MERCHANT BANKING

CHAPTER 1 1. INTRODUCTION
Financial services are an important component of financial system. The smooth functioning of financial system depends upon the range of financial services extended by the providers. Financial services in India have witnessed remarkable changes in the recent past after the implementation of “Liberalization, privatization and globalization”. Funds are tapped from the capital market to finance various mega industrial projects. In attracting public savings, merchant bankers play a vital role as specialized agencies. The resources raising functions remains to be the primary business of a merchant banker. The primary market holds the key to rapid capital formation, growth in industrial productions and exports. There has to be accountability to the end use of funds raised from the market. The increase in the number of issues and amount raised the number of merchant bankers. Therefore, the field became highly competitive market where it requires a specialized skill in handling the situation. The merchant bankers have a social responsibility to in building an industrial structure in India. Merchant bankers assist corporate in raising capital. They assist in issue of Shares, syndicating loans, public issue of debentures. They do not provide funds. They only assist. They also actively arrange working capital, appraisal Projects scrutinize & persuade merger proposals. In India merchant bankers is a body corporate who carries on any activity of the issue management, which consist of preparing prospectus & other information relating to the issue. Merchant banks in India are not allowed to conduct any business other than that related to securities market. There is no official category in investment banking.

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MERCHANT BANKING

1.1

DEFINITION

In banking, a merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and wealthy individuals on how to use their money. The term can also be used to describe the private equity activities of banking. According to Cox, D. merchant banking is defined as, ―merchant banks are the financial institutions providing specialist services which generally include the acceptance of bills of exchange, corporate finance, portfolio management and other banking services‖. The Notification of the Ministry of Finance defines a merchant banker as, ―any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager, consultant, advisor or rendering corporate advisory service in relation to such issue management‖. In short, merchant bankers assist in raising capital and advice on related issues.

1.2

HISTORY AND ORIGIN OF MERCHANT BANKING IN INDIA

Merchant banking originated through the entering of London merchants in foreign trade through acceptance of bill. Later, the merchants assisted the Government of under developed countries in rising long – terms through floatation of bonds in London money market. Over a period they extended their activities to domestic business of syndication of long term and short term finance, underwriting of new issues, acting as registrars and share transfer agents, debenture trustees, portfolio managers, negotiating agents for mergers, takeovers etc.

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MERCHANT BANKING

1.3

MERCHANT BANKING IN INDIA – HISTORICAL PERSPECTIVE

Till 18th century moneylenders, moneychangers, village merchants (maharanis), & saucers performed the function of banks & merchant banks. They also issued & discounted bills of exchange (handiest) & bank draft. They gave loans on mutual trust, on mortgage of lands, ornaments & other property. JAGAT SHETH (1720-1773AD, BENGAL) HABIB & SONS which is now HABIB BANK (founded in 1941, now is in PAKISTAN). These were the organized merchant bankers in recent history of INDIA. Merchant Banking is an activity that includes corporate finance activities, such as advice on complex financings, merger and acquisition advice (international or domestic), and at times direct equity investments in corporations by the banks. Merchant banks are private financial institution. Their primary sources of income are PIPE financings and international trade. Their secondary income sources are consulting, Mergers & Acquisitions help and financial market speculation. Because they do not invest against collateral, they take far greater risks than traditional banks. Because they are private, do not take money from the public and are international in scope, they are not regulated. Anyone considering dealing with any merchant bank should investigate the bank and its managers before seeking their help. The reason that businesses should develop a working relationship with a merchant bank is that they have more money than venture capitalists. Their advice tends to be more pragmatic than venture capitalists. It is rare for a merchant bank to fail. The last major failure was Barings Bank (1992). It failed because of unsupervised trading of copper futures contracts and buybacks. When the Dot Com Bubble burst in 2001, scores of venture capital firms failed. The greatest merchant bank failure in history was the Knights Templar. After the Crusades, the Order became immensely wealthy controlling and funding the trade between the Middle East and Western Europe. They foolishly loaned money to the French Government. To avoid repaying the money, King Louie had the Pope declare the Order heretics. Thousands of monks lost their lives, but France

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MERCHANT BANKING

balanced its budget. To understand Merchant Banks, you should know something of their history. Modern merchant banking started in Italy during the 7th Century. The banking practices evolved from the financing structure of the Silk Road Trading that predates the Roman Empire. The basic financing structure was the advance payment for goods by merchant bankers at a great discount to the delivery value of those goods. In the case of Italy and then Germany, wheat was the product. The merchant banks purchased the wheat soon after planting. They accepted the risk of crop failure. They profited when they sold the wheat. In most countries today, the national government accepts the risk through government crop insurance. As the British Empire expanded in the 18th and 19th Centuries, merchant banks prospered in London. For instance, merchant bankers funded Canada‘s Hudson Bay Company. This period saw the rise of such merchant banks as Schroders, Warburgs or Rothschilds. Amsterdam benefited from the trade created by the Dutch East Indian Company. Since the 18th century, the role of the merchant banker has been considerably broadened to include a composite of modern day skills. Such skills are inherently entrepreneurial, managerial, financial and transactional. Today, North American merchant banks have taken the form of "boutiques"whereby, each offers its own specialized services. The hallmarks of these merchant bank boutiques are that they typically charge fees payable in cash and/or the client's stock for each service rendered. You can find a merchant bank that meets any reasonable set of needs.

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MERCHANT BANKING

1.4

MERCHANT BANKING IN INDIA – POST INDEPENDENCE

In 1967, RBI issued its first merchant banking license to grind lays started with management of capital issues, production planning, system design and also market research. It provides management consulting services as well. Citibank setup its merchant banking division in 1970. Its scope includes assisting new entrepreneur, evaluating new projects, raising funds through borrowing and issuing equity. Indian banks started banking services as a part of multiple services they offered to clients from 1972. State bank of India started the merchant banking division in 1972. In the initial years the objective was to render corporate advice and assistance to small and medium entrepreneurs. Merchant banking activities are organized and undertaken in several forms. Commercial banks and foreign development finance institutions have organized them through formation of division; nationalized banks have formed subsidiaries companies and share brokers and consultancies constituted themselves into public ltd. Co. or registered themselves as private ltd. companies. Some of them have equity stake of foreign merchant bankers.

Source :- (http://www.indianmoney.com/)

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MERCHANT BANKING CHAPTER 2 MERCHANT BANK A merchant bank deals with the commercial banking needs of international finance. and is also frequently responsible for marketing the new stock. Merchant banks operate behind the scenes and away from the spotlight. merchant banks can focus their knowledge and be of specific use to such clients. The merchant bank determines the number of stocks to be issued. A merchant bank does not have retail offices where one can go and open a savings or checking account. long term company loans. The most familiar role of the merchant bank is stock underwriting. though this may be a joint effort with the company and managed by the merchant bank. the price at which the stock will be issued. and stock underwriting. with one being the lead underwriter. A large company that wishes to raise money from investors through the stock market can hire a merchant bank to implement and underwrite the process. Some merchant banks specialize in a single area. This is because merchant banks tend to deal primarily with other merchant banks and other large financial institutions. and the timing of the release of this new stock. The merchant bank files all the paperwork required with the various market authorities. A merchant bank is sometimes said to be a wholesale bank. For really large stock offerings. several merchant banks may work together. or in the business of wholesale banking. such as underwriting or international finance. The divisions are generally very separate entities. 6 . By limiting their scope to the needs of large companies. Many of the largest banks have both a retail division and a merchant bank division. as there is very little similarity between retail banking and what goes on in a merchant bank.

