Merchant Banking

A Merchant Bank can be defined as an institution or an organization which provides a number of services including management of securities issues, port folio services, underwriting of capital issues, insurance, credit syndication, financial advices and project counselling, etc.

Functions of Merchant Banks

The basic function of merchant banker or investment banker is marketing corporate and other securities. The activities or services performed by merchants banks, in India, to include: Project promotion services. Project finance. Management and marketing of new issues. Underwriting of new issues. Syndication of credit. Leasing finance. Corporate advisory services.

 Providing venture capital Operating mutual funds and off shore funds Investment management or portfolio management services. Bought out deals. Management of and dealing of commercial paper. Investment services for non-resident- Indians. Servicing of issues,etc.

Merchant Banking in India

Merchant banking services in our country are provided by the following type of organizations: 1) commercial banks and their subsidiaries. 2) Foreign banks including National Grindlays Bank, City Bank, Hongkong Bank, etc. 3) All India Financial Institutions and Development banks such as, ICICI, IFCI, IDBI. 4) State level Financial Institutions such as State Industrial Development Corporation (SIDC s) 5) Private Financial Consultancy Firms and Brokers 6) Technical Consultancy Organizations

Classification of Merchant Bankers

The SEBI has classified merchant bankers under four categories for the purpose of registration 1. Category 1 Merchant Bankers. These merchant bankers can act as issue manager, advisor, consultant, underwriter and portfolio manager. (Rs. 5 Crore) 2. Category 2 Merchant Bankers. Such merchant bankers can act as advisor, consultant, under writer and portfolio manager. They can act as issue manager of their own firm. (Rs. 50 lakhs) 3. Category 3 Merchant Bankers they are allowed to act as under writer, advisor and consultant only. (Rs. 20 lakhs) 4. Category 4 Merchant Bankers. A category 4 merchant banker can merely act as consultant or advisor to as issue of capital. (Nil).

Government Policy
On 1st March, 1993 new policy guidelines have been issued by SEBI for the merchant bankers to ensure greater transparency in their operations and to make them accountable so as to protect the investor s interest. Following are the some of the important guide lines issued by SEBI.  A merchant bank shall make all efforts to protect the interest of investors.  A merchant banker shall maintain high standards of integrity, dignity and fairness in the conduct of its business.  A merchant banker shall fulfill its obligations in a prompt, ethical, and professional manner.  A merchant bank shall not discriminate amongst its clients.  A merchant banker shall avoid conflict of interest and make adequate discloser of its interest.

General Obligations and Responsibilities

The following are the some of the important obligations and responsibilities of the merchant bankers: 1. Merchant banker not to associate with any business other than that of the securities market. 2. Maintenance of books of accounts, records, etc. 3. Submission of half- yearly results. 4. Report on steps taken on auditor s report. 5. Appointment of lead merchant bankers. 6. Restriction on appointment of lead managers. 7. Responsibility of lead managers. 8. Underwriting obligations.