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“A STUDY ON ROLE OF MERCHANT BANK IN CAPITAL MARKET”
Submitted to: Prof. Revathi IFIM B-School. BANGALORE
Submitted By: Arijit Das PGDM (08-10) Sec : A
DECLARATION BY THE STUDENT
I, Arijit Das, hereby declare that the project work has been carried out through my own efforts and under the guidance of Prof. Revathi, faculty of IFIM Business School.Bangalore.
This project has been submitted as a part of study curriculum of MBA program. The report has not been submitted to any other university.
ACKNOWLEDGEMENT We express our gratitude to Prof. Revathi, Professor of Finance at IFIM Business School for providing us an opportunity to work on this project. Prof. Revathi has been extremely supportive and suggestive to us in course of the project and has also spent his valuable time and guiding us as to how to go about the project. Her inputs has added value to our knowledge and we owe our heartfelt gratitude to him, without whom this project wouldn’t have been a successful one. .
Date – 30-06-2010 Place – Bangalore.
4 . the importance of Merchant bank in the context of Indian scenario and the regulatory framework of merchant bank Under SEBI guidelines. It discusses ICICI securities Ltd as a merchant Banker in the Indian capital market. its history and development.EXECUTIVE SUMMARY This project mainly focuses on Role of Merchant Bank in capital market. I discuss the basic functions of Merchant Bank. Herein.
1 2 3 4 5 6 TOPIC Review of Literature Objectives Methodology Introduction Origin of merchant banking Importance and Need of merchant 7 8 9. Merchant Banking under SEBI Guidelines Author info : Sankar De and Sushil Khanna 5 . 10 11 12 13 bank Organizational set up of merchant bank Functions of merchant bank Regulatory Framework ICICI Securities Ltd. 6 9 9 10 13 17 REVIEW OF LITERATURE 1.CONTENT SL NO. Conclusion Reference Appendix 20 22 30 49 55 56 57 PAGE NO.
capital raised. Lakshmanna and C. Merchant Banking in India : (Evolution and Emergence. information for the investing public about the typically unobservable quality of a new issue.C. rather than more. As economy grows. trading volumes as well as price indices. Rules and Regulations. market capitalization. The healthy development of securities markets with appropriate 6 . 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 and other securities. The number of investors. Functions. Experiences and Challenges) Author Info: B. Infact securities markets in India have grown exponentially in the past fifteen years.Abstract: This paper examines the economic and financial implications of some of the regulations introduced by the new Securities and Exchange Board of India (SEBI) through the guidelines it has periodically issued. The regulations apply to investment or merchant banking services required for corporate issues of long-term securities in India. The authors find that some implications of the guidelines may be in conflict with the professed objective of the current economic policy to induce the corporate sector to raise external funds from private investors. securities markets are being increasingly relied upon by the private corporate sector by public sector units and by banks for raising funds. 2. While the investor profile continues to be dominated by middle class individuals. Indian securities industry is said to continue their rapid growth.N. Further. With the opening of mutual fund industry to the private sector and the advent of foreign portfolio investment. trends towards institutionalization in the securities markets are becoming evident. intermediaries and stock exchanges have also seen a significant increase. as judged by the number of issues. the guidelines may be self-defeating in that they may result in less. Krishna Naik Abstract: "The recent thrust towards liberalizing economic and financial policies have brought about a phenomenal growth in the securities industry in India.
the study assumes further significance under the changing scenario of the Indian securities industry. Commercial Banks. Indian economy is no exception of this. Capital generation is the lifeblood of the capital market without which the health and soundness of the financial system cannot be geared up and for which well-developed capital market as well as money market is essential. professionals." 3. Hence. Investment opportunities have expanded. financial and social in India and elsewhere in the developing nations of the world. students and researchers and corporate firms in general. The progress of the securities Industry of any country depends mainly on the flow of funds. The multinational entry and the foreign capital inflow into this country are changing the scenario further. inter-alia would also be helpful to regulatory authorities like Securities Exchange Board of India (SEBI). competition (both domestic and international) had heightened. This book will serve as a source of literature in the files of Merchant Banking. Kamalini Abstract: The Progress of any economy mainly depends on the efficient financial system of the country. investment community.Infact. The study. The special feature of this book is that it covers the early stages of financial reforms with a larger coverage. financing options have widened and above all dependence on capital market has increased. The Indian business scenario is undergoing a dramatic metamorphosis. in view of the economic reforms. 4. This importance of the financial sector reforms affirms an effective means for solving the problems of economic. Study on "Emergence of Merchant Banking" Author Info: H.degree and manner of regulations will be of immense importance in the coming years on account of their role in meeting the need for greater investment. Apart from regulatory authorities it would also be of interest to Development Banks. As a result. Overview of merchant banking system 7 . no participant can afford to be inward looking.
Author Info: CHINMOY GHOSH Abstract: The Progress of any economy mainly depends on the efficient financial system of the country. The progress of the securities Industry of any country depends mainly on the flow of funds. This importance of the financial sector reforms affirms an effective means for solving the problems of economic. OBJECTIVES: • To study the Importance and need of merchant banking in India . • To analyze the issue management regulation. 8 . financial and social in India and elsewhere in the developing nations of the world. Indian economy is no exception of this. Capital generation is the lifeblood of the capital market without which the health and soundness of the financial system cannot be geared up and for which well-developed capital market as well as money market is essential. In fact.
INTRODUCTION Merchant Banking is an important service provided by a number of financial institutions that helps in the growth of the corporate sector which ultimately reflects into the overall economic development of the country. • To study the regulatory framework of merchant bank. Merchant banks 9 . •Collection of primary and secondary data. as a merchant banker. • To draw conclusion and suggestions based on the analysis and experiences.• To analyze the scope and functions of merchant banking in India. • Analyzing and understanding of the collected data. METHODOLOGY: • Literature review. • To make a brief study on ICICI securities ltd.
there has been a rapid change in the Indian securities market. foreign tie-ups for overseas activities and skills. feasibility studies. Merchant Banking is skill based activities and involves serving financial need of every client. financial and social in India and elsewhere in the developing nations of the world. In fact. and mobilization of funds. SEBI was also made all powerful to regulate the activities of merchant banks in the best interest of investors and economy. Now. it could be anybody's anxiety to know what are the duties the merchant bank performs most and in what capacity. and project reports. Indian economy is no exception of this. which began formal trading in 1875. venture capital and public deposits. This importance of the financial sector reforms affirms an effective means for solving the problems of economic.were expected to perform several functions like issue management. The progress of the securities Industry of any country depends mainly on the flow of funds. The issue function may be broadly divided into pre-issue management and post-issue management. advisor and host of other activities. CAPITAL MARKET IN INDIA The Bombay Stock Exchange (BSE). political and economic environment prevailing today sufficiently help the growth of merchant banking? An attempt is being made to seek answer of these questions and also to suggest remedial measures wherever possible on the basis of the study done in this project. The services of merchant banking cover project counseling. loan syndication. Apart. Capital generation is the lifeblood of the capital market without which the health and soundness of the financial system cannot be geared up and for which well-developed capital market as well as money market is essential. is one of the oldest in Asia. Merchant Bankers can turn to any of the activities depending upon resources such as capital. The Progress of any economy mainly depends on the efficient financial system of the country. underwriting. merchant banking was the necessity of banks themselves which were in need of non-fund based income so as to improve their profitability margins by all means in the changed economic scenario. issue management. per investment activities. consultant. underwriting. Over the last decade. both in primary as well as the secondary market. 10 . The issue of securities is the core of merchant banking function. Whether merchant banking business helped banks to improve their overall profitability. portfolio management. loan syndication. design of capital structure. Does the socio.
Mutual funds were opened to the private sector in 1992. and there was a large amount of insider trading. One major policy initiated by SEBI from 1993 involved the shift of all exchanges to screen-based trading. many factors obstructed the expansion of equity trading. There have been significant reforms in the regulation of the securities market since 1992 in conjunction with overall economic and financial reforms. India has seen a tremendous change in the secondary market for equity. In March 1995. Currently. markets in India used open outcry. integration of national markets. NSE has established satellite communications which give all trading members of NSE equal 11 . Among the processes that have already started and are soon to be fully implemented are electronic settlement trade and exchange-traded derivatives. These pricing errors limited order flow to these markets. Before 1992. several measures were enacted to improve the fairness of the capital market. In 1992. which started trading debt instruments in June 1994 and equity in November 1994. the prices in markets outside Mumbai were often different from prices in Mumbai.Advanced technology and online-based transactions have modernized the stock exchanges. banks were allowed to enter this business. which maintains a dominant position. India’s stock markets were dominated by BSE. The Securities and Exchange Board of India (SEBI) was established in 1988. breaking the monopoly of the Unit Trust of India (UTI). And a series of reforms was introduced to improve investor protection. out of which 33 are in the private sector and 7 are in the public sector. Trading practices were not transparent. The first exchange to be based on an open electronic limit order book was the National Stock Exchange (NSE). motivated primarily by the need for greater transparency. Recognizing the importance of increasing investor protection. the SEBI Act was enacted giving SEBI statutory status as an apex regulatory body. Explicit nationwide connectivity and implicit movement toward one national market has changed this situation. there are 40 mutual funds. a trading process in which traders shouted and hand signaled from within a pit. automation of stock trading. In terms of the number of companies listed and total market capitalization. Fresh capital issues were controlled through the Capital Issues Control Act. in 1987. BSE shifted from open outcry to a limit order book market. the financial industry did not have equal access to markets and was unable to participate in forming prices compared with market participants in Mumbai (Bombay). and efficiency of market operations. the Indian equity market is considered large relative to the country’s stage of economic development. Before 1995. As a result. In other parts of the country. Before 1994. Earlier.
access to the market. The Indian capital market still faces many challenges if it is to promote more efficient allocation and mobilization of capital in the economy. this 12 . DEFINITION OF MERCHANT BANKING “A merchant bank is a defined as a financial institution or an organization that underwrites corporate securities and advice such clients on issue like corporate mergers etc involved in the ownership of commercial venture. Similarly. etc. The arbitrages are eliminating pricing discrepancies between markets. BSE and the Delhi Stock Exchange are both expanding the number of trading terminals located all over the country.