7 .MERCHANT BANKING 2.1 IMPORTANCE AND NEED OF MERCHANT BANKING Important reason for the growth of merchant banking has been developmental activity throughout the country. the need of merchant banking institutions is felt in the wake of huge public savings lying still untapped. undertaking expansion/modernization/diversification of the existing enterprises. With the result. This reinforces the need for a vigorous role to be played by merchant banks. With the growing demand for funds there was pressure on capital market that enthused the commercial banks. There has been a mushroom growth of financial consultancy firms and broker firms doing advisory functions as well as managing public issues in syndication with other merchant bankers. thus. All Indian financial institutions and experienced resources constraint to meet the ever increasing demands for funds from the corporate sector enterprises. leaving a widening gap under bridged between the supply and demand of inventible funds. all the commercial banks in nationalized and public sector as well as in private sector including the foreign banks in India have opened their merchant banking windows and are competing in this field. share brokers and financial consultant firms to enter into the field of merchant banking and share the growing capital markets. Merchant banks can play highly significant role in mobilizing funds of savers to investible channels assuring promising return on investments and thus can help in meeting the widening demand for investible funds for economic activity. Notwithstanding the above facts. exerting excess demand on the sources of funds for ever expanding industry and trade. With the growth of merchant banking profession corporate enterprises in both public and private sectors would be able to raise required amount of funds annually from the capital market to meet the growing requirements for funds for establishing new enterprises. In the circumstances corporate sector had the only alternative to avail of the capital market services for meeting their long-term financial requirements through capital issues of equity and debentures.

Merchant bankers. Merchant bankers advise the investor of the incentives available in the form of tax relief‘s. provide this service to the corporate units and advise them on such requirements to be complied with for raising funds from the capital market under different enactments viz. In view of multitude of enactments. good return on investment and capital appreciation in such investment to motivate them to invest their savings in securities of the corporate sector. guidelines and offshoot press release instructions brought out by the government from time to time imposing statutory obligations upon the corporate sector to comply with all those requirements prescribed therein. Income-tax Act. 8 . the need of skilled agency existed which could provide counseling in these matters in a package form.MERCHANT BANKING Merchant banks have been procuring impressive support from capital market for the corporate sector for financing their projects. Securities Contracts (Regulation) Act and various other corporate laws and regulations. with their skills. other statutory relaxations. rules and regulations. Companies Act. updated information and knowledge. Foreign Exchange Regulation Act. This is evidenced from the increasing amount raised form the capital market by the corporate enterprises year after year.

Merchant banker has to think and devise new instruments of financing industrial projects. diversifications. where science and technology create new innovations in production processes of industries envisaging immediate renovations. II) III) IV) V) VI) VII) He has to guide the wider section of the community possessing surplus money to invest in corporate securities and other productive investment channels. Merchant banker‘s dynamism lies in promptly attending to the corporate problems and suggests ways and means to solve it. regulations and politics affecting business conditions frequently change. 9 . He has to keep pace with the changing environment where government rules. therefore. He is always awake to renew his skills. Merchant banker is. develop expertise in new areas so as to equip himself with the knowledge and techniques to deal with emerging new problems of corporate business world. dedicated to achieve this objective through his dynamism. He has to assume wider responsibilities of saving industrial units from going sick and guiding industries to be setup in industrially backward areas to eliminate regional imbalances in industrial development of the country. The nature of merchant banking services is development oriented and promotional to help the industry and trade to grow and survive. modernizations or replacements of existing plant and machinery or other equipments putting new demands for finances and necessitating overhauling of the capital structure of the firms.MERCHANT BANKING 2.2 ROLE OF MERCHANT BANKER I) The role of merchant banker is dynamic in the wake of diverse nature of merchant banking services.

the investors and the whole community. He must bridge the communication gap between different sections and resolve the problem being faced in different areas concerned with the business world. To discharge the above role. X) XI) 10 . In the days ahead. IX) He has to watch the interest and win over the confidence of the government. the industry and the economy as a whole which is. along with the entrepreneurs. a merchant banker has to be dynamic.MERCHANT BANKING VIII) He has to help the industry in different forms to ensure that it runs risk free and devoid of uncertainty by assisting the promoters with his knowledge and skills to resolve the problems being faced by them. a challenging task and to meet these challenges merchant bankers will have to be more vigorous and strategic in playing their role. in it. its agencies. merchant bankers have very significant role to play tuning their activities to the requirements of the growth pattern of the corporate sector. They will have also to adopt new ways and means in discharging their role.

ICICI started merchant banking activities in 1973 followed by IFCI (1986) and IDBI (1991). Citibank set up its merchant banking division in 1970. Punjab National Bank. Merchant bankers are permitted to carry on activities of primary dealers in government securities. that Indian banks should offer merchant banking services as part of the multiple services they could provide their clients. The commercial banks that followed State Bank of India were Central Bank of India. Standard Chartered Bank and Mercantile Bank in 1978 and United Bank of India. the largest foreign bank in the country. The main service offered at that time to the corporate enterprises by the merchant banks included the management of public issues and some aspects of financial consultancy. State Bank of India started the Merchant Banking Division in 1972. In the initial years the SBI‘s objective was to render corporate advice and assistance to small and medium entrepreneurs. Among the development banks. Following Grindlays Bank.MERCHANT BANKING 2. Bank of India and Syndicate Bank in 1977. Management consultancy services were also offered. Consequent to the recommendations of Banking Commission in 1972. Canara Bank and Indian Overseas Bank in late ‗70s and early ‗80s. Bank of Baroda. United Commercial Bank.3 THE GROWTH OF MERCHANT BANKING IN INDIA Formal merchant activity in India was originated in 1969 with the merchant banking division setup by the Grindlays Bank. 11 . The division took up the task of assisting new entrepreneurs and existing units in the evaluation of new projects and raising funds through borrowing and equity issues.

(C) Broker Base In the recent past there has been an inflow of qualified and professionally skilled brokers in various stock exchanges of India.4 ORGANIZATIONAL SETUP OF MERCHANT BANKERS IN INDIA In India a common organizational setup of merchant bankers to operate is in the form of divisions of Indian and foreign banks and financial institutions. They are: (A) Institutional Base Where merchant banks function as an independent wing or as subsidiary of various private/Central Governments/State Governments financial institutions. These organizations have brought professionalism in merchant banking sector and they help their parent organization to make a presence in capital market. The parent banks are either nationalized commercial bank or the foreign banks operating in India. From the point of organizational setup India‘s merchant banking organizations can be categorized into four groups on the basis of their linkage with parent activity. Bank of India. Securities and Exchange Board of India has divided the merchant bankers into four categories based on their capital adequacy. 12 . subsidiary companies established by bankers like SBI. Most of the financial institutions in India are in public sector and therefore such setup plays a role on the lines of government priorities and policies. etc. Canara Bank. Punjab National Bank. These brokers undertake merchant banking related operations also like providing investment and portfolio management services.MERCHANT BANKING 2. Each category is authorized to perform certain functions. (B) Banker Base These merchant bankers function as division/subsidiary of banking organization. Some firms are also organized by financial and technical consultants and professionals.

