29.1996. 65 . Foot notes 28.

Merchant Banking 66 .

Hence. Merchant Banking can be considered as essential financial body in Indian financial system. well regulated market place in future. 67 . Market development is predicated on a sound. and provide the investors an organized. To sustain the growth of the market and crystallize the growing awareness and interest into a committed. discerning and growing awareness and interest into a essential to remove the trading malpractice and structural inadequacies prevailing in the market. Selecting the right intermediary who has the necessary skills to meet the requirements of the client will ensure success. one must decide what are the services for which he is being approached. fair and transparent regulatory framework. It can be said that this project helped me to understand every details about Merchant Banking and in future how its going to get emerged in the Indian economy.Merchant Banking 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.

MACHIRAJU Merchant Banking in IndiaB.R.com www.yahoo.economictimes.jmmorgansranley. LAKSHMANNA & C.com www.N.com 68 .C.in www.com www.dspml.C.sebi.com www. SUNEJA Merchant Banking Principles & Practices.VERMA (3rd & 4th Edition) WEBILOGRAPHY       www.R.Merchant Banking BIBLIOGRAPHY BOOKS REFFERED    Merchant Banker – H.H. KRISHNA NAIK  Merchant Banking – J.co.google.

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