DR.

SAKUNTALA MISRA
NATIONAL REHABILITATION
UNIVERSITY

PROJECT ON:

“INVESTMENT BANKING IN
INDIA”

SUBMITTED TO:
SAGIR AHEMD

SUBMITTED BY
ASHISH SINGH
IX SEM.
154140018

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 ACKNOWLEDGEMENT

I feel highly elated to work on this dynamic and highly popular topic on
“INVESTMENT BANKING IN INDIA”which had played a pivotal role in the
investment banking studies. As this topic drew my attention and attracted me to
choose this as a project topic and examine it.

So, I hope I have tried my level best to bring in new ideas and thoughts regarding
the basics of this topic. Not to forget the deep sense of regard and gratitude to my
faculty adviser, SAGIR AHEMAD who has played the role of a protagonist, who
has always given me the courage and wisdom to march ahead with my topic and
whose presence have always given me the impression of a shady tree which is
giving its shade to us in the noon of life. Last but not the least; I thank all the
members of DSMNRU and all others who have helped me, from the bottom of
my heart.

ASHISH SINGH

9th SEMESTER

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 INDEX

INTRODUCTION 4

REGISTRATION OF INVESTMENT BANK 5

CODE OF CONDUCT 8

OFFERING & SERVICE OF INVESTMENT 12

BANK

RANKING OF MERCHANT BANK 15

CONCLUSION 21

BIBLOGRAPHY 22

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INTRODUCTION
Investment banks play a significant role in the financial services sector. However, Investment

banking, as advisory financial services, emerged rather late. Formal Investment banking service

in India originated with the setting up of the Investment banking division by the Grind lays Bank

in 1969 for undertaking management of public issue and financial consultancy, followed by other

foreign banks.

Pursuant to the recommendations of the Banking Commission (1972), State Bank of India started

Investment banking service in 1973. The ICICI Ltd was the first development finance institution

to initiate such service in 1974. The period following the mid-seventies witnessed a boom in the

growth of Investment banking organizations in the country which were sponsored by banks,

financial institutions, NBFCs Brokers and so on. This led to diversification into the scope of

these activities such as loan syndication, portfolio management, corporate counseling, project

counseling, debenture trusteeship, mergers, Amalgamations & takeovers and so on.

Investment banking is a particular form of banking which finances capital requirements of an

enterprises. Investment banking assists as it performs IPOs, private placement and bond

offerings, acts as broker and carries through mergers and acquisitions.

But the scope of such services was neither defined nor was a set of rules and regulations

governing them in place. The formation of SEBI in 1992 was a landmark in the evolution of

Investment banking as a professional service in the country. Investment banking organizations

have to be mandatorily registered with SEBI. While Investment bankers are currently providing a

variety of services, registration with SEBI is required for (i) Capital issues related activities :

both pre-issued and post-issue, (ii) mergers and acquisitions, and (iii) Portfolio Management.

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DEFINITION

“A Investment banker is any who is engaged in the business of issue management either by

making arrangements regarding selling, buying or subscribing to securities or acting as

manager/consultant / advisors or rendering corporate advisory service in relation to such issue

management.”

REGISTRATION OF INVESTMENT BANK

Compulsory Registration:

Investment bankers require compulsory registration with the SEBI to carry out their activities.

They fall under four Registration categories

Category I – Investment bankers can carry on any activity related to issue management, that is ,

the preparation of prospectus and other information relating to the issue, determining the

financial structure, tie up of financiers, final allotment of securities, refund of the subscription

and also act as advisors, consultants, managers, underwriters or portfolio Managers.

Category II – Investment bankers can act as advisors, consultants , co-managers, underwriters

and portfolio Mangers.

Category III – Investment bankers can act as underwriters, advisors and consultants to an issue.

Category IV – Investment bankers can act only as adviser or consultant to an issue.

Thus, only category I Investment bankers could act as lead managers to an issue. With effect

from December 9, 1997, however, only Category I Investment bankers are registered by the

SEBI. To carry on activities as portfolio managers, they have to obtain separate certificate of

registration from the SEBI.