Many of these firms were in existence for quite some times before they added a new activity in the form of merchant banking services by opening new divisions on the lines of commercial banks and All India Financial Institutions. 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 sector merchant banking firms have come up either as the sole proprietorship or public limited companies.MERCHANT BANKING (D) Private Base These merchant banking firms are originated in private sector. Some foreign merchant bankers are also entering either independently or through some collaboration with their Indian counterparts. 13 .

3. Application for grant of certificate An application for grant of a certificate needs to be made to SEBI.MERCHANT BANKING 2. Adoption of a viable business plan All the basic tests required to find out whether the business to be undertaken is viable or not are also applicable to a Merchant Banking setup. d. Registration of Merchant Bankers a. growth opportunities and current market size are some of the factors which need to be looked into. However. e. SBI caps. 2. b. Merchant Banks are generally setup as subsidiary companies of banks (Public or Private). Formation of the business organization SEBI act. profitability. Sole proprietorship Partnership firm Hindu Undivided Family (HUF) Corporate Enterprises Co-operative Society Generally it is preferred that the Merchant Banking outfit be a registered company. ICICI Securities etc. 1992 does not prescribe any specific form of business organization to carry on the activities as merchant banker. c. Capital adequacy. the types of organizations are listed below: a. The application can be made for any one of the following categories of the merchant banker namely:   14 .5 REQUIREMENTS FOR SETTING UP A MERCHANT BANKING OUTFIT 1. For example.

which are relevant to the activities relating to merchant banker and in particular the applicant complies with the following requirements. portfolio manager. consultant.manager. Category III. manager. underwriter. and to act as adviser. d) Consideration of application The Board shall take into account for considering the grant of a certificate. Category IV.MERCHANT BANKING I) Category I. namely: - 15 . adviser. II) III) IV) To carry on the activity as underwriter or portfolio manager a separate certificate of registration needs to be obtained from SEBI. co. which will inter-alia consist of preparation of prospectus and other information relating to the issue. underwriter. to act as adviser. tieup of financiers and final allotment and refund of the subscription. that is to act as underwriter. c) Furnishing of information. all matters. determining financial structure. that is to act only as adviser or consultant to an issue. clarification and personal representation The Board may require the applicant to furnish further information or clarification regarding matters relevant to the activity of a merchant banker for the purpose of disposal of the application. portfolio manager. to carry on any activity of the issue management. The applicant or its principal officer may appear before the Board for personal representation. and consultant to an issue. Category II. otherwise it may be rejected. b) Application to conform to the requirements The application should conform to all the requirements under the SEBI guidelines. that is. that is. consultant.

16 . 50.00. director or principal officer is not involved in any litigation connected with the securities market which has an adverse bearing on the business of the applicant and have not at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence.00.000 Rs.  The applicant has the necessary infrastructure like adequate office space.banking financial company. and manpower to effectively discharge his activities. equipments. his partner.  The applicant fulfils the capital adequacy requirement is as follows: The capital adequacy requirement should not be less than the net worth of the person making the application for grant of registration.00.  A person directly or indirectly connected with the applicant has not been granted registration by the Board. 20.00.000 NIL  The applicant.000 Rs. 5.MERCHANT BANKING  The applicant shall be a body corporate other than a non.  The applicant has in his employment minimum of two persons who have the experience to conduct the business of the merchant banker. The net worth shall be as follows:CATEGORY CATEGORY I CATEGORY II CATEGORY III CATEGORY IV MINIMUM AMOUNT Rs.  The merchant banker who has been granted registration by the Reserve Bank of India to act as a Primary or Satellite dealer may carry on such activity subject to the condition that it shall not accept or hold public deposit.

the Board may suspend the registration certificate. law or business management.MERCHANT BANKING  The applicant has the professional qualification from an institution recognized by the Government in finance. On the grant of a certificate the applicant shall be liable to pay the fees as prescribed. Source :. whereupon the merchant banker shall cease to carry on any activity as a merchant banker for the period during which the suspension subsists. The Merchant Bank can commence business on acquisition of a Certificate of Registration from the SEBI after completion of the above mentioned formalities.com/financial-management/) 17 . Where a merchant banker fails to pay the Annual fees as provided in Schedule II. f) Payment of fees and the consequences of failure to pay fees Every applicant eligible for grant of a certificate shall pay such fees in such manner and within the period specified.  Grant of certificate to the applicant is in the interest of investors. e) Procedure for Registration The Board on being satisfied that the applicant is eligible shall grant a certificate.(http://www.mbaknol.

2. society. underwrite. manage advice. stocks. civil body. They render the services like foreign exchange dealer. securities and all kinds of investments issued. municipality. 18 . They will invest in buying and selling of transfers. debentures.MERCHANT BANKING CHAPTER 3 MAIN OBJECTIVES OF MERCHANT BANKERS Merchant bankers render their specialized assistance in achieving the main objectives which are presented below: 1. 4. firm. Merchant bankers another objective is to set up and provide services for the venture capital technology funds. To carry on the business of merchant banking. money exchange. hypothecate and deal with dispose of shares. provide standby assistance. and authorized dealer and to buy and sell foreign exchange in all lawful ways in compliance with the relevant laws of India. public authority established in India. to be issued or guaranteed by any company. 5. The main object of merchant banker is to create secondary market for bills and discount or re-discount bills and acts as an acceptance house. assist in the capital formation. 3. government. trust person. corporation. They also provide services to the finance housing schemes for the construction of houses and buying of land. 6. securities and properties of any other company.

7.MERCHANT BANKING 3. 6. Every merchant banker must disclose information to the SEBI when it requires any information from them. Merchant banker should maintain proper books of accounts. 3. 2. No merchant banker should associate with another merchant banker who is not registered in SEBI.1 OBLIGATIONS AND RESPONSIBILITES Merchant bankers have the following obligations and responsibilities. Every merchant banker who acts as lead manager must enter into an agreement with the issuer setting out mutual rights. 1. 19 . Merchant bankers should not enter into any transactions on the basis of unpublished information available to them in the course of their professional assignment. refund etc. obligations. liabilities. 4. 5. Every merchant banker must submit himself to the inspection by SEBI when required for and submit all the records. relating to such issues with particular reference to disclosures allotment. All merchant bankers must abide by the code of conduct prescribed for them. records and submit half yearly/annual financial statements to the SEBI within stipulated period of time.

b) He shall render at all times high standard of services. f) He should always Endeavour to give the best possible advice and prompt efficient and cost effective service. e) He should not make any exaggerated statement about his capacity or achievement.2 CODE OF CONDUCT According to the 13 Regulation of the SEBI of 1992 (Merchant bankers). h) He should not engage in the creation of a false market or price rigging or manipulation. exercise due diligence. 20 . g) He should maintain the secrecy of all the confidential information received during the course of service to his client. exercise independent professional judgment. They are: a) The merchant banker must observe high integrity and fairness in all his dealings. c) If necessary. every merchant banker should comply with following codes of conduct. he must disclose to his clients the possible source of conflict of duties and interests.MERCHANT BANKING 3. d) The merchant banker should not indulge in unfair practice or unfair competition with other merchant bankers.

c) The Company should also disclose the information regarding the capacity utilization of the plant for the last 3 years. the place was occupied by a legal organ called as ―Securities and Exchange Board of India‖. The SEBI is the most powerful organization to control and lead both the primary market and secondary market. e) The minimum application money payable should not be less than 25 per cent of the issue price. The guidelines broadly covers the requirement of the first issue by a new or the first issue of a new company set up by the existing company. g) The Company can make firm allotments in public issues as follows: 21 . b) The Company should disclose any adverse situation which affects the operations of the Company and occurs within one year prior to the date filing of the offer document with the Registrar of Companies or Stock Exchange. The SEBI has announced the new guidelines for the disclosures by the Companies leading to the investor protection. f) The company should disclose the time normally taken for the disposal of various types of investor‘s grievances. They are presented below: a) If any Company‘s other income exceeds 10 per cent of the total income. The SEBI has issued guidelines for the issue of capital by the companies. d) The Promoters of the Company must maintain their holding at least at 20 per cent of the expanded capital. the first issue by the existing private companies and public issues by the existing listing companies. the details should be disclosed. The issue of capital and pricing of issues by companies has become free of prior approval.MERCHANT BANKING 3.3 GUIDELINES OF SEBI After the obligations of the CCI.

the Company should give advertisements in not less than two newspapers about the dispatch of letters of offer. j) According to the SEBI guidelines regarding rights issue. in case of the public issues.indianmba.com/) 22 . Source : . No preferential allotment may be made along with any rights issue.MERCHANT BANKING     Indian mutual funds (20%).(http://www. This scheme is applicable to a limited number of 500 shares per allotted and the offer should be valid for a period of at least 6 months from the date of dispatch of securities. h) The Company should disclose the safety net scheme or buy back arrangements of the shares proposed in public issue. at least 30 mandatory collection centers should be established. Financial institution (20%). k) The Company should also disclose about the fee agreed between the lead managers and the Company in the memorandum of understanding. FIIS (24%). i) According to the guidelines. Regular employees of the company (10%).

Investment banks facilitate mergers and acquisitions through share sales and provide research and financial consulting to companies. investment banks focus on initial public offerings (IPO‘s) and large public and private share offerings. the fine lines that separate the functions of merchant banks and investment banks tend to blur. trade finance and international transaction facilitation. As a general rule. but there are a few characteristics that most companies that offer both investment and merchant banking share. In practice. Traditional merchant banks primarily perform international financing activities such as foreign corporate investing. Traditionally. Some of the activities that a pure merchant bank is involved in may include issuing letters of credit. investment banks did not deal with the general public. while many investment banks participate in trade financing activities. in their purest forms. The current offering of investment banks and merchant banks varies by the institution offering the services. 23 . Pure investment banks raise funds for businesses and some governments by registering and issuing debt or equity and selling it on a market. investment banks and merchant banks perform different functions. In theory. trade consulting and coinvestment in projects involving trade of one form or another. Traditionally. investment banks only participated in underwriting and selling securities in large blocks. are different kinds of financial institutions that perform different services. transferring funds internationally. foreign real estate investment.MERCHANT BANKING CHAPTER 4 THE DIFFERENCE BETWEEN INVESTMENT BANKS AND MERCHANT BANKS Merchant banks and investment banks. Traditional merchant banks often expand into the field of securities underwriting.

Investment banks rarely offer trade financing because most investment banking clients have already outgrown the need for trade financing and the various credit products linked to it. While investment banks tend to focus on larger companies. 24 . bridge financing. In order to bridge the gap between venture capital and a public offering. but are still too small to make a compelling public share offering on a large exchange. mezzanine financing and a number of corporate credit products. often taking on large portions of ownership in companies that are believed to have strong growth potential. larger merchant banks tend to privately place equity with other financial institutions. merchant banks offer their services to companies that are too big for venture capital firms to serve properly.MERCHANT BANKING Merchant banks tend to operate on small-scale companies and offer creative equity financing. Merchant banks still offer trade financing products to their clients.

mitigation measures COMMERCIAL BANK Provide funds in the form of term loan and working capital. assess risks in lending proposal and cannot afford to be grossly relationship based and close to the customer. They work on risks shields i.MERCHANT BANKING 4.e. Being advisors. they are closer to the customers and get to know risks of the transaction s properly. and liaisoning with SEBI. Mainly fund based business Being lenders. and syndicated loan working capital instruments. they are more cautions. Mainly fees based business. preference shares. piercing of issue.(http://www. Commercial banks majority business is of terms lending and bank deposits.1 MERCHANT BANKS AND COMMERCIAL BANKS MERCHANT BANK Assist in raising capital in the form of equity. book running. Most of work they get is about management of equity issues in the capacity of lead manager. Demand deposits are the key feature. Advisor not financer. Do not accept chequable deposits. underwriter.com) 25 . Financing is the main business. Source : .helium.

MERCHANT BANKING CHAPTER 5 SERVICES OF MERCHANT BANKERS IN INDIA Merchant bankers provide services as follows: Business Planning Stage: Project feasibility study Advice on capital structuring Equity raising: Preparation of prospectus and liaison with SEBI Pricing decisions Marketing in the capacity of lead Managers Underwriters to the issue Post issue management Assistance in ADR/GDR Debt raising: Management of debenture issue Preparation of bankable proposal and syndication of loan Working capital raising: Assistance in arranging optimal capital finance Advice on mergers and Acquisitions Strategic advice: 26 .

MERCHANT BANKING 5. the merchant bankers help industry and trade to raise funds. Merchant bankers not only provide advisory services to corporate enterprises but also advise the investors of the incentives available in the form of tax relief and other statutory obligations. In these circumstances. Portfolio Management 27 . Thus. Corporate Counseling 2. and the investors to invest their saved money in sound and healthy concerns with confidence. safety and expectation of higher yields. Underwriting 6. Broadly a merchant banker can provide the following services: 1. The need of merchant banker is also felt in the wake of huge untapped public savings as merchant bankers can play a highly significant role in mobilizing funds from savers to invest in channels assuring promising return on investments and thus narrow down the gap between demand for and supply of investible funds. Credit Syndication And Project Finance 4. Bankers 7.1 SERVICES PROVIDED BY MERCHANT BANKS The development activity through the country had exerted excess demand on the sources of funds by the ever expanding industry and trade which could not be met by the All India Financial Institutions. the corporate sector enterprises had the only alternative to avail themselves of the capital market services for meeting the long-term fund requirements through capital issues of equity and debentures. Issue Management 5. Project Counseling And Pre-Investment Studies 3. The growing demand for funds from capital market has enthused many organizations to enter into the field of merchant banking for managing the public issues.

project counseling. and suggests ways and means to solve those problems. size of the organization and operational scales. which shall include organizational goals for the enterprise. 28 .MERCHANT BANKING 8. Fixed Deposit Broking 15. A merchant banker finds out the problems of enterprise. Acceptance Credit And Bill Discounting 12. loan syndication. working capital. Relief To Sick Industries Let‘s take a brief look at each of these functions: 1. Amalgamations And Take-Over 13. fixed deposits. etc. etc. lease financing. choice of a product. capital restructuring. maintain steady growth and create a better image among investors. Venture Capital Financing 9. portfolio management and the full range of financial engineering including venture capital. Arranging Offshore Finance 14. Non Resident Investment Counseling And Management 11.e. public issue management. Advising On Mergers.. the scope of corporate counseling is limited to suggestions and opinions leaving to the client to take corrective actions for solving its corporate problems. However. pricing. It covers the entire field of merchant banking activities i. Corporate Counseling It includes a whole range of financial services provided by a merchant banker to a corporate unit a view to ensure better performance. acceptance credit. Leasing 10.

for planning public issues. Merchant banker has to locate the sources of funds and comply the formalities required to procure the funds. private investors and financial institutions and in the form of debentures from the public. The two sources of funds available to finance the project cost are internal sources of funds (or owners' funds) which includes promoter's contribution and retained earnings. Financing the project cost is an important aspect of project counseling. Project reports are prepared to obtain government approval of the project. for ensuring market for the proposed product. 3. banks and other lending 29 . for procuring financial assistance from financial institutions and banks. Credit Syndication Once the client company has decided about the project proposed to be undertaken. deciding upon the financing pattern to finance the cost of the project. the merchant banker has to appraise the project considering the various aspects as to the type of the project. the merchant banker has to ensure that the application forms for obtaining the funds from financial institutions are filled in with relevant and appropriate information and before submitting the application. regulations and norms prescribed by the government or followed by the term lending financial institutions. location. commercial and financial viability of the project. Merchant banker has to decide the financing mix of the internal and external sources of funds keeping in view the rules. Project Counseling Project counseling is an important merchant banking service which includes preparation of project reports.MERCHANT BANKING 2. appraising the project report with the financial institutions/banks. the next step is looking for the sources wherefrom the funds could be procured to implement the project. technical. etc. and external sources of funds which refers to the borrowed funds in the form of loans from banks. While rendering project counseling services. This service rendered by the merchant banker in arranging and procuring credit from financial institutions.

or from external sources like short term borrowings from banks etc. bankers. underwriters. 4. calculation of underwriter‘s liability in case\ of under 30 . before the public issue has to obtain the consent of the stock exchanges to the memorandum and articles of association. commercial banks. Credit syndication in case of domestic borrowings is with the institutional lenders and banks. Issue Management and Underwriting Management of capital issues is a professional service rendered by the skilled and experienced merchant bankers. Previously.. payment of wages. procuring private subscription to the securities and offering securities to existing shareholders of the company. Public issue management involves marketing of corporate securities by offering the securities to the public. the merchant banker. Sources of financing these short term requirements or working capital needs can be from internal sources like internal accruals from working or operations and short term loans from friends and relatives. the imposition of new rules and regulations regarding the public issue of securities made it necessary for merchant bankers to play a definite role in the management of public issues. the managing agents for a particular corporate used to manage public issues. Short-term funds are also required by the firm for purchase of raw materials. A merchant bankers post issue activities include final allotment and/or refund of subscription amount. the growth in the public limited companies in number and size. solicitors and board of directors.. draft the prospectus and obtain consent from the companies legal advisors.MERCHANT BANKING and investment organizations for financing the clients' project cost or meeting working capital requirement is referred to as loan syndication or credit syndication. The abolition of the managing agency system. advice the company to appoint auditors. brokers etc. SIDC etc. board of directors and other concerned parties. mutual funds etc. file the prospectus with registrar. salaries etc. IDBI etc. state level financial bodies like SFC. appoint other managers.. make an application for enlistment with stock exchanges and finally advertise for the issue. Long and medium term funds are obtained from the All India Financial Institutions like IFCI. As a manager to the public issue.

Bankers to the Issue The merchant banker can automatically become the banker to the issue in the following cases: 1. It has given underwriting commitments. Underwriting is only the guarantee given by the underwriter that in the event of under subscription. The function of a banker to the issue is to accept application forms from the public together with subscription money and transfer them to the account of the controlling branch. An underwriter of the issue gets the following benefits: · It earns a commission of the commitment given. Keeping this in view companies. The bank is a broker to the company. the amount underwritten would be subscribed in proportion by the underwriter. 6.MERCHANT BANKING subscription and complying the necessary statutory requirements for listing of securities on the stock exchange. · It expands its clientele by underwriting more and more issues. desire a full underwriting of the issue. 3. It acts as a manger to the issue. 2. 5. Under writing of public issue A fully underwritten public issue spells confidence to the investing public. which float a public issue usually. which ensures a good response to the issue. · It earns the right to be appointed as bankers of that issue. 31 . 4.

study the securities market and identify blue chip companies in which money can be invested.MERCHANT BANKING 7. 8. the tax bracket. liquidity requirements. by one company of a controlling interest in the share capital of another existing company. etc. Advisory Services Relating To Mergers and Takeovers A merger is defined as a combination of two or more companies into a single company where one services and other looses their corporate existence. debentures and debenture stocks. providing special services with a view to ensure maximum return by such investments with a minimum risk of loss of return on the money invested in securities. A merchant banker while performing the services of portfolio management has to enquire of the investment needs of the client. bonds etc. A takeover is referred to as an acquisition. They should keep record of latest amendment in government guidelines. from different companies or institutions held by individuals firm or corporate units. Merchant bankers take up management of a portfolio of securities on behalf of their clients. RBI regulations. Portfolio management refers to managing efficiently the investment in the securities held by professionals to others. ability to bare risk. etc. Portfolio Management Portfolio refers to investment in different types of marketable securities or investment papers like shared. they should study the economic environment affecting the capital market. stock exchange regulations. 32 . which is the purchase. A merger is also defied as an amalgamation wherein the shareholders of the combining companies become substantially the shareholders of the company formed. Merchant bankers are the middlemen settling negotiations between the offered and the offer or.

arranging for the meeting etc. then the acquirer company will select a business related company as a merger partner. He has to negotiate with the parties and decide the purchase consideration and mode of payment. 33 . drafting the scheme of amalgamation. If the objective is diversification in production line or business activities. the acquirer as well as the acquired company. Being a professional expert. He has to comply with the legal formalities like getting approval from the Government/ RBI.e. Venture Capital Financing Financing an emerging high-risk project is called venture capital financing. If the objective of merger is growth oriented i.MERCHANT BANKING Their role is specific and specialized in handling the mergers and take over assignments. Once the merger partner is proposed the merchant banker has to appraise the merger/takeover proposal with respect to financial viability and technical feasibility. i. the merchant banker is apt to safeguard the interest of the shareholders in both the companies and as such his assistance is useful for both the companies. the search of the acquirer company will start for a merger partner company. Based on the purpose of business objective. high court if required. seeking expansion in production and market segments. while repayment is by selling the equity through stock market when the shares are listed. then it will select a non-related company as a merger partner. Many merchant bankers are entering into this area by also financing viable upcoming projects. utilization of existing companies or optimum utilization of resources. getting approval of company Board. 9.e. The financing is by subscription to the equity capital. financial institution.

MERCHANT BANKING 10. Financing Of Exports And Imports 2. Non Resident Investment To attract NRI investments in the primary and secondary markets. Long Term Foreign Currency Loans 3. they also take care of operational details like purchase and sale of securities securing the necessary clearance from RBI under FERA for repatriation of dividends and interest. legal. Arranging Offshore Finance The merchant bankers also help their clients in the following areas involving foreign currency financing: 1. 12. portfolio management. selection of securities. 13. Foreign Collaboration Arrangements 34 . etc. 11. the merchant bankers provide investment advisory services to the NRIs in terms of identification of investment opportunities. etc. The services include arrangement for lease finance facilities for leasing companies. Acceptance Credit and Bill Discounting Though merchant bankers world over specialize in acceptance credit and bill discounting. Joint Ventures Abroad 4. these services are not currently provided by merchant bankers in India the principal reasoning being the lack of an active market for commercial bills. Leasing Is there another lucrative area of financing where merchant bankers are turning? Leasing is a viable source of financing while acquiring capital assets. documents and tax consultancy.

Assessment of capital requirements and counseling on capital restructuring. negotiations. Preparations of programs and packages for rehabilitation of sick units. Management of Fixed Deposits of Companies Recently. Obtaining necessary approval for implementation the rehabilitation package from the statutory authorities. interest charges. 35 . Monitoring the implementation of the scheme of rehabilitation. merchant‘s bankers have begun to structure and mobilize fixed deposits for their corporate clients. They take care of the procedural and legal aspects. financial and other factors causing sickness. Relief to Sick Industries The services offered by merchant bankers to sick industries can be summarized as follows: 1. Advice with regard to the amount to be raised. terms of deposits and other related issues are also offered to the client. Providing necessary assistance where the rehabilitation package involves mergers or amalgamation. and also mange the collection and subsequent servicing of the deposits. environmental. 4.MERCHANT BANKING The assistance rendered as in the case of financial services covers appraisals. 6. 15. 5. 3. 2. compliance with procedural and legal aspects etc. 14. Appraisal of technological.

the stock exchanges. He should track imp happenings in the market on ongoing basis. their movements. RBI. Delivery of his services depends on his basic understanding of these issues. understanding of legal and statutory requirements. following qualities are necessary: 1. Merchant bankers should do out of box thinking and be able to do financial engineering. 2. Knowledge: Thorough understanding of technical issues related to business. Standard solutions and products may not solve problems sometimes. It is imperative that a merchant bank maintains excellent rapport with all of them and also close relations even at informal levels. depositories and other government authorities for public issue related duties. Capital market familiarity: Merchant banker should be well versed with stock markets. Liasioning ability: Merchant bankers are required to liaison with SEBI. appreciation of business acumen. 3. This only can see speedy and favorable clearances by the authorities. 36 . Innovation is required even to address stringent legal requirements.MERCHANT BANKING 5.2 QUALITIES OF MERCHANT BANKERS To be a successful merchant banker. financial expertise is a key thing a merchant banker must know. They can device new financial instruments and get approved from the authorities. Innovation: Corporate may approach with unique requirements. 4.

Regulations: Though regulations are much better now. Merchants bankers should take utmost care that the information is not leaked and also not consumed for the purpose other than for which it was disclosed to the merchant banker.com/) 37 . Merchant bankers can be made more accountable and responsible. there is still scope for further improvement. Giant professional or multinational merchant bankers are cautions in their approach to Indian market. So the same promoters have to setup different companies for different purposes. leasing.e. Industry is not well organized and all the players do not play the same tune. tampering with project appraisal report to bankers is common. III. but still many corporate have excessively friendly approach. Management cost increases and expertise pooling i. This gives growth to more boutique fly-by-day firms.3 PROBLEMS AND HURDLES Not many but some problems are faced by Indian merchant bankers. But RBI does not permit merchant banking firms to get into these activities.MERCHANT BANKING 5. Corporate like to use merchant bankers for malafide intentions. This is specifically evident in comparison with insurance industry and mutual funds industry. Favored allotment of shares. 5. II. and portfolio management. I. money-lending.(http://www. Source : . multiple use of same talent is not possible. Integrity: Merchant banker has valuable and confidential information of its customers. Industry compartmentalization : Company which is in merchant banking business would have expertise in underwriting. Malafide practices: India corporate culture is bettering.qfinance. Professional qualification focused on merchant banking is not available. hire purchase.

Indian scenario is favorable to merchant bankers. strategic restructuring in house as well. FDI. 38 . Merchant bankers have lots space to contribute. With significant market freedom. etc. 3. In fact India is one of the largest emerging markets. then only they will engage merchant bankers. 2. This limits scope of commercial banks and gives space to merchant bankers. and corporate dynamics. public issues. Corporate culture: Corporate can do project appraisal. Merchant bankers assist in decision making and hence their scope increases.MERCHANT BANKING CHAPTER 6 SCOPE FOR MERCHANT BANKING IN INDIA Scope for merchant banking depends upon size of the market restrictionliberation. 4. Obviously. merchant bankers work has increased many folds. Lots of new and green fried projects are happening. They should setup a subsidiary for the purpose. If the corporate prefer third-party independent assessment. corporate culture. Restrictions-liberalization : More liberal the market is. 1. more the things left to be decided by the corporate. placement of debentures. Otherwise merchant banker‘s role is only statutory as in issue management. India inc. apparently prefers and is happy with merchant bankers work. debt raising are on rise. Some countries allow commercial bankers to get involved in IPO‘s. This policy also results in fair business practices. Banking policies : RBI prefers that commercial banks do not indulge in merchant banking business directly. Size and dynamics of the market : Indian market is growing. banking policies.

Corporate dynamics : More happening in business gives more opportunities to merchant bankers. there were only two foreign banks which performed merchant banking operations in the country. Merchant banking industry which remained almost stagnant and stereotyped for over two decades. As a result of buoyancy in the capital market in 1980‘s some commercial banks set – up their subsidiaries to operate exclusively in merchant banking industry. In addition. IDBI. 39 . commercial banks.1 PROGRESS OF MERCHANT BANKING IN INDIA Up to 1970. fund raising for government institutions. The number of merchant banks increased to 115 by the end of 1992-93 300 by the end of 1993-94 and 501 by the end of August. by the end of the end of 1980‘s there were 33 merchant bankers belonging to three major segments viz. all merchant bankers registered with SEBI under four different categories include 50 commercial banks.MERCHANT BANKING 5. Tourism Finance corporation of India. infrastructure Leasing and Financial Services Ltd. active money market are all providing better business prospectus to merchant bankers. Merchant banking functions of these institutions was related only to management of new capital issues. a number of large stock broking firms and financial consultants also entered into business. IRBI. witnessed an astonishing growth after the process of economic reforms and deregulation of Indian economy in 1991. Thus. all India financial institutions. 6. SBI was the first Indian commercial bank and ICICI the first financial institution to take up the activities in 1972 and 1973 respectively. and private merchant bankers. and private firms. 1994. Mergers. takeover acquisition. new Greenfield projects. 6 all Indian financial institutions – ICICI. IFCI..

6. To start with. a large number of reputed international Merchant Bankers like Merrill Lynch. There are 4. As a further step towards enhancing the customer convenience in using the plastic money. customers can now also withdraw cash up to Rs1000 from terminals at different merchant establishments. 40 . the Reserve Bank. it said. it has been decided to permit cash withdrawals at POS (point of sale) terminals. This facility is available only against debit cards issued in India. up to Rs1000 per day.237 POS terminals in the country. At present cash withdrawal facility using plastic cards is available only at Automatic Teller Machines (ATMs) with the number of ATMs in the country at 44.MERCHANT BANKING In addition to Indian Merchant Bankers. This facility may be made available at any merchant establishment designated by the bank and would be available whether the card holder makes a purchase or not. Goldman Sachs. this facility will be available for all debit cards issued in India." RBI said in a statement issued here. Indian Merchant Bankers are faced with severe competition not only among themselves but also with the well developed global players.70. As a result of proliferation. Morgan Stanley. The use of debit cards at POS terminals at different merchant establishments has been steadily increasing. Jardie Fleming Kleinwort Benson etc. are operating in India under authorization of SEBI.857.2 CURRENT AFFAIRS RBI Allows Cash Withdrawal From Merchant Banker Terminals Besides ATMs.

Besides. PNB Investment Services aims to provide investment consultancy and merchant banking services and would be operational in the next three months. who is charge of Deputy Governor of RBI. the bank plans to open new line of businesses in the current fiscal including merchant banking subsidiary. equity broking." said PNB Chairman and Managing Director K C Chakrabarty. the institutional equity broking company to Morgan Stanley for $ 445 million. Bulge bracket investment banking major. The Indian partner sold its 49% holding in JM Morgan Stanley Securities (JMSPL). Currently. The JV had investment banking operations other than equity broking. Post the split. wealth management and advisory and securities distribution operations.500 Crore By 2013 The country's second largest public sector lender Punjab National Bank aims to double its profit to Rs7. wealth management. research. Morgan Stanley has re-entered investment banking business on its own. after parting ways with JM Financial — its former Indian partner. he had said. The growth driver would be better asset liability management. which were engaged in fixed income. JM Financial acquired the investment banking company together with its subsidiaries. these operations are run by a division of the bank. advisory and distribution businesses of $ 20 million.500 crore by 2013. focus on customers and financial inclusion. thrust on recovery.500 crore in the next four years.MERCHANT BANKING A) Morgan Stanley Makes I-Banking Comeback The joint venture between JM Financial and Morgan Stanley was inked in 1997 and formalized in 1999. B) PNB Aims Profit Of 7. "The bank has set a target to expand total business to Rs10crore and earn net profit of Rs7. 41 .

42 . both the bank and its subsidiary have been vying for deals.‖ I-Sec MD Madhabi Puri Buch told ET. ―Now. ICICI Securities (I-Sec). M&A Advisory and other corporate advisory. The agreement goes on to define an M&A deal as one which involves change in management control. is part of the 3.‖ ICICI Bank had initially entered the investment banking space in 2006. who wish to be advised on M&A. will initially concentrate on regulated services like initial public offerings.MERCHANT BANKING C) ICICI Bank To Oversee Mergers And Acquisitions ICICI bank and its merchant banking arm. It also offers non-regulated services like PE Syndication. where the transfer of controlling interest takes place. it was decided that the business should be housed in the bank. the deal will be done by ICICI Bank. education & IT. The company. Birla Capital & Financial Services Ltd. Over the past couple of years.000-crore Yash Birla Group that has diversified interest in sectors like auto & engineering. buybacks. if a corporate is seeking a sell mandate or a buy mandate. The license will enable the company to offer a wide range of on-shore investment banking advisory and underwriting services in the Indian market. textiles & chemicals and power & electrical. D) Birla Capital And Financial Services Gets SEBI Merchant Banking License Birla Capital & Financial Services Ltd has been granted a merchant-banking license by the Securities and Exchange Board of India. delisting and valuations. have entered into an agreement. This arrangement replaces the earlier practice of both I-Sec and ICICI Bank working together on M&A deals. whereby all M&A deals will be done out of ICICI Bank. which is a part of the Yash Birla conglomerate. The new deal has taken into effect between both the entities from April 1. also look for acquisition finance. ―Since a predominant number of people. takeover.

In October 2008.563 crore during this year with the merchant banking fee of Rs 50. including the equities sales and trading.(http://www." Nexgen Capitals. Nomura. amounting to 0.themanagementor. Nomura India said in a statement it has significantly expanded its capabilities in India through a wide range of onshore financial solutions spanning securities brokerage. a global investment bank.MERCHANT BANKING E) Primary Market Slowdown. equity research. a wholly-owned subsidiary of Nomura Holdings.com/) 43 . Affects Merchant Bankers’ Wallet The recent slowdown in the primary market has impacted not only investors but merchant bankers as well.21 per cent so far this year from 2. Reliance Power IPO of Rs 11. fixed income liquid markets sales and trading. acquired the majority of Lehman Brothers' employees in India.6 crore. Source : . and investment banking teams. indicating a drop of 57. as there has been a significant decline of nearly 60 per cent in their percentage fees so far this year. F) Nomura Launches Its Investing Banking Operations In India Nomura Financial Advisory and Securities (India) Private limited ('Nomura India'). By integrating the former Lehman Brothers India franchise and obtaining its merchant banking licence and stock exchange memberships. the report added.24 per cent in 2007. the merchant-banking arm of brokerage firm SMC Global Securities. "There is a clear drop in the merchant banking fees to Rs 216crore in comparison to Rs. has launched its equity sales and trading and investment banking operations in India.44 per cent of the issue size had a great bearing on this trend. The average percentage fees has declined to 1. Merchant bankers are those who advise the issuer about the public offer and manage the issue.9 per cent on annualized basis. ('Nomura'). 771crore for the calendar year 2007. Inc. securities underwriting and advisory services.

Then there was the issue of asking all merchant bankers to furnish details of employees to SEBI. but it has not really been officiating as one. ARTICLES:AMBI-SEBI talks on SRO (May 8) MUMBAI-: The Association of Merchant Bankers of India (AMBI) is proposing to have an exhaustive dialogue with the Securities and Exchange Board of India (SEBI) on its functioning as a self-regulatory organization (SRO). It is expected to set code of ethics and facilitate dialogue between the industry and regulatory bodies. This follows a feeling among AMBI members that it is being sidestepped when decisions relating to merchant bankers are being taken. AMBI was given SRO status in 1995. Training and awareness programs are also expected from AMBI. AMBI feels that the member should have been given a fair hearing and also feels that AMBI as the SRO should have been informed about the decision. The association has already made its disappointment clear to SEBI and the proposed dialogue is reportedly being undertaken to clear all misunderstandings.MERCHANT BANKING CHAPTER 7 ASSOCIATION OF MERCHANT BANKERS IN INDIA (AMBI) Association of merchant bankers in India is a professional non-profit company setup to represent the industry. AMBI is dormant at present. 44 . Because of lack of support from the members and non-initiative from SEBI/government. This was also demanded without consulting/informing AMBI. Recently the association was really piqued when SEBI asked one of its\ members to stop taking up further assignments without so much as giving it any notice. A committee has subsequently been set up by AMBI to go into the matter.

Their uniqueness is extending services under single window concept covering the following areas: 1. Its SEBI registered Category I Merchant Banker / Underwriter to carry on Issue Management (Public / Rights / Private Placement Issues).1crore to Rs. State owned Corporations. 45 . Investments 4. Bankers to Issue . offering specialized services to Banks. they have associated with issues ranging from Rs. CANARA BANK Canara Bank is also one of the leading Merchant Bankers in India.1500 crores. Underwriting 6. Commercial Banking 3. Merchant Banking 2. involving various types of industries. Consultancy and Corporate Advisory Services etc.MERCHANT BANKING EXAMPLE:- MERCHANT BANKING SERVICES 1. They undertake "project appraisals" with resource raising plans from Capital Market/ Debt Markets and facilitate tie-ups with Banks / Financial Institutions and Potential Investors. statutory Bodies etc. Underwriting. PSUs. They also hold SEBI registration Certificate to act as "Bankers to an Issue" with network of exclusive Capital Market Service Branches to handle ―Capital Market" related assignments. banks. and have an edge in handling Private Placement issues – both retail & HNIs. Loan Syndication As leading Merchant Bankers in India. Local Statutory bodies and corporate sector.Escrow Bankers 5.

Project Appraisals 5. Corporate Advisory Services 10. Monitoring Agency Assignments 6. Mergers and Acquisitions 11. Buy Back Assignments 12. Agriculture Consultancy Services 9. IPO Funding 7. Debt Issue Management 3.MERCHANT BANKING SPECTRUM OF SERVICES:1. Security Trustee Services 8. Share Valuations 13. Equity Issue (Public/Rights) Management 2. Syndication 46 . Private Placements 4.

Post Issue Management 10. 47 . 2. Underwriting 7. visibility to profitability within a 12-month period. Promotion /Marketing of Issues 8. Capital structuring 3.Refund Bankers 11. 3.. 6. Targeted companies include the following characteristics: 1.Debenture Trusteeship INVESTMENT CRITERIA:A wide range of later stage opportunities are considered. Project Appraisal 2. Preparation of offer document 4. Formalities with SEBI / Stock Exchange / ROC etc. Tie Ups (placement) 5. If not already profitable. Collecting Banker / Banker to an issue 9.MERCHANT BANKING ISSUE MANAGEMENT SERVICES:1. Having weathered the start-up process and established a core business model that is sustainable.Handling of Dividend Warrant/Interest Warrant Payments 12. Proven management team.

Lines of Credit from Foreign Banks and Financial Institutions 4. Their Primary focus is On Indian Clients. Commercial loans 2. convenience and services to meet your needs by arranging Foreign Currency credits through: 1. FCNR loans 5.MERCHANT BANKING 4. They are internationally the most Preferred Bank by Export Credit Agencies for Guarantees in case of the Indian Clients or Projects. 6. Having established business partnerships that give it a major position in a market space. They provide the resources. Technology or business that is scalable with global applications. 5. SBI‘s seasoned Team of professionals provides you with Insightful credit Information and helps you Maximize the Value from the transaction. Syndicated loans 3. They specialize in the arrangement of various forms of Foreign Currency Credits for Corporate. They look for opportunities for synergistic consolidation and/or companies that are on the verge of extraordinary growth. STATE BANK OF INDIA SBI‘s Merchant Banking Group is strongly positioned to offer perfect financial solutions to your business. Loans from Export Credit Agencies 6. Significant barriers to entry. Financing of Imports. 2. SBI being an Indian entity has no India exposure ceiling. 48 .

5crore customers through 4520 branches and 439 extension counters is the largest amongst Nationalized Banks. Our gamut of Merchant Banking services includes: 1. Underwriting of equity issues 49 . The Bank has recently been ranked 21st among top 500 companies and 9th among top 50 brands by the Economic Times. PUNJAB NATIONAL BANK India‘s one of the Leading Nationalized Bank established in 1895. The Bank has a concept of "Any Time. ·Project appraisal 3. serving over 3. Corporate Advisory Services 4. Issue Management Services – to act as Book Running Lead Manager/Lead Manager for the IPOs /FPOs/Right issues/Debt issues 2. All the Branches of the Bank have been computerized. Any Where Banking" through the introduction of Centralized Banking Solution (CBS) and over 2511 offices have already been brought under its ambit.MERCHANT BANKING PRODUCTS AND SERVICES 1] Arranging External Commercial Borrowings (ECB) 2] Arranging and participating in international loan syndication 3] Loans backed by Export Credit Agencies 4] Foreign currency loans under the FCNR (B) scheme 3. The Bank is registered with SEBI as Category – I Merchant Banker for providing all the major Merchant Banking services.

The Bank itself is one of the major investor in the market having a treasury of 45000 crores.ambi.MERCHANT BANKING 5. Refund Banker 7. Debenture Trustee 9. Its unique features provides online payment of the instrument by our 2470 branches in 733 centers.in/) 50 .org. 100% reconciliation at any point of time etc. Monitoring Agency 8. Their Software for handling the Refund Banker is one of the best systems in the industry. Banker to the Issue/Paying Banker 6. online status of paid instruments. The Bank has an exclusive and specialized Capital Market Service Branch at New Delhi for providing Merchant Banking Services to the Corporate. Source : .(http://www. Marketing of the issue through a strong network of QIBs/HNIEs/Corporates and Retail investor.

well regulated market. and provide the investors an organized. fair and transparent regulatory framework. one must decide. Hence. the services for which he is being approached. To sustain the growth of the market and crystallize the growing awareness and interest into a committed. 51 . Selecting the right intermediary who has the necessary skills to meet the requirements of the client will ensure success.MERCHANT BANKING CHAPTER 8 CONCLUSION The merchant banker plays a vital role in channelizing the financial surplus of the society into productive investment avenues. Market development is predicted on a sound. It can be said that this project helped me to understand every details about Merchant Banking and in future how it‘s going to get emerged in the Indian economy. Hence before selecting a merchant banker. discerning and growing awareness and interest into an essential to remove the trading malpractice and structural inadequacies prevailing in the market. Merchant Banking can be considered as essential financial body in Indian financial system.

scribd.org.indianmoney. Machiraju.com/ http://www. Tata McGraw Hill.qfinance.themanagementor. R.in/ http://www.MERCHANT BANKING CHAPTER 9 REFERENCE Books:H.helium. Merchant Banking.com/ 52 . H.mbaknol. Merchant Banking And Financial Services.com/ http://www.ambi.com/ http://www.com http://www. Gurusamy.com/financial-management/ http://www. 2003. 2009. Websites:http://www.indianmba. New Age International Publishers. 1994. R. Edition 2.com/ http://www. Merchant Banking: Principles and Practice. Machiraju. New Age International Publishers.

32 48 80 Percentage 40 60 Interpretation Out of total respondents. 45% respondents have taken Financial Service and rest 55% respondents have not taken the Financial Service. 1 2 Do you take any financial services from bank? Take Financial Service Yes No Total Interpretation Out of total respondents.MERCHANT BANKING CHAPTER 10 ANNEXURE Questionnaire Q1 Sr. 40% respondents Know about merchant banking and rest 60% respondents don‘t know about merchant banking. Nos. 1 2 Do you know about Merchant Banking? Know about Merchant Yes No Total Nos. No. No. 53 . 36 44 80 Percentage 45 55 Q2 Sr.

43. 35 45 80 Percentage 43.25 100 Interpretation Out of total respondents. 1 2 Are you satisfied with the services provided by your bank? Satisfied Yes No Total Nos. no 1 2 3 4 5 Bank ICICI SBI PNB BOI Other Percentage 20 35 20 15 10 Interpretation Large no.MERCHANT BANKING Q3 Sr. 54 . Q4 Are you satisfied with services offered by banks? Sr.75 56. of companies takes financial services from SBI.75% respondents Satisfied and rest 60% respondents aren‘t satisfied. No.

no 1 2 3 Position Good Normal Bad Total Percentage 40 55 5 100 Interpretation Out of total respondents. 40% respondents Say Good. Q 6 What is the position of Merchant Banking in Public Sector? sr.No 1 2 3 Position Good Normal Bad Total Percentage 50 35 15 100 Interpretation Out of total respondents. 35% Say Normal and rest 15% respondents say bad.MERCHANT BANKING Q 5 What is the position of Merchant Banking in Private Sector? Sr . 55% Say Normal and rest 5% respondents say bad. 55 . 50% respondents Say Good.

) Gold Land Papers Third person security Total: Nos.5 15 100 Q 8 Are you satisfied by Security margin of bank? Sr. Type of Security Bank Security (F.No.D. 1. 64 16 80 Percentage 80 20 100 Interpretation Out of