During this period merchant banker was a dealer in bills of exchange who operated with correspondent abroad and speculated on the rate of exchange. a firm or a priority concern” Merchant banking in India started with management of public issues and loan syndication and has been slowly and gradually covering activities like “project counseling”. He added banking business to his merchant activities and became a merchant banker. raising foreign exchange and provision of long term capital for public borrowers. The Italian merchant bankers introduced into England not only the bill of exchange but also all the institutions and techniques connected with an organized money market during seventeenth and eighteenth centuries. The exchangers were remitters and merchant bankers. A merchant banker has been defined under the securities and exchange board of India [merchant banker] rules 1992 as “any person who is engaged in the business of issue management either by making arrangements regarding selling. International exchangers engaged in bill-broking. He invested his accumulated profits in all forms of promising activities. ORIGIN OF MERCHANT BANKING The origin of merchant banking is to be traced to Italy in late medieval times and France during the seventeenth and eighteenth centuries.organization may be bank corporate body. money changers evolved into public or deposit banks. Money changer and exchanger In the late medieval to early modern times distinction existed in banking system between money changer and exchanger. consultant. Initially. buying or subscribing securities as manager. In France a merchant banker (le merchant banquet) was not merely a trader but an entrepreneur par excellence. In course of time. advisor or rendering corporate advisory service in relation to such issue management. “portfolio management” and mergers and amalgamation of corporate firm. Money changers concentrated on the manual change of different currencies operated locally and later accepted deposits for security reasons. merchant banks were not banks at all and a 13 .
The term merchant bank is used to denote banks that are not merchants. The acceptance of the trade bills and discounting gave rise to acceptances houses. it was only banks that accepted deposits from public . finance sovereign government through granting long terms loans and also British government for purchasing shares of Suez Canal. Industrial revolution made England into a powerful trading nation. Among all these institutions. British banks set up divisions or subsidiaries to offer their customers merchant banking services. These confusions emerge because of a wide range of activities carried out by modern merchants. Merchant banks in the United Kingdom In the United Kingdom. The merchants provide various services. Since the end of the Second World War. discount houses and issue houses. merchant banks and other financial institutions. Sometimes for merchants who are not bankers and sometimes for business houses that are neither merchants nor banks. commercial banks in Western Europe have been offering multiple services including merchant banking services to their individuals and corporate clients. merchant's banks came into operation in the late eighteenth century and early nineteenth century. Merchant banker was primarily a merchant rather than a banker but he was entrusted with funds by his customers. 14 .distinction was drawn between banks. Rich merchant houses that made their fortunes in colonial trade diversified into banking. Their principal activity started with the acceptance of commercial bills pertaining to domestic as well as international trade. like: • Finance foreign trade • Issue capital • Manage individual funds • Undertake foreign security business • foreign loan business Sometimes.
In the Initial years the SBI's objective was to render corporate advice And Assistance to small and medium entrepreneurs. The main service offer to the corporate enterprises by the merchant bank includes management public issue and financial consultancy. Growth of merchant banking in India Merchant baking activities in India originated in 1969 with the merchant banking division set up by the grind lay bank.Merchant Banking in India Merchant banking activity was formally initiated into the Indian capital Markets when Grind lays bank received the license from reserve bank in 1967. State bank of India started the merchant banking division in 1972. The various tasks performed by this divisions namely assisting new entrepreneur. Commercial banks and foreign development finance institutions have organized them through formation divisions. Even it provides management consulting services to meet the requirements of small and medium sector rather than large sector. Indian banks Started banking Services as a part of multiple services they offer to their clients from 1972. Grind lays started with management of capital issues. raising funds through borrowing and issuing equity. Citibank Setup its merchant banking division in 1970. both emerged as leader in merchant banking with significance business during the period of 1974-1985 in comparison to forcing banks. Mid seventies witnessed a growth of merchant banking organization in the country with various 15 . at the time. Merchant banking activities is of course organized and undertaken in several forms. recognized the needs of emerging class of entrepreneurs for diverse financial services ranging from production planning and system design to market research. nationalized banks have formed subsidiaries companies and share brokers and consultancies constituted themselves into public limited companies or registered themselves as private limited companies. evaluating new projects. State bank of India started merchant banking in 1973 followed by the ICICI in1974. Some merchant banking outfits have entered into collaboration with merchant bankers abroad with several branches. the largest foreign bank in the country. chartered bank also assumed the merchant banking activity in India. Other forcing bank like city bank.
This sector has traditionally been dominated by financial institution. but at the same time this brought competition in merchant banking sector. banks and their subsidiaries. Till the end of 1990. various private sectors merchant bankers have emerged and some of them having international reputation. Various existing corporate entities and non-banking finance companies have also focused their activities in merchant banking business. The change in Indian economy opened new doors for merchant banking business enter in diversified area of activities. exerting excess demand on the sources of fund 16 . Now. broker firms entering in to the field of merchant banking. The growth in merchant banking business during the early seventies was to forcing exchange regulation act 1973 [ FERA] where in large number of forcing companies operating in India were required to dilute their foreign holdings In order to continue business in the country his result in expansion in the capital markets providing enough opportunities to merchant bankers to established themselves. Before 1990 there were less than 40 merchant banking concerns while in 199 this number has exceeded to more than 400 firms. IMPORTANCE AND NEED OF MERCHANT BANK IN INDIA Importance reasons for the growth of merchant banks has been development activities throughout the country. the merchant banking sector was almost monopoly public sector institution and commercial banks. financial institutions.commercial banks. however since 1991 considerable number of private merchant banker have emerged on same.
In such circumstances corporate sector had the only alternative to avail of the capital market service for meeting their long term financial requirement through capital issue of equity shares and debentures. This reinforces the need for a vigorous role to be played by merchant banking. With growth of merchant banking profession corporate enterprises in both private sectors would be able to raise required amount of funds annually from the capital market to meet the growing requirement for funds for establishing new enterprises. Merchant bank advice the investors of the incentives available in the form of tax relief. securities contracts corporate laws and regulations. Merchant banker can play highly significant role in mobilizing funds of savers to invisible channels assuring promising returns on investment and thus can assist in meeting the widening demand for invisible funds for economic activity. A merchant banker with their skills updated information and knowledge provide this service to the corporate units and advice them on such requirement to be complied with for raising funds from the capital market under different enactment viz. All India financial institution had experienced constrain of resources to meet ever increasing demands for demands for funds frame corporate sector enterprises. share brokers and financial consultancy firms to enter into the field of merchant banking and share the growing capital market. other statutory relaxation. good return on investment and 17 . income tax act. rules and regulation. foreign exchange regulation act. thus leaving a widening gap unabridged between the supply and demand of invisible funds.for ever expanding industries and trade. undertaking expansion. companies act. modernization and diversification of the existing enterprises. Need for merchant banking is felt in the wake of huge public saving lying untapped. gridlines and offshoot press release instructions brought out the government from time to time imposing statutory obligations upon the corporate sector to comply with those entire requirement prescribed there in the need of a skilled agency existed which could provide counseling in these matters in a package form. Growing demand for funds put pressure on capital market that enthused commercial banks. As a result all the commercial banks in nationalized and public sector as well as in private sector including foreign banks in India have opened their merchant banking windows and competing in this field. In view of multitude of enactment.
Need to develop backward areas and states which require different criteria.capital appreciation in such investment to motivate them to invest their savings securities of the corporate sector. The following are some of the reasons why specialist merchant bank have a crucial role to play in India. Exploring the possibility of joint ventures abroad and foreign market. Finance is the backbone of business activities. 2. 3. The 18 . Growing industrialization and increase of technologically advanced industries. Where merchant banks function as an independent wing or as subsidiary of various Private/central governments/ state government financial institution. 4. Need for encouragement of small and medium industrialists. Most of the financial institution in India is in public sector and therefore such setup plays a role on the lines of governmental priorities and policies. There are public sector. Growing complexity in rules and procedures of the government. 5. who require specialist services. Merchant banker make available finance for business enterprises acting as intermediaries between them raising demand for funds and the supplies of funds besides rendering various other services. 6. Merchant Bankers in India: There are 135 Merchant bankers who are registered with SEBI now in India. 1. Thus merchant banks help industries and trade to rise and the investors to invest their saved money in sound and healthy concern with confidence. Promoting the role of new issue market in mobilizing saving from. Private sector and foreign players registered with SEBI. safety and expectation for higher yields.
) · BAJAJ CAPITAL LTD · TATA CAPITAL MARKETS LTD · ICICI BANK LTD · RELIANCE SECURITIES LIMITED · KOTAK MAHINDRA CAPITAL COMPANY LTD · YES BANK LTD. Public sector Merchant Bankers: · SBI CAPITAL MARKETS LTD · PUNJAB NATIONAL BANK · BANK OF MAHARASHTRA · IFCI FINANCIAL SERVICES LTD · KARUR VYSYA BANK LTD. N. LTD.(FORMERLY UTI BANK LTD. · STATE BANK OF BIKANER AND JAIPUR Private Sector Merchant Bankers: · ICICI SECURITIES LTD · AXIS BANK LTD. LTD. · MORGAN STANLEY INDIA COMPANY PVT LTD · BARCLAYS SECURITIES (INDIA) PVT.A · DEUTSCHE BANK · DEUTSCHE EQUITIES INDIA PRIVATE LIMITED · BARCLAYS BANK PLC · CITIGROUP GLOBAL MARKETS INDIA PVT. LTD · BANK OF AMERICA.below are the examples of few of the Merchant bankers in each of the Public. · DSP MERRILL LYNCH LTD · FEDEX SECURITIES LTD 19 . Foreign Players in Merchant Banking: · GOLDMAN SACHS (INDIA) SECURITIES PVT. private and foreign players.
Canada Bank. Private Base 20 . These organizations have brought professionalism in merchant banking sector and they help their parent organization to make a presence in capital market. Each category is authorized to perform certain functions. subsidiary companies established by bankers like SBI. Broker Base In the recent past there has been an inflow of Qualified and professionally skilled brokers in various Stock Exchanges of India. Punjab National Bank. etc. Most of the financial institutions in India are in public sector and therefore such set up plays a role on the lines of governmental priorities and policies. From the point of Organizational set up India’s merchant banking organizations can be categorized into 4 group on the basis of their linkage with parent activity. These brokers undertake merchant baking related operating also like providing investment and portfolio management services. Securities and exchanges Board of India has divided the merchant bankers into four categories based on their capital adequacy. They are: Institutional Base :Where merchant banks function as an independent wing or a subsidiary of various Private/ Central Governments/State Governments Financial institutions. Bank of India. some firms are also organized by financial and technical consultants and professionals. Banker Base :These merchant bankers function as division/ subsidiary of banking organization.Organizational set up of Merchant Bankers in India In India a common organizational set up of merchant bankers to operate is in the form of divisions of Indian and Foreign banks and Financial institutions. The parent banks are either nationalized commercial banks or the foreign banks operating in India.
Some foreign merchant bankers are also entering either independently or through some collaboration with their Indian counterparts. Many of these firms were in existence for quite some time before they added a new activity in the form of merchant banking services by opening new division on the lines of commercial banks and All India Financial Institution (AIFI). pre investment activities.These merchant banking firms are originated in private sectors. private limited or public limited companies. 21 . FUNCTION OF MERCHANT BANK The services of merchant bank cover project counseling. partnership. These organizations are the outcome of opportunities and scope in merchant banking business and they are providing skill oriented specialized services to their clients. Private Sectors merchant banking firms have come up either as sole proprietorship.
feasibility studies, project reports, design of capital structure, issue management, underwriting, loan syndication, mobilization of funds, foreign currency finance, mergers, amalgamation, takeover, venture capital and public deposits. Merchant banking is skill based activities and involves serving financial need of every client. Merchant bankers can turn to any of the activities depending upon resources, such as capital, foreign tie-ups for overseas activities and skills. The depth and sophistication in merchant banking business are improving since the avenues for raising funds are widening and demands for funds is increasing. • Project Counseling: Project counseling includes preparation of project reports, deciding upon the financing pattern to finance the cost of the project and appraising the project report with the financial institutions or banks. It also includes filling up of application forms with relevant information for obtaining funds from financial institutions and obtaining government approval. • Management of debt and equity offerings This forms the main function of the merchant banker. He assists the companies in raising funds from the market. The main areas of work in this regard include: instrument designing, pricing the issue, registration of the offer document, underwriting support, and marketing of the issue, allotment and refund, listing on stock exchanges. • Issue Management: Management of issue involves marketing of corporate securities viz. equity shares, preference shares and debentures or bonds by offering them to public. Merchant banks act as an intermediary whose main job is to transfer capital from those who own it to those who need it. After taking action as per SEBI guidelines, the merchant banker arranges a meeting with company representatives and advertising agents to finalize arrangements relating to date of opening and closing of issue, registration of prospectus, launching publicity campaign and fixing date of board
meeting to approve and sign prospectus and pass the necessary resolutions. Pricing of issues is done by the companies in consultant with the merchant bankers. • Managers, Consultants or Advisers to the Issue: The managers to the issue assist in the drafting of prospectus, application forms and completion of formalities under the Companies Act, appointment of Registrar for dealing with share applications and transfer and listing of shares of the company on the stock exchange. Companies can appoint one or more agencies as managers to the issue. • Underwriting of Public Issue: Underwriting is a guarantee given by the underwriter that in the event of under subscription, the amount underwritten would be subscribed by him. Banks/Merchant banking subsidiaries cannot underwrite more than 15% of any issue. • Portfolio Management: Portfolio refers to investment in different kinds of securities such as shares, debentures or bonds issued by different companies and government securities. Portfolio management refers to maintaining proper combinations of securities in a manner that they give maximum return with minimum risk. • Restructuring strategies A merger is a combination of two companies into a single company where one survives and other loses its corporate existence. A takeover is the purchase by one company acquiring controlling interest in the share capital of another existing company. Merchant bankers are the middlemen in setting negotiation between the two companies. Merchant bankers assist the management of the client company to successfully restructure various activities, which include mergers and acquisitions, divestitures, management buyouts, joint venture among others. To help companies achieve the objectives of these restructuring strategies, 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, marketing, or production benefits), and help in searching for the right partner in the strategic decision and financial valuation of the proposal. • Off Shore Finance: The merchant bankers help their clients in the following areas involving foreign currency. (a) Long term foreign currency loans (b) Joint Ventures abroad (c) Financing exports and imports (d) Foreign collaboration arrangements • Non-resident Investment: The services of merchant banker includes investment advisory services to NRI in terms of identification of investment opportunities, selection of securities, investment management, and operational services like purchase and sale of securities. • Loan Syndication: Loan syndication refers to assistance rendered by merchant bankers to get mainly term loans for projects. Such loans may be obtained from a single development finance institution or a syndicate or consortium. Merchant bankers help corporate clients to raise syndicated loans from banks or financial institutions. • Corporate Counseling and advisory services: Corporate counseling covers the entire field of merchant banking activities viz. project counseling, capital restructuring, public issue management, loan syndication, working capital, fixed deposit, lease financing acceptance credit, etc. Merchant bankers also offer customized solutions to their client’s financial problems. Like determining the right debt-equity ratio and gearing ratio for the
commercial paper to name a few. The distribution network of the merchant banker can be classified as institutional and retail in nature. merchant bankers may design a revival package in coordination with banks and financial institutions. the appropriate capital structure theory is also framed. foreign institutional investors. The size of such a network represents the wholesale reach of the merchant banker. pension funds. debt instruments. Merchant bankers also explore the refinancing alternatives of the client. and evaluate cheaper sources of funds. The institutional network consists of mutual funds. The retail network depends on networking with investors. ROLE OF MERCHANT BANKER IN ISSUE MANAGEMENT 25 . mutual fund products. insurance products. In case of sick units. private equity funds. fixed deposits. He advises the client on different hedging strategies and suggests the appropriate strategy.client. financial institutions etc. • Placement and distribution The merchant banker helps in distributing various securities like equity shares. Another area of advice is rehabilitation and turnaround management. Risk management is another area where advice from a merchant banker is sought.
The draft prospectus containing the disclosures has to be vetted by SEBI before a public issue is made. the initial listing application must be made to the concerned stock exchanges. Appointment of Brokers and Principal Brokers: The brokers to the issue facilitate its subscription. It has to look at the entire issue management and work as the Manager to the Public Issue. 26 . stands guarantee for public subscription in consideration for the underwriting commission. Filing of Initial Listing Application: Within ten days of filing the prospectus. Appointment of bankers: The bankers to the issue collect money on behalf of the company from the applicants. along with the initial listing fees.Merchant banker is the intermediary appointed by companies in the primary market issue. the company should print the prospectus and the application form. in essence. Filing of the Prospectus with the Registrar of Companies Printing and dispatch of prospectus and application form: After the prospectus is filed with the Registrar of Companies. The underwriter. Appointment of Registrars: The registrars to issue perform a series of tasks from the time the subscription is closed to the time the allotment is made. Principal steps that Merchant bankers have to perform in a bringing up a Public issue are as follows : Vetting of Prospects: The prospectus is a document to communicate information about the company and the proposed security issue to the investing public. Appointment of Underwriters: An underwriter agrees to subscribe to a given number of shares in the event the public do not subscribe to them.
Fees for Registrars to the Issue. MANAGEMENT OF CAPITAL ISSUE 27 . The merchant banker has to see that the issue is priced properly. Advertising and Publicity Expenses. the most important issue relates to the pricing of the issue. In addition to the above procedural matter. Collection of Applications: The statutory announcement (as well as the prospectus) specifies when the subscription would open when it would close. This must be published at least ten days before the opening of the subscription list. Printing Expenses. and the banks where the applications can be made. Listing fees. Statutory Announcement: The statutory announcement of the issue must be made after seeking the approval of the lead stock exchange. the company may allot shares applied for by the applicants after securing the formal approval of the concerned stock exchanges(s) Listing of the Issue: The detailed listing application should be submitted to the concerned stock exchanges along with the listing agreement and the listing fee. Allotment of Shares: If the issue is under-subscribed or just fully subscribed. Stamp duty.Promotion of the Issue: The promotional campaign typically commences with the filing of the prospectus with the Registrar of Companies and ends with the release of the statutory announcement of the issue. The important expenses incurred for a public issue are Underwriting Expenses. Processing of Applications: The application forms received by the bankers are transmitted to the registrars to the issue for processing. Costs of Public Issue: The cost of public issue is normally between 8 and 12 per cent depending on the size of the issue and the level of marketing effort. Postage Expenses. the liability of the underwriters has to be established. Brokerage. Fees to the Managers of the Issue. Establishing the Liability Underwriters: If the issue is undersubscribed.
e. underwriting financial institutions/Banks 28 . The public issue of corporate securities involves marketing of capital issues of new and existing companies. (2) Taking action as per SEBI guide lines (3) Finalizing the appointments of the following agencies: · Co-manager/Advisers to the issue · Underwriters to the issue · Brokers to the issue · Bankers to the issue and refund Banker · Advertising agency · Printers and Registrar to the issue (4) Advise the company to appoint auditors. additional issues of existing companies including rights issue and dilution of shares by letter of offer.. The public issues are managed by the involvement of various agencies i. legal advisers. However merchant banker is the agency at the apex level than that plan. advertising agency. The procedure of the managing a public issue by a merchant banker is divided into two phases. registrar to the issue and merchant bankers providing specialized services to make the issue of the success. printers.The capital issue are managed are category-1 merchant banker and constitutes the most important aspects of their services. (A) Pre-issue management (B) Post-issue management Pre-Issue Management:Steps required to be taken to manage pre-issue activity is as follows:(1) Obtaining stock exchange approvals to memorandum and articles of associations. brokers. legal advisers and broad base Board of Directors (5) Drafting of prospectus (6) Obtaining approvals of draft prospectus from the company’s legal advisers. underwriters. bankers. viz. auditors. coordinate and control the entire issue activity and direct different agencies to contribute to the successful marketing of securities.
advisers etc. (9) Filing of the prospectus with Registrar of Companies. (12) Open subscription list. if more than one Merchant bankers are managing the issue.(7) Obtaining consent from parties and agencies acting for the issue to be enclosed with the prospectus.25 crores 0.5% of the amount of public issues up to Rs. 0. (10) Making an application for enlistment with Stock Exchange along. REGULATORY FRAMEWORK OF MERCHANT BANK 29 . (8) Approval of prospectus from Securities and Exchange Board of India. This fee is to be shared by all lead managers. allotment letters / certificates within the prescribed time limit of10 weeks after the closure of subscription list (4) To report periodically to SEBI about the progress in the matters related to allotment and refunds (5) To ensure he listing of securities at Stock Exchanges.2% of the amount exceeding Rs. Post-issue Management:Steps involved in post-issue management are:(1) To verify and confirm that the issue is subscribed to the extent of 90% including devolvement from underwriters in case of under subscription (2) To supervise and co-ordinate the allotment procedure of registrar to the issue as per prescribed Stock Exchange guidelines (3) To ensure issue of refund order. with copy of the prospectus. (6) To attend the investors grievances regarding the public issue The Merchant Bankers for managing public issue can negotiate a fee subject to a ceiling.25crores. (11) Publicity of the issue with advertisement and conferences.
law or Business Management.5 Crores. The regulations provide for the merchant bankers a dynamic and competitive market with the high standard of professional competence. dignity. and flexible. manpower etc. and inspire confidence.The merchant banker's regulations. 4) The applicant should have infrastructure like office space. would assure for the issuer market for raising resources at low cost. efficient. no person can act as a merchant banker in India. which is fair. group company. integrity and solvency. 5) The applicant must have at least two employees with prior experience in merchant banking. The various categories for which registration can be obtained are: 30 . ensure high degree of protection of investors interest. subsidiary or interconnected company of the applicant should not have been a registered merchant banker 7) The applicant should not have been involved in any securities scam or proved guilt for any offence 8) The applicant should have a minimum net worth of Rs. equipment. 2) The applicant should not carry on any business other than those connected with the Securities market. The regulations promote a primary market. effectively and easily. which regulate the raising of funds in the primary market. 6) Any associate company. It is mandatory for a merchant banker to register with the SEBI. Without holding a certificate of registration granted by the Securities and Exchange Board of India. 1) Only a body corporate other than a non-banking financial company shall be eligible to get registration as merchant banker. 3) All applicants for Merchant Bankers should have qualification in Finance.
underwriter. portfolio manager. 20 lakhs Category IV – Nil Procedure for getting registration: An application should be submitted to SEBI in Form A of the SEBI (Merchant Bankers) Regulations. 5 lakhs which should be paid within 15 days of date of receipt of intimation regarding grant of certificate. Validity period of certificate of registration is three years from the date of issue. an application along with renewal fee of 2. issues a certificate of registration in Form B of the SEBI (Merchant Bankers) Regulations. Penalties Levied by SEBI on Merchant Bankers 31 . 1992. consultant. 3) Category III . 2) Category II . SEBI shall consider the application and on being satisfied.5 lakhs should be submitted to SEBI in Form A of the SEBI (Merchant Bankers) Regulations. co-manager. Registration fee payable to SEBI: Rs. 5 crores Category II – Rs. consultant. The minimum net worth requirement for acting as merchant banker is given below: Category I – Rs. underwriter. 1992.to act as underwriter.to act as adviser. SEBI shall consider the application and on being satisfied renew certificate of registration for a further period of 3 years.1) Category I – to carry on the activity of issue management and to act as adviser. manager. Three months before the expiry period. adviser or consultant to an issue 4) Category IV – to act only as adviser or consultant to an issue The capital requirement for carrying on activity as merchant banker: The capital requirement depends upon the category. 1992. 50 lakhs Category III – Rs. portfolio manager.
the penalty an enquiry officer can impose will be both minor and major. • Among the major penalties an enquiry officer can impose the cancellation of certificate of registration and suspension of certificate of registration. However. the regulations says that no order under these regulations shall be passed excepting after holding an enquiry by an officer. SEBI can appoint enquiry officers. the enquiry officer can issue warnings or censure. collective investment schemes (CIS) and foreign venture capital investors and bring them under the ambit of SEBI. can the officer will also be able to impose the penalty on which the SEBI chairman will give the final verdict. It can also debar a partner or a whole time director of the intermediary from carrying out activities as an intermediary in the firm or company. foreign institutional Investors.The Securities and Exchange Board of India (SEBI) notifies regulations pertaining to the procedure of holding enquiries and imposing penalties on Merchant Bankers. and other capital market-related institutions for a period of six months. According to the notification. debenture trustees. • Among the minor penalties. The regulations to be called Securities and Exchange Board of India (Procedures for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations (2002 ) will cover not just merchant bankers but all market intermediaries like portfolio managers. venture capital funds. It can also suspend the certificate of registration for a period up to three months. custodians. registrars and share transfer agents. To implement these regulations. bankers to an issue. 32 . underwriters. mutual funds. SEBI has amended regulations pertaining to various intermediaries and some of its regulations like Insider Trading Regulations. SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations and Takeover Code Regulations. depository participants. prohibit the intermediary from taking up new assignments or launch a new scheme for a period of six months.
that the provisions act rules. as required by the board • . The merchant banker indulges in manipulating or price rigging or concerning activities. SEBI may appoint a qualified auditor to investigate in to the books of accounts or the affairs of merchant banker. regulations are compiled with. The findings of the inspection report are communicated to merchant banker. records and documents of merchant bankers to ensure that the books of accounts are maintained in the required manner.Procedure for Inspection: SEBI may inspect books of accounts. to investigate complaints against the merchant banker and to investigate suomoto in the interest of securities business or investors interest in to the affairs of Merchant banker. A penalty of suspension of registration of a merchant banker may be imposed when: The merchant banker violates the provisions of act. • Furnished wrong or false information • Does not submit periodical returns. Penalties of Non compliance of conditions for registration and contravention of the provisions of the MB regulations include suspension or cancellation of registration. SEBI may either give a reasonable notice or undertake inspection without notice in the interest of investors. rules or regulations The merchant banker: • Fails to furnish any information relating to his activities as merchant banker as required by the board. The merchant banker is guilty of misconduct or improper or un business like or unprofessional conduct which is not in co ordinance with the code of conduct specified in schedule 3 33 . The merchant banker fails to resolve the complaints of the investors or fails to give satisfactory reply to the Board in this behalf. Does not cooperate in any enquiry conducted by the board.
Minor Defaults 2 3. The merchant banker fails to maintain the capital adequacy requirement in accordance with the provisions of regulation 7. General Defaults 1 2. ___________________________________________________________ Defaults penalty points _________________________________________________________ 1. the following activities fall under general default and attract one penalty point. The merchant banker does not carry out his obligations as specified in the regulation. Non receipt of inter se allocation of responsibilities of lead managers in an issue by SEBI prior to the opening of the issue. shares/Debentures certificates. Non receipt of draft prospectus/letter of offer from the lead manager by SEBI. before filing with registrar of companies/stock exchanges. Defaults of The merchant banker and penalty points SEBI categorized defaults and the penalty points that they attract. Serious Defaults 4 __________________________________________________________ General Defaults: For the purpose of penalty point. Failure to ensure submission of certificate of minimum 90 % subscription to the issue as required under Govt of India Failure to ensure publicizing of dispatch of refund orders. The merchant banker fails to pay the fees The merchant banker violates the conditions of registration. filing of listing application by the issuer as required under Govt of India press notification. Major Defaults 3 4. 34 .
Advertisement. broker’s conference or other such conference /meet prior to the issue for marketing of the issue arranged/participated by the merchant banker. Failure to substantiate matters contained in highlights to the issue in the prospectus. Failure to provide adequate and fair disclosure to investors and objective information about risk factors in the prospectus and other issue literature Delay in refund/allotment of securities. Failure to exercise due diligence in verifying contents of prospectus/ letter of offer . Major defaults: The following activities fall under major default and attract three penalty points. Exaggerated information or Information extraneous to the prospectus is given by the associated merchant bankers in any press conference.Minor Defaults: The following activities fall under minor default and attract two penalty points. broacher. press release and other issue related materials not being in conformity with contents of the prospects. Mandatory underwriting not taken up by lead manager Excess number of lead managers than permissible under SEBI Association of unauthorized merchant banker in an Issue. Investor conference. circular. Violation of the Govt of India letter regarding advertisements on new capital issues. Non-handling of investor grievances promptly. Serious Defaults: 35 .
Non cooperation with SEBI in furnishing desired information documents. those with 6 or less than 8 as A. In the absence of receipt of inter se allocation of responsibilities. with 4-6 points as B. and score of less than 4 points. the following deficiencies will attract negative points 1) Absence of risk factors in highlights. To enable a merchant banker to take corrective action maximum penalty points awarded in a single issue managed by a merchant banker are restricted to four (4) In the event of joint responsibility same penalty point is awarded for all lead managers jointly responsible for the activity. all lead managers to the issue are awarded the penalty point. evidence as may be called for. General Negative Marks: If at all "Highlights" are provided in an issue: Risk factors should form part of "Highlights". The maximum grading points of prospectus will be 10 and prospectus scoring greater than or equal to 8 points are categorized as A+. Defaults in prospectus: If highlights are provided. Unethical practice by merchant banker and/or violation of code of conduct. A merchant banker on reaching the penalty points of eight (8) attracts action from SEBI in terms of suspension/ cancellation of authorization. 2) Absence of listing in highlights. otherwise it will attract 36 . if stated in highlights. the prospectus falls in category C.The following activities fall under serious default and attract four penalty points. 3) Extraneous contents to prospectus.
if stated in highlights. A Merchant Banker shall at all times exercise due diligence. A Merchant Banker shall endeavor to ensure that copies of the prospectus. A Merchant Banker shall endeavor to ensure that Inquiries from investors are adequately dealt with. 6.5 CODE OF CONDUCT FOR MERCHANT BANKERS 1. A Merchant Banker shall endeavor to ensure that the investors are provided with true and adequate information without making any misleading or exaggerated claims or any misrepresentation and are made aware of the attendant risks before taking any investment decision. dignity and fairness in the conduct of its business. A Merchant Banker shall not discriminate amongst its clients. otherwise it will attract negative point of -0. A Merchant Banker shall fulfill its obligations in a prompt.5 Any matter extraneous to the contents of prospectus. Grievances of investors are redressed in a timely and appropriate manner. the investor is advised of any further steps Nwhich may be available to the investor under the regulatory system. 7. A Merchant Banker shall make all efforts to protect the interests of investors. Where a complaint is not remedied promptly. should form of part of " Highlights".negative point of -1 Listing details. offer document. ethical. 37 . A Merchant Banker shall maintain high standards of integrity. A Merchant Banker shall ensure that adequate disclosures are made to the investors in a timely manner in accordance with the applicable regulations and guidelines so as to enable them to make a balanced and informed decision. and professional manner. 9. 3. ensure proper care and exercise independent professional judgment. 2. 5. save and except on ethical and commercial considerations. letter of offer or any other related literature is made available to the investors at the time of issue or the offer. 8. 4. will attract negative point of -0.
A Merchant Banker shall maintain arms length relationship between its merchant banking activity and any other activity. which may adversely affect the interests of clients / investors is promptly informed to the clients and any business remaining outstanding is transferred to another registered intermediary in accordance with any instructions of the affected clients. 13. 38 . A Merchant Banker shall not indulge in any unfair competition. 15. directly or indirectly. 17. either oral or written. shall take reasonable steps to resolve the same in an equitable manner. A Merchant Banker shall ensure that any change in registration status / any penal action taken by the Board or any material change in the Merchant Banker’s financial status. without taking prior permission of its clients. 14. 19. such as weaning away the clients on assurance of higher premium or advantageous offer price or which is likely to harm the interests of other Merchant Bankers or investors or is likely to place such other Merchant Bankers in a disadvantageous position while competing for or executing any assignment. A Merchant Banker shall avoid conflict of interest and make adequate disclosure of its interest. A Merchant Banker shall put in place a mechanism to resolve any conflict of interest situation that may arise in the conduct of its business or where any conflict of interest arises. A Merchant Banker shall always endeavor to render the best possible advice to the clients having regard to their needs. any confidential information about its clients which has come to its knowledge. A Merchant Banker shall not divulge to anybody either orally or in writing. except where such disclosures are required to be made in compliance with any law for the time being in force. 12. objective and unbiased services. A Merchant Banker shall make appropriate disclosure to the client of its possible source or potential areas of conflict of duties and interest while acting as Merchant Banker which would impair its ability to render fair. 16.10. 18. A Merchant Banker shall have internal control procedures and financial and operational capabilities which can be reasonably expected to protect its operations. which would misrepresent the services that the Merchant Banker is capable of performing for any client or has rendered to any client. A Merchant Banker shall not make any statement. 11.
while rendering such advice. objectivity. of any law. reports or information furnished to the Board. avoidance or resolution of conflict of interests. fraud. 2003. 23. whether real-time or non real-time. in the said security has been made.its clients. confidentiality. the merchant banker shall ensure that such employee shall also disclose the interests. directions of the Board or of any other regulatory body. 20. 25. (b) In the event of an employee of the Merchant Banker rendering such advice. circulars and guidelines. legal proceedings etc. if any. 39 . 24. A Merchant Banker shall ensure that the Board is promptly informed about any action. which may be applicable and relevant to the activities carried on by it. rules. while rendering such advice. unless a disclosure of his interest including a long or short position. (a) A Merchant Banker or any of its employees shall not render. A Merchant Banker shall provide adequate freedom and powers to its compliance officer for the effective discharge of the compliance officer’s duties. 21. 26. regulations made there under. A Merchant Banker shall maintain an appropriate level of knowledge and competence and abide by the provisions of the Act. initiated against it in respect of material breach or non compliance by it.. 22. A Merchant Banker shall not make untrue statement or suppress any material fact in any documents. A Merchant Banker shall develop its own internal code of conduct for governing its internal operations and laying down its standards of appropriate conduct for its employees and officers in carrying out their duties. including their long or short position in the said security. of himself. his dependent family members and the employer merchant banker. Such a code may extend to the maintenance of professional excellence and standards. any investment advice about any security in any publicly accessible media. regulations. The merchant banker shall also comply with the award of the Ombudsman passed under Securities and Exchange Board of India (Ombudsman) Regulations. disclosure of shareholdings and interests etc. directly or indirectly. A Merchant Banker shall demarcate the responsibilities of the various intermediaries appointed by it clearly so as to avoid any conflict or confusion in their job description. and other dishonest acts. integrity. professional misconduct or omissions. investors and other registered entities from financial loss arising from theft.
SEBI Regulations for Merchant Bankers Merchant Bankers have been barred from undertaking activities other than related to the securities market. particularly decision makers have access to all relevant information about the business on a timely basis. A merchant banker has to seek separate registration for its underwriting or portfolio management activities. other than a bank or a public financial institution. A merchant banker. A Merchant Banker shall be responsible for the acts or omissions of its employees and agents in respect of the conduct of its business. in respect of dealings in securities market. Passing of unpublished price sensitive information in respect of securities which are listed and proposed to be listed in any stock exchange to any person or intermediary in the securities market. III and IV has been dispensed with. has been prohibited from carrying any activities not pertaining to the securities market. A Merchant Banker shall ensure that good corporate policies and corporate governance are in place. 28. and 40 . 32. A Merchant Banker shall ensure that any person it employs or appoints to conduct business is fit and proper and otherwise qualified to act in the capacity so employed or appointed (including having relevant professional training or experience) 29. II. 30. 1992 have been amended on December 19. The SEBI (Merchant Bankers) Regulations. 1997 to provide that: The applicant should be a fit and proper person. A Merchant Banker shall ensure that the senior management.27. A Merchant Banker shall not be a party to or instrumental for – Creation of false market. A Merchant Banker shall ensure that it has adequate resources to supervise diligently and does supervise diligently persons employed or appointed by it in the conduct of its business. 31. Price rigging or manipulation or. The categorization of merchant bankers I.
records and documents namely:(a) a copy of balance sheet as at the end of each accounting period. and (d) a statement of financial position. to be eligible for the above exemption. they acquire securities only as part of their merchant banking business. (c) a copy of the auditor's report on the accounts for that period. (1)Every merchant banker shall keep and maintain the following books of accounts. 1934. (2) Every merchant banker shall intimate to the Board the place where the books of accounts. 1934 relating to compulsory registration (section 451A). are required to satisfy the following conditions: such companies are registered with the SEBI under section 12 of the SEBI Act. maintenance of liquid assets (section 451B). The applicant should be a body corporate other than non-banking finance company. they do not accept / hold public deposits. records etc. 41 . they do not carry on any other financial activities as mentioned in section 451 (c ) of the RBI Act. records and documents are maintained. (b) a copy of profit and loss account for that period. The Merchant Bankers Regulations were amended on January 21. 1992 and are carrying on the business of merchant banker in accordance with the Rules / Regulations framed by the SEBI. Merchant banking companies. The Reserve Bank of India has exempted merchant banking companies from the provisions of Reserve Bank of India Act. 1998 to sever its activities or hive off its activities not pertaining to the securities market. creation of reserve fund (section 451C ) and all the provisions of the recent Directions relating to deposit acceptance and prudential norms. 1998 to provide time up to June 30. Maintenance of books of accounts.
(2) Every lead merchant banker shall before taking up the assignment relating to an issue. liabilities and obligations relating to such issue and in particular to disclosures. of Merchant Bankers (a) Less than rupees fifty crores-Two (b) Rupees fifty crores but less than rupees one hundred crores-Three (c) Rupees one hundred crores but less than rupees two hundred crores-Four 42 . Restriction on appointment of lead managers The number of lead merchant bankers may not. Report on steps taken on Auditor's report Every merchant banker shall within two months from the date of the auditors' report take steps to rectify the deficiencies. allotment and refund. the appointment of a lead merchant banker shall not be essential. records and other documents The merchant banker shall preserve the books of accounts and other records and documents maintained under regulation 14 for a minimum period of five years. Maintenance of books of account. made out in the auditor's report. exceed in case of any issue of Size of issue No.regulation (1). every merchant banker shall. Submission of Half-yearly results Every merchant banker shall furnish to the Board half-yearly unaudited financial results when required by the Board with a view to monitor the capital adequacy of the merchant banker. enter into an agreement with such body corporate setting out their mutual rights. in an issue of offer of rights to the existing members with or without the right of renunciation the amount of the issue of the body corporate does not exceed rupees fifty lakhs. profit and loss account and such other documents for any other preceding five accounting years when required by the Board. Appointment of lead merchant bankers (1) All issues should be managed by at least one merchant banker functioning as the lead merchant banker: Provided that. after the end of each accounting period furnish to the Board copies of the balance sheet.(3) Without prejudice to sub.
the lead merchant banker holding a certificate under Category I shall accept a minimum Underwriting obligation of five percent of the total underwriting commitment or rupees twenty-five lakhs. Underwriting obligations (1) In respect of every issue to be managed. whichever is less: Provided that. allotment and refund are clearly defined. No lead merchant banker shall.(d) Rupees two hundred crores but less than rupees four hundred crores-Five (e) Above Rupees four hundred crores five or more as may be agreed by the board Responsibilities of lead managers No lead manager shall agree to manage or be associated with any issue unless his responsibilities relating to the issue mainly. those of disclosures. Lead merchant banker not to associate with a merchant banker without registration A lead merchant banker shall not be associated with any issue if a merchant banker who is not holding a certificate is associated with the issue. where there are more than one lead merchant bankers to the issue the responsibilities of each of such lead merchant banker shall clearly be demarcated and a statement specifying such responsibilities shall be furnished to the Board at least one month before the opening of the issue for subscription. allocated and determined and a statement specifying such responsibilities is furnished to the Board at least one month before the opening of the issue for subscription: Provided that. if the lead merchant banker is unable to accept the 43 . agree to manage the issue made by any body corporate. if such body corporate is an associate of the lead merchant banker.
made by the Board on the draft prospectus or the Letter of Offer as the case may be. namely: (i) particulars of the issue. shall submit to the Board at least two weeks prior to the opening of the issue for subscription. including the shareholders. the following documents. Submission of due diligence certificate The lead merchant banker. with the Registrar of Companies or with the Regional Stock Exchanges. a due diligence certificate in Form C. or with both. (ii) draft prospectus or where there is an offer to the existing shareholders. and (iv) such other documents relating to prospectus or letter of offer as the case may be.minimum underwriting obligation. (iii) any other literature intended to be circulated to the investors. the draft letter of offer. that lead merchant banker shall make arrangement for having the issue underwritten to that extent by a merchant banker associated with the issue and shall keep the Board informed of such arrangement. Payment of fees to the Board 44 . (3) The lead manager shall ensure that the modifications and suggestions. who is responsible for verification of the contents of a prospectus or the Letter of Offer in respect of an issue and the reasonableness of the views expressed therein. Documents to be furnished to the Board (1) The lead manager responsible for the issue shall furnish to the Board. (2) The documents referred to in sub-regulation (1) shall be furnished at least two weeks prior to date of filing of the draft prospectus or the letter of offer. if any. as the case may be. with respect to information to be given to the investors are incorporated therein.
partner or manager or principal officer shall either on their respective accounts or through their associates or relatives enter into any transaction in securities of bodies corporate on the basis of unpublished price sensitive information obtained by them during the course of any professional assignment either from the clients or otherwise. the lead manager shall continue to be responsible for ensuring that such other person discharges the requisite responsibilities in accordance with the provisions of the Companies Act and the listing agreement entered into by the body corporate with the stockexchange. Acquisition of shares prohibited No merchant banker or any of its directors. 45 . which have a bearing on the certificate granted to it. Disclosures to the Board A merchant banker shall disclose to the Board as and when required. Information to the Board Every merchant banker shall submit to the Board complete particulars of any transaction for acquisition of securities of anybody corporate whose issue is being managed by that merchant banker within fifteen days from the date of entering into such transaction. (ii) any change in the information or particulars previously furnished.The draft prospectus or draft letter of offer referred to in regulation 24 shall be submitted along with such fees and in such manner as may be specified in Schedule IV] Continuance of association of lead manager with an issue The lead manager undertaking the responsibility for refunds or allotment of securities in respect of any issue shall continue to be associated with the issue till the subscribers have received the share or debenture certificates or refund of excess application money. Provided that where a person other than the lead manager is entrusted with the refund or allotment of securities in respect of any issue. namely: (i) his responsibilities with regard to the management of the issue. the following information.
finance companies for consumer lending and mortgage finance. Appointment of compliance officer (1) Every merchant banker shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act. insurance companies for life and property cover. rules and regulations. do not recur. There is a well proven link between economic growth and financial technology. they require additional financial services. Scope for growth of Merchant Banking in India As planning and industrial policy of the country envisaged the setting of up of new industries and technology..(iii) the names of the body corporate whose issues he has managed or has been associated with. Economic development requires specialist financial skills: savings banks to marshal individual savings. Growth of Primary market: 46 . and a range of specialized government or government sponsored institutions. The areas of great scope could be. A public equity or debt issue is the logical source of fund in this situation and merchant banks can tap this opportunity of growth. consultant or adviser to an issue as the case is. instructions etc. (v) relating to his activities as a manager. agricultural banks for rural development. As new units have been set up and business is expanding. greater financial sophistication and financial services are required. (iv) the particulars relating to breach of the capital adequacy requirement as specified in regulation 7. (2) The compliance officer shall immediately and independently report to the Board any non-compliance observed by him and ensure that the observations made or deficiencies pointed out by the Board on \ in the draft prospectus or the Letter of offer as the case may be. guidelines. underwriter. notifications. issued by the Board or the Central Government and for redressed of investors’ grievances.
FDI is increased in capital market. 7. In channelizing the financial surplus of the general public into productive investment avenues. 3. Advising the company on Legal/ regulatory matters and interaction with SEBI/ ROC/ Stock 5. Advising the company on designing of its Capital Structure. Assisting the company in marketing the issue. So Merchant bankers are required to advice them for their investment in India. So the merchant banker services will be needed by corporate enterprise to provide expert guidance. In order to compete. 2. Exchanges and other regulatory authorities. Entry of Foreign Investors: Now India capital market directly taps foreign capital through euro issues. Corporate restructuring: Due to liberalization and globalization Companies are facing lot of competition. Development of debt markets: If the debt market is enhanced. 6. acquisitions or disinvestments. Advising the company on the instrument to be offered to the public. If more and more NRIs participate in capital market. The increasing number of joint ventures also requires expert services of Merchant Bankers. there will be great demand for merchant banker services. Now NSE and OTCEI are planned to raise their fund through debt instruments. They may offer good opportunities to merchant bankers The scope could be extended to 1.If the primary market grows and number of issues increases. they have to go for restructuring. there will be tremendous scope for Merchant bankers. the scope of merchant banking will be enhanced. Changing policy of Financial Institutions: Now the lending policies of financial institutions are based on project orientation. merger. 4. Pricing of the instrument. 47 .
Planning and industrial policy of the country i. India in this case 2. 6. brokers etc. Regulatory system of the market and economy prevailing in India 4. 48 . Confidence of the people. printers. traders. 9.e. marketers. business houses. buyers. bankers. To coordinate the activities of various intermediaries to the share issue such as the registrar. Prevailing Economic condition of the country 3. To ensure the compliance with rules and regulations governing the securities market THE FACTORS ON WHICH GROWTH OF MERCHANT BANKING DEPENDS: 1. financial institutions etc 5. advertising agency. The economic environment of the outside world.8. Competition among the existing players and the upcoming entrants. underwriters.
UK (FSA) and the Monetary Authority of Singapore (MAS).S. With a full-service portfolio. ICICI Securities (I-Sec) has a dominant position in its core segments of its operations . Inc.. securities markets. Institutional Equities. is also registered with the Financial Services Authority. Board of Directors 49 . (NASD).ICICI SECURITIES LTD. can engage in permitted activities in the U. I-Sec operates out of several locations in India. the stepdown wholly owned US subsidiary of the company is a member of the National Association of Securities Dealers. Retail and Financial Product Distribution. ICICI Securities Ltd is the largest equity house in the country providing end-to-end solutions (including web-based services) through the largest non-banking distribution channel so as to fulfil all the diverse needs of retail and corporate customers. we have a formidable reputation within the industry.Corporate Finance including Equity Capital Markets Advisory Services. ICICI Securities Inc. ICICI Securities Inc. Today ICICI Securities is among the leading Financial Institutions both on the institutional as well as retail side. a roster of blue-chip clients and performance second to none. These activities include Dealing in Securities and Corporate Advisory Services in the United States and providing research and investment advice to US investors. ICICI Securities Inc. Headquartered in Mumbai. As a result of this membership.
financial institutions. With a single goal of `facilitating clients' success'.Chairperson Mr. Uday Chitale Mr. The Corporate Finance practice offers Capital Market and Advisory services in India and overseas. Our consistent ranking as one of the top Investment Banks as per Prime Database league tables manifests our expertise in this space. ICICI Securities is a SEBI registered Category I Merchant Banker 50 . Murugappan. Pravir Vohra Ms. For the year ended March 31. financial sponsors and government.• • • • • • • • • Ms. Madhabi Puri-Buch. ICICI Securities has been influential in fund mobilisation for our clients who include corporations. Executive Director Mr. Managing Director & CEO Mr. Narendra Murkumbi Mr. Ketan Patel Mr. Anup Bagchi. Chanda Kochhar. 2010. Sandeep Bakhshi Mr. A. ICICI Securities Ltd handled 16 issues and raised INR 230 Billion covering 23% of the total domestic fund raising activity in FY10. Executive Director OUR BUSINESS ICICI Securities is one of the leading investment banks in the domestic equity capital markets and has been instrumental in pioneering numerous innovative practices in the investment banking space.
first mobile VAS company. and Texmaco. ICICI Securities has successfully managed public issues of companies which were the first in their sector to tap the market . Network18.media both print and television. Open Offers and international offerings. Some of the key capital-market issues lead-managed by ICICI Securities in FY10 were: • Follow-on public offering (FPO) of NTPC . Singapore. Network18. Qualified Institutional Placement of Adhunik Metaliks.the first issue using the new alternate book-building (French Auction) method (NTPC). unlisted and listed entities. ICICI Securities has been at the forefront of capital markets advisory for several decades and has also been involved in most of the major public equity issuances in recent times. Our products include Initial Public Offerings (IPOs). Rights Offerings. first pure-play internet company in India. etc. the first issue of shares with Differential Voting Rights (Tata Motors).The first public issue to use the auction route and the first fast-track FPO in the history of the Indian capital markets. the first public issue of Non-Convertible Debentures (Tata Capital). etc. the first delisting using the reverse book-building mechanism (Hewlett-Packard). We are amongst the leading underwriters of Indian equity and equity linked offerings with unparalleled execution capabilities. of India divestment IPO. ICICI Securities was also involved in various pioneering issues in the Indian capital markets . Convertible Offerings. and • • 51 . Lanco Infratech. Qualified Institutional Placement (QIP). Delisting. Buyback. We provide end-to-end fund raising solutions. for both. Mumbai and Delhi). from structuring to placement of the equity instrument. With offices across major financial centres (New York. ICICI Securities delivers its products covering corporates and investors across geographies. first Govt. FPO of Rural Electrification Corporation Limited. Non-convertible Debentures. Further Public Offerings (FPOs).
We advice on a wide variety of products including mezzanine and private equity financing. We have working relationships with all major private equity players. We help companies to raise capital during the seed. secondary sale transactions. some of the transactions advised by ICICI Securities in FY10 included the following: • Sole advisor to T. structuring the deal to maximize value for all its stakeholders. both in India and abroad and can facilitate access for our clients to these investors. growth and expansion phases as well as acquisition financing. pre-IPO deals and preferential allotments by listed companies. In the advisory space. Godrej Properties. Our extensive industry knowledge across multiple sectors. for companies and private equity funds alike. and Shree Ganesh Jewellery ICICI Securities has a dedicated practice to assist companies with capital mobilisation through the private equity / venture capital route across their life-cycle.• IPO of Adani Power. wide-ranging deal structuring capabilities and thorough grasp of the regulatory environment make us the 'banker of choice'. JSW Energy. Rowe Price's acquisition of 26% stake in UTI Asset Management Company Private equity advisory to PNB Housing Finance Private equity advisory to A2Z Maintenance and Engineering • • Awards & Recognition Institutional • ICICI Securities is awarded as the Best Investment Bank 2008 by Global Finance Magazine 52 .
• The Corporate Finance group also was awarded a runner-up Best Merchant Banker by Outlook Money in 2007. Frost and Sullivan Award for Customer Service Leadership ICICIdirect wins the prestigious Outlook Money . ICICIdirect has also won the CNBC AWAAZ Consumer Award for the Most Preferred Brand of Financial Advisory Services. the neighborhood financial superstore won the prestigious Franchise India `Service Retailer of the Year 2008 award. ICICIdirect been winning the prestigious Outlook Money .India's Best eBrokerage House for 2003-2004.India's Best eBrokerage House for 2008. ICICIdirect.India's Best eBrokerage House for 2009. 2006-2007 and 2007-2008. 2004-2005. ICICI Securities (I-Sec) topped the Prime Database League Tables 2007 for money raised through IPOs/FPOs. ICICIdirect wins the prestigious Outlook Money .Web 18 Genius of the Web Awards 2007 Franchisor of the year award 2009 Retail concept of the year awards 2009 IDG India's CIO magazine has recognized ICICI Securities as a recipient of 2009 CIO 100 award Indian Bank's Association Business Technology Awards for Best Online Trading Platform in 2006 and 2007 • • Retail • • • • • • • • • Technology • • Current Issues Issuer Adani Enterprise Limited Status Rights Issue 53 . Best Broker . The equities team was adjudged the 'Best Indian Brokerage House-2003' by Asiamoney.
Ltd (April IPO QIP QIP IPO IPO IPO IPO FPO IPO IPO Rights Issue Rights Issue IPO IPO IPO IPO QIP IPO FPO IPO IPO FPO IPO IPO Non Convertible 54 . Alok Industries Ltd Claris Lifesciences Ltd Commercial Engineers and Body Builders Co.ADANI POWER LIMITED Adhunk Metaliks Ltd. Ltd D B Realty Limited Emaar MGF Land Limited Engineers India Limited Godrej Properties Ltd Gujarat State Petroleum Corporation Ltd ibn18 BROADCAST LIMITED Infomedia 18 Ltd Jaypee Infratech Limited Jindal Power Limited JSW ENERGY LIMITED JSW Energy Limited LANCO INFRATECH LIMITED Nitesh Estates Limited NTPC Parabolics Drugs Limited Reliance Infratel Ltd RURAL ELECTRIFICATION CORPORATION LIMITED Shree Ganesh Jewellery House Limited SHREE GANESH JEWELLERY HOUSE LIMITED Shriram Transport Finance Co.
The merchant banks offer a package of financial services. Merchant Banking Service is taking shape for turbulent times. Merchant banking is an activity initially undertaken by a few large commercial banks in India. and it is now being adopted or undertaken by practically every commercial bank through its Merchant Banking Department. 55 . their activities are now primarily non-fund based. a stiff competition exists in this line and survival will depend upon the financial skills and spectrum of financial services and instruments offered by the Merchant Banker. Therefore. Hence.2010) Shriram Transport Finance Company Limited Standard Chartered PLC STERLITE ENERGY LIMITED Television Eighteen India Limited Texmaco Ltd Debenture Non Convertible Debenture IDR IPO Rights Issue QIP CONCLUSION The merchant banking business has increased over a short period of time and with continued economic reforms. they do not require much capital. and it is now being adopted or undertaken by a few large commercial banks in India. The range of activities covered under merchant banking very wide indeed. However. Merchant banking is usually international in character. One of the basic requirements of merchant banking is a highly professional staff and worldwide contacts. Unlike in the past.
com www.indiamart.scribd.finance.com www.com www.com www.org/stable/4401268 56 .gov.com www.com http://www.in www.wikipedia.jstor.statebankofindia.REFERENCES: • • • • • • • • www.icicibank.sebi.ssrn.
ALMONDZ GLOBAL SECURITIES LTD (FORMERLY ALLIANZ SECURITIES LTD) AMBIT CORPORATE FINANCE PRIVATE LTD ANAND RATHI FINANCIAL SERVICES LIMITED (FORMERLY ANAND RATHI SECURITIES PVT LTD) ANDHRA BANK ANTIQUE CAPITAL MARKETS PVT. LTD. BNP PARIBAS BOB CAPITAL MARKETS LTD BRICS SECURITIES LTD CALYON BANK (FORMERLY CREDIT AGRICOLE INDOSUEZ) CENTRUM CAPITAL LIMITED (FORMERLY CENTRUM FINANCE LTD) COMFORT SECURITIES PVT LTD 57 .K.APPENDIX-1 List of All Merchant Bankers Registered with SEBI A. ARIHANT CAPITAL MARKETS LTD ARYAMAN FINANCIAL SERVICES LIMITED ASHIKA CAPITAL LTD ASIT C. LTD. MEHTA INVESTMENT INTERRMEDIATES LTD ATHERSTONE CAPITAL MARKETS LTD AVENDUS CAPITAL PVT. CAPITAL SERVICES LTD ALLAHABAD BANK ALLBANK FINANCE LTD.
FORTRESS CAPITAL MANAGEMENT SERVICES PVT LTD FORTUNE FINANCIAL SERVICES (INDIA) LTD GSFS CAPITAL & SECURITIES LTD HDFC BANK LTD IDBI BANK LTD. LTD. 58 . LTD. IMPERIAL CORPORATE FINANCE & SERVICES PVT LTD IND GLOBAL CORPORATE FINANCE PVT LTD INDIA CAPITAL MARKETS PRIVATE LIMITED INDIA INFOLINE LTD. (ERSTWHILE THE VYSYA BANK LTD. LTD. DAIWA SECURITIES SMBC INDIA PVT LTD CREDIT SUISSE SECURITIES (INDIA) PVT LTD DALMIA SECURITIES PVT. LTD.(FORMERLY INDIA INFOLINE SECURITIES PVT LTD) INDIABULLS SECURITIES LIMITED (FORMERLY ORBIS SEC LTD) INDUSIND BANK LTD INFRASTRUCTURE DEVELOPMENT FINANCE COMPA ING VYSYA BANK LTD. CORPORATE STRATEGIC ALLIANZ PVT LTD D & A FINANCIAL SERVICES PVT. DARASHAW & COMPANY PRIVATE LTD (FORMERLY BADAR FINANC DBS BANK LTD EDELWEISS CAPITAL LTD ELARA CAPITAL (INDIA) PRIVATE LIMITED EMKAY SHARE AND STOCK BROKERS LTD EQUIRUS CAPITAL (P) LTD ESCORTS SECURITIES LTD FIRSTCALL INDIA EQUITY ADVISORS PVT.CORPORATE PROFESSIONALS CAPITAL PVT.(FORMERLY INDUSTRIAL DEVELOPMENT BANK OF INDIA) IDBI CAPITAL MARKET SERVICES LTD IDFC-SSKI LTD.) INTEGRATED ENTERPRISES (INDIA) LTD (INTEGRATED ADVISORY SERV INTENSIVE FISCAL SERVICES PVT LTD INTER CORPORATE FINANCIERS & CONSULTANTS LTD.
NORTHBRIDGE CAPITAL LIMITED ORIENTAL BANK OF COMMERCE PADMAKSHI FINANCIAL SERVICES LIMITED PIONEER INVESTCO PL CAPITAL MARKETS PVT LTD PNB GILTS LIMITED PNR SECURITIES LTD PRIME SECURITIES LTD PUNEET ADVISORY SERVICES PVT LTD R R FINANCIAL CONSULTANTS LTD RABO INDIA SECURITIES PRIVATE LIMITED REAL GROWTH SECURITIES PVT. MPA FINANCIAL SERVICES LIMITED MUNOTH FINANCIAL SERVICES LTD N M ROTHSCHILD AND SONS (INDIA) PVT LTD NETWORTH STOCK BROKING LTD. NIRBHAY CAPITAL SERVICES PVT LTD NOMURA FINANCIAL ADVISORY AND SECURITIES (INDIA) PVT. KARVY INVESTOR SERVICES LTD KEYNOTE CORPORATE SERVICES LTD KHANDWALA INTEGRATED FINANCIAL SERVICES PVT LTD KHANDWALA SECURITIES LTD LAZARD INDIA PRIVATE LTD ( LAZARD CREDIT CAPITAL LTD. LTD. LTD.) LKP SECURITIES LTD (FORMERLY LKP SHARES AND SECURITIES LTD) LODHA CAPITAL MARKETS LTD LSI FINANCIAL SERVICES PVT. MACQUARIE INDIA ADVISORY SERVICES PVT LTD MAPE ADVISORY GROUP PVT LTD MASTER CAPITAL SERVICES LTD MEGHRAJ SP CORPORATE FINANCE (PVT) LTD MONEY MATTERS INVESTMENT ADVISORS PRIVATE LIMITED MOTILAL OSWAL INVESTMENT ADVISORS PVT.JEFFERIES INDIA PRIVATE LIMITED KARN MERCHANT BANKERS LTD. RELIGARE CAPITAL MARKETS LIMITED 59 . LTD. LTD.
) BAJAJ CAPITAL LTD TATA CAPITAL MARKETS LTD ICICI BANK LTD (private) ICICI SECURITIES LTD RELIANCE SECURITIES LIMITED KOTAK MAHINDRA CAPITAL COMPANY LTD YES BANK LTD.(FORMERLY UTI BANK LTD. SOCIETE GENERALE SPA MERCHANT BANKERS LIMITED SPARK CAPITAL ADVISORS (INDIA) PVT LTD SREI CAPITAL MARKETS LTD STANDARD CHARTERED-STCI CAPITAL MARKETS LIMITED STCI PRIMARY DEALER LIMITED SUMEDHA FISCAL SERVICES LTD TAIB CAPITAL CORPORATION LIMITED TAMILNAD MERCANTILE BANK LTD THE CATHOLIC SYRIAN BANK LTD TRUST INVESTMENT ADVISORS PVT LTD ULJK SECURITIES PVT.SAFFRON CAPITAL ADVISORS PVT LTD SAL SECURITIES PVT.) VCK CAPITAL MARKET SERVICES LTD. LTD. LTD.A MORGAN STANLEY INDIA COMPANY PVT LTD DEUTSCHE BANK & DEUTSCHE EQUITIES INDIA PRIVATE LIMITED 60 . LTD. N. UNION BANK OF INDIA UNITED BANK OF INDIA VALUE LINE ADVISORS PVT LTD.(FORMERLY S B & T FINANCE PRIVATE LTD) VC CORPORATE ADVISORS PVT. (FORMERLY ECCENTRIC CAPITAL PVT LTD. SICOM LTD SMC CAPITALS LIMITED SOBHAGYA CAPITAL OPTIONS LTD. AXIS BANK LTD. BANK OF AMERICA.
LTD. LIMITED SBI CAPITAL MARKETS LTD BANK OF MAHARASHTRA IFCI FINANCIAL SERVICES LTD KARUR VYSYA BANK LTD.BARCLAYS BANK PLC BARCLAYS SECURITIES (INDIA) PVT. LTD. J P MORGAN INDIA PVT. DSP MERRILL LYNCH LTD FEDEX SECURITIES LTD GOLDMAN SACHS(INDIA) SECURITIES PVT. CITIGROUP GLOBAL MARKETS INDIA PVT. PUNJAB NATIONAL BANK STATE BANK OF BIKANER AND JAIPUR 61 . LTD.
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