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Net worth requirement for Registration is as follow:

Category I : Rs. 5,00,00,000

Category II : Rs. 50, 00, 000

Category III :Rs. 20, 00, 000

Category IV : Nil

GRANT OF CERTIFICATE

The SEBI grants a certificate of registration on consideration of all matters that are relevant to

the activities related to the Investment banker: (a) Investment bankers should also be a body

corporate other than a non-banking financial company. However, a Investment banker who has

been granted registration by the RBI to act as Primary Dealer may carry on such activity subject

to the condition that it would not accept / hold public deposit, (b) they are expected to have the

necessary infrastructure like adequate office space , equipment and manpower to effectively

discharge their activities (c) they should have employed at least two persons with experience to

conduct Investment banking business (d) any person directly or indirectly connected with the

applicant, (e) they fulfill the capital adequacy requirement of a minimum net worth of Rs. 5

Crore (f) partners, directors and principal offices should not be involved in any litigation

connected with the securities market, which has an adverse effect on their business (g) have

recognized professional qualification in finance , law or business management and or their

registration is in the interest of the investors and (h) the applicant is a fit and proper person. The

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provisions of the SEBI criteria for Fit and proper person regulations discussed below would be

applicable to the applicants.

REGISTRATION CHARGES

An Investment banker has to pay to the SEBI

1. Application fee of Rs.25,000;

2. Registration , Rs. 10 Lakhs and

3. Renewal fee of Rs. 5 lakhs every three years from the fourth year from the date of initial

registration.

CONDITIONS OF REGISTRATION

The Registration / renewal of certificate of the Investment banker would be subject to the

following conditions:

1. Prior approval of the SEBI would be necessary to continue to act as a Investment banker

after change of its status/constitution. Change of status / Constitution means any change

in status / constitution of whatsoever nature including (a) amalgamation/demerger

/consolidation / any other kind of corporate restructuring , (b) change in its managing

/whole –time directors and (c) any change in control over the body corporate. Change in

control means (i) if its shares are listed , change of control in terms of stipulations of the

SEBI takeover Regulations (ii) change in its controlling interest in any other case .

controlling interest means direct / indirect interest to the extent of at least 51 percent of

voting rights.

2. Enter into a legally binding contract with the issuer specifying their mutual duties and

responsibilities

3. Pay the registration / renewal fee in the prescribed manner.

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4. Take adequate steps for redressal of investors grievances within one month of the

complaint and keep the SEBI informed about the number , nature and other particular of

such complaints together with the manner of their redressal.

5. Abide by the relevant regulations under the SEBI Act.

CODE OF CUNDUCT

1. Make all efforts to protect the interest of investors.

2. Maintain high standards of integrity, dignity and fairness in the conduct of its business.

3. Fulfill its obligations in a prompt, ethical and professional manner.

4. At all times exercise due diligence, ensure proper care and exercise independent

professional judgments

5. Endeavour to ensure that (a) inquiries from investors are adequately dealt with; (b)

grievances of investors are redressed in a timely and appropriate manner ;(c) where a

complaint is not remedied promptly, the investor is advised of any further steps which

may be available to him under the regulatory system.

6. 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.

7. Endeavour to ensure that the investors are provide with true and adequate information

without making any misleading or exaggerated claims or any misrepresentation and are

made aware of the attendant risk before taking any investment decision.

8. Endeavour to ensure that copies of the prospectus, offer document, letter of offer or any

other related literature is made available to the investors at the time of issue or the offer.

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9. Not discriminate amongst its clients, save and except on ethical and commercial

considerations.

10. Not make any statement, either oral or written, which would misrepresent the services

that the Investment banker is capable of performing for any client or has rendered to any

client.

11. Avoid conflict of interest and make adequate disclosure of its interest.

12. 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, should take reasonable

steps to resolve the same in an equitable manner.

13. Make appropriate disclosure to the client of its possible source or potential areas of

conflict of duties and interest while acting as Investment banker which would impair its

ability to render fair, objective and unbiased services.

14. Always endeavor to render the best possible advice to the clients having regards to their

needs.

15. Not divulge to anybody either or in writing, directly or indirectly , any confidential

information about its clients which has come to its knowledge, without taking prior

permission of its clients, except where such disclosures are required to be made in

compliance with any law for the time being in force

16. Ensure that any change in registration status / any penal action taken by the SEBI or any

material change in the Investment bankers’ financial status, 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.

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17. Not indulge in any unfair competition, 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 Investment bankers or investors or is likely to place such other Investment bankers

in a disadvantageous position which competing for or executing any assignment.

18. Maintain arms length relationship between its Investment banking activity and any other

activity.

19. Have internal control procedures and financial and operational capabilities which can be

reasonably expected to protect its operations, its clients, investors and other registered

entities from financial loss arising from theft, fraud, and other dishonest acts, professional

misconduct or omissions.

20. Not make untrue statement or suppress any material fact in any documents, reports or

information furnished to the SEBI.

21. Maintain an appropriate level of knowledge and competence and abide by the provisions

of the SEBI Act / regulations / circulars and guidelines, which may be applicable and

relevant to the activities carried on by it.

22. Ensure that the SEBI is promptly informed about any action, legal proceedings, etc,

initiated against it in respect of material breach or non-compliance by it, of any law ,

rules, regulations , directions of the SEBI or of any other regulatory body.

23. (a) Not render, directly or indirectly, any investment advice about any security in any

publicly accessible media, whether real-time or non real-time , unless a disclosure of his

interest including a long or short position, in the security has been made, while rendering

such advice; (b) In the event of an employee of the Investment banker rendering such

advice, the Investment banker should ensure that such employee should also disclose the

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 interests, if any, of himself , his dependent family members and the employer Investment

banker, including their long or short position in the security , while rendering such

advice.

24. Demarcate the responsibilities of the various intermediaries appointed by it clearly so as

to avoid any conflict or confusion in their job description.

25. Provide adequate freedom and powers of its compliance officer for the effective

discharge of his duties.

26. Develop its own internal code of conduct its internal operations and laying down its

standards of appropriate conduct for its employee and officers in carrying out their duties.

Such a code may extend to the maintenance of professional excellence and standards,

integrity, confidentiality, objectivity, avoidance or resolution of conflict of interest,

disclosure of shareholding and interest etc.

27. Ensure that good corporate policies and corporate governance are in place.

28. Ensure that any person it employees or appoints to conduct business is fit and proper and

otherwise qualified to act in the capacity so employed or appointed.

29. 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, in respect of dealings

in securities market.

30. That the senior management, particularly decision makers have access to all relevant

information about the business on a timely basis.

31. Not be a party to or instrument for (a) creation of false market ;(b) price rigging or

manipulation or; (c) passing of unpublished price sensitive information in respect of

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 securities which are listed and proposed to be listed in any stock exchange to any person

or intermediary in the securities market.

OFFERING & SERVICES OF INVESTMENT BANKS

• 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.

• Issue Management:

Management of issue involves marketing of corporate securities viz. equity shares, preference

shares and debentures or bonds by offering them to public. Investment 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 Investment 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 Investment bankers.

• 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/Investment banking subsidiaries cannot

underwrite more than 15% of any issue.

• Managers, Consultants or Advisers to the Issue:

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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.

• 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.

• Advisory Service Relating to Mergers and Takeovers:

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. Investment bankers are the

middlemen in setting negotiation between the two companies.

• Off Shore Finance:

The Investment 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 Investment banker includes investment advisory services to NRI in terms of

identification of investment opportunities, selection of securities, investment management, and

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operational services like purchase and sale of securities.

• Loan Syndication:

Loan syndication refers to assistance rendered by Investment bankers to get mainly term loans

for projects. Such loans may be obtained from a single development finance institution or a

syndicate or consortium. Investment bankers help corporate clients to raise syndicated loans

from banks or financial institutions.

• Corporate Counseling:

Corporate counseling covers the entire field of Investment banking activities viz. project

counseling, capital restructuring, public issue management, loan syndication, working capital,

fixed deposit, lease financing acceptance credit, etc.

Ranking of Merchant Banking in India:

Merchant Banker OE FSS QPS QM INN

ICICI Securities 4.0 4.0 4.2 3.8 4.3

IDBI 4.2 3.2 4.5 4.0 4.8

SBI Caps 4.4. 3.9 4.6. 6.7 5.2

DPS 6.1 5.7 6.0 6.0 5.3

IFCI 6.1 5.7 6.0 6.0 6.3

Bank of Baroda 6.7 6.5 6.7 6.6 6.8

Jardine Fleming 5.8 6.2 5.9 5.0 5.5

JM Finance 6.0 6.5 5.5 5.9 5.4

ENAM 6.3 6.8 6.4 6.3 6.2

PNB Caps 6.8 6.8 6.7 6.8 6.8

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Note: OE: Overall Excellence; FSS: Financial Soundness ; QPS: Quality Product/Service;

QM: Quality Management; INN: Innovativeness.

ORGANISATIONAL STRUCTURE – IB

Front Office Middle Office Back Office

- Investment Banking - Risk - Operations

- Sales & Trading - Finance - Technology

- Research - Compliance

- Custodian

- Investment Mgmt

Main activities and units

An investment bank is split into the so-called front office, middle office, and back office.

Investment banks offer security to both corporations issuing securities and investors buying

securities. For corporations investment bankers offer information on when and how to place their

securities in the market. The corporations do not have to spend on resources with which it is not

equipped. To the investor, the responsible investment banker offers protection against unsafe

securities. The offering of a few bad issues can cause serious loss to its reputation, and hence

loss of business. Therefore, investment bankers play a very important role in issuing new

security offerings

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Front office

1. Investment banking is the traditional aspect of the investment banks which also involves

helping customers raise funds in the capital markets and advise on mergers and

acquisitions. Investment banking may involve subscribing investors to a security

issuance, coordinating with bidders, or negotiating with a merger target. Another term for

the investment banking division is corporate finance, and its advisory group is often

termed mergers and acquisitions (M&A). The investment banking division (IBD) is

generally divided into industry coverage and product coverage groups. Industry coverage

groups focus on a specific industry such as healthcare, industrials, or technology, and

maintain relationships with corporations within the industry to bring in business for a

bank. Product coverage groups focus on financial products, such as mergers and

acquisitions, leveraged finance, equity, and high-grade debt and generally work and

collaborate with industry groups in the more intricate and specialized needs of a client.

1. Sales and trading: On behalf of the bank and its clients, the primary function of a large

investment bank is buying and selling products. In market making, traders will buy and

sell financial products with the goal of making an incremental amount of money on each

trade. Sales is the term for the investment banks sales force, whose primary job is to call

on institutional and high-net-worth investors to suggest trading ideas (on caveat emptor

basis) and take orders. Sales desks then communicate their clients' orders to the

appropriate trading desks, who can price and execute trades, or structure new products

that fit a specific need. Structuring has been a relatively recent activity as derivatives

have come into play, with highly technical and numerate employees working on creating

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 complex structured products which typically offer much greater margins and returns than

underlying cash securities. Strategists advise external as well as internal clients on the

strategies that can be adopted in various markets. Ranging from derivatives to specific

industries, strategists place companies and industries in a quantitative framework with

full consideration of the macroeconomic scene. This strategy often affects the way the

firm will operate in the market, the direction it would like to take in terms of its

proprietary and flow positions, the suggestions salespersons give to clients, as well as the

way structures create new products. Banks also undertake risk through proprietary

trading, done by a special set of traders who do not interface with clients and through

"principal risk", risk undertaken by a trader after he buys or sells a product to a client and

does not hedge his total exposure. Banks seek to maximize profitability for a given

amount of risk on their balance sheet. The necessity for numerical ability in sales and

trading has created jobs for physics and math Ph.D.s who act as quantitative analysts.

1. Research is the division which reviews companies and writes reports about their

prospects, often with "buy" or "sell" ratings. While the research division generates no

revenue, its resources are used to assist traders in trading, the sales force in suggesting

ideas to customers, and investment bankers by covering their clients. There is a potential

conflict of interest between the investment bank and its analysis in that published analysis

can affect the profits of the bank. Therefore in recent years the relationship between

investment banking and research has become highly regulated requiring a Chinese wall

between public and private functions.

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1. Custody and agency services is the division which provides cash management, lending,

and securities brokerage services to institutions. Prime brokerage with hedge funds has

been an especially profitable business, as well as risky, as seen in the "run on the bank"

with Bear Stearns in 2008.

1. Investment management is the professional management of various securities (shares,

bonds, etc.) and other assets (e.g. real estate), to meet specified investment goals for the

benefit of the investors. Investors may be institutions (insurance companies, pension

funds, corporations etc.) or private investors (both directly via investment contracts and

more commonly via collective investment schemes eg. mutual funds). The investment

management division of an investment bank is generally divided into separate groups,

often known as Private Wealth Management and Private Client Services.

Middle office

1. Risk management involves analyzing the market and credit risk that traders are taking

onto the balance sheet in conducting their daily trades, and setting limits on the amount of

capital that they are able to trade in order to prevent 'bad' trades having a detrimental

effect to a desk overall. Another key Middle Office role is to ensure that the above

mentioned economic risks are captured accurately (as per agreement of commercial terms

with the counterparty), correctly (as per standardized booking models in the most

appropriate systems) and on time (typically within 30 minutes of trade execution). In

recent years the risk of errors has become known as "operational risk" and the assurance

Middle Offices provide now includes measures to address this risk. When this assurance

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 is not in place, market and credit risk analysis can be unreliable and open to deliberate

manipulation.

1. Finance areas are responsible for an investment bank's capital management and risk

monitoring. By tracking and analyzing the capital flows of the firm, the Finance division

is the principal adviser to senior management on essential areas such as controlling the

firm's global risk exposure and the profitability and structure of the firm's various

businesses. In the United States and United Kingdom, a Financial Controller is a senior

position, often reporting to the Chief Financial Officer. Corporate strategy often falls

under the finance division as well.

2. Compliance areas are responsible for an investment bank's daily operations' compliance

with government regulations and internal regulations. Often also considered a back-office

division.

Back office

1. Operations involve data-checking trades that have been conducted, ensuring that they

are not erroneous, and transacting the required transfers. While some believe that

operations provides the greatest job security and the bleakest career prospects of any

division within an investment bank[4], many banks have outsourced operations. It is,

however, a critical part of the bank. Due to increased competition in finance related

careers, college degrees are now mandatory at most Tier 1 investment banks.[citation needed] A

finance degree has proved significant in understanding the depth of the deals and

transactions that occur across all the divisions of the bank.

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1. Technology refers to the information technology department. Every major investment

bank has considerable amounts of in-house software, created by the technology team,

who are also responsible for technical support. Technology has changed considerably in

the last few years as more sales and trading desks are using electronic trading. Some

trades are initiated by complex algorithms for hedging purposes

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CONCLUSION

From the above study it has been concluded that In India Investment Banks are under regulation

of SEBI, As per SEBI Guidelines on Merchant Banking , Whenever any corporate go for IPO or

M& A They have to appoint Merchant Banker for Managing the affairs

The future of Merchant Bank in India is very Bright , if you consider present Market Situation

where Sensex & Nifty Index is 16000 & 5000 Respectively. So many corporate have declared

and filed IPO & M&A With SEBI. Merchant Bankers act as a Lead Manager and as a lead

manager they underwrite the Issue.

The major revenue for merchant banks is received from the IPO, M&A, Advisory Services; it is

purely fee based business. As we know in US Last year big investment bankers collapsed, the

reason being Sub Prime Crisis. In US investment banks lend money on mortgage so sudden

economical change reduced the demand for Real Estate and the prices of the property fallen

down. So ultimately the fund which was financed for Housing has also been shrinking.

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BIBILIOGRAPHY

2. Manchiraju, H.R., "Merchant banking – Principles and Practice, New Age

International (p) Limited Publishers, New Delhi.

3. SEBI: Merchant Banking Regulations, 1992.

4. www.investopedia.com

5. www.wikipedia.com

6. www.icicisecurities.com

7. www.moneycontrol.com

8. www.google.com

9. www.sebi.org

10. www.rbi.org

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