Merchant Banking

INTRODUCTION
Refers to British

Merchant banking .
Concerned with

mobilising savings of people .

DEFINITION
MERCHANT BANKING is defined as an institution which covers a wide range of activities such as management of customer services, portfolio mgmt, credit syndication, acceptance credit, counselling, insurance etc.

ORIGIN

Originated through London merchants. Extension of activities to domestic business of syndication of long-term & short-term finance, share transfer agents, debenture trustees, takeover etc.

Merchant Banking
In India?

Merchant banking in India

Need for merchant banking was felt with rapid

growth in number & size of issues made in primary market.

Merchant banking services were started by

foreign banks, namely National Grindlays in 1967 & City bank in 1970 .

 Merchant banking services were offered along

with other traditional banking services.

SBI was first Indian bank to set up Merchant

banking division in 1972.

DIFFERENCE BETWEEN COMMERCIAL BANKING & MERCHANT BANKING

Deals with Debt & Debt related finance.

Asset oriented.

Deals with Equity & Equity related finance.

Management oriented.

Generally avoid risks.

Willing to accepts risks.

Merchant Banking
Services?

SERVICES OF MERCHANT BANK

The financial institutions in India could not

meet the demand for long-term fund required by the ever expanding industry and trade.
Corporate sectors enterprise meet their demand

through issuing share and debenture in capital market.

Services of Merchant Banks

Sr No 1 Particulars
Corporate Counseling

Summary
Covers the entire field of merchant banking, Ltd to giving suggestions Preparing project report for govt. approval , financial assistance

Project Counseling

3 Loan Syndication

Assistance rendered to get term loan for project, help client make appraisal, designing capital structure etc
Marketing corporate securities, intermediary in transfer of capital from one who owns to needy Guarantee given by the underwriter, make raising of external resource easy Drafting, completion of formalities, appoint Registrar etc

4 Issue Management

5 Underwriting

6 Managers to Issue

7 Portfolio Management 8 Mergers and takeovers

Investment in different kind of securities Middlemen in setting negotiation

9 Off Shore Finance Help in areas involving foreign currency 10 Non- Resident Investment Provide help in better and smooth trade to NRIs

Merchant Banker as Managers, Consultants or Advisors

Companies are free to appoint one or more agencies as managers to the issue. Sebi guidelines prescribe that issue should be managed atleast by one authorised merchant banker. Not more than two M.B. should be appointed as lead managers to a public issue. In issue over Rs.100 crores, maximum upto four M.B. could be associated as managers.

Merchant Banker As lead Manager

Appointment of a lead manager by a company
S. No 1. 2. 3. 4. 5. Size of the issue Maximum Number Of Lead Manager 2 3 4 5 5 or more as prescribed by SEBI

Less than Rs.50 crores Rs.50 crores to Rs.100 crores Rs.100 crores to Rs.200 crores Rs.200 crores to Rs.400 crores Above Rs.400 crores

Duties & Responsibilities Of LM

To enter into an agreement

Certificate of registration with SEBI Work of issue management

Clearly defined responsibility

Minimum underwriting obligation

 Due care & diligence Submitting due diligence certificates Submit all particulars to SEBI Suggestions or modifications Collections of the amount Ensuring refund Inform depository participants

Qualities Required of Merchant Bankers

(Best merchant bankers)

Ability to analyse Abundant knowledge Ability to built up relationship Innovative approach Integrity

(left) Rashesh Shah Chairman & CEO, Edelweiss

(right) Nimesh Kampani Chairman & MD, JM Financial

CATEGORY OF MERCHANT BANKER

CATEGORY
1st 2nd 3rd 4th
:-

MINIMUM NETWORTH
1 crore 50 lacs 20 lacs NIL

:::-

The M.B.registered with SEBI classified according to the category :MERCHANT BANKER

PUBLIC SECTOR
COMMERCIAL BANKS :- 24 FINANCIAL INSTITUTION :- 6 STATE INSTITUTION :- 4

PRIVATE SECTOR

INTERNATIONAL BANKER :- 10

BANKS :- 10 FINANCE & INVESTMENT :- 231 LEASING

Merchant banking
Problems.?

Restriction of merchant banking activities

SEBI guidelines have authorised merchant

bankers to undertake issue related activities and made them restrict their activities or think of separating these activities from present one and float new subsidiary and enlarge the scope of its activities.

Minimum net worth of Rs.1 crore

SEBI guidelines stipulate that a minimum net worth of Rs.1 crore for authorisation of merchant bankers.

Non co-operation of issuing companies

Non co-operation

of the issuing companies in timely allotment of securities and refund of application money is another problem faced by merchant bankers.

MERCHANT BANKERS COMMISSION

Maximum 0.5%
Project appraisal fees Lead Manager :-

- 0.5% upto Rs.25 crores - 0.2% more in excess of Rs.25 crores

Underwriting fees Brokerage commission 1.5% Other expenses :- Advertising - Printing - Registrars expenses - Stamp duty

Merchant banking
Scope in India?

1) Growth of new issues market

Indian market largest emerging market
Domestic and foreign investors setting up their

biz here. Many public and private issues coming up Growth in new issues market Scope for M.Bs. have risen

2) Entry of FII

Indian capital market is globalised Indian Cos. are permitted to invest in euro issues. Similarly, FII are permitted to invest in India.

Hence they need M.Bs to advise them for their invt in India. Increasing no. of JVs also require expert services of M.Bs.

3) Changing policy of FI
Liberalisation of policies

FI would require expert services of M.Bs for

project appraisal, financial management, financial restructuring etc.

4) Development of debt market

Good portion of capital can be raised through debt instruments.

Tremendous opportunities to M.Bs.

5) Innovations in Financial Instruments

New financial instruments have come up.

M.Bs are market makers for these instruments.

6) Corporate Restructuring

Liberalisation and globalisation Competition in corporate sector becoming intense. Cos. reviewing their strategies, structure and functioning etc. leading to corporate restructuring. Good opportunity to M.Bs to extend their area of operation.

7) Disinvestment

It means reduction of some kind of asset of a firm for achieving either financial or ethical objectives.
Motive of disinvestment is to obtain funds.

Conclusion
Inspite of problems popping up, merchant

banking in India has vast scope to develop because of lot of domestic as well as foreign businesses booming here. Indian economy provides an amicable environment for these firms to set up, flourish and expand here.

Thank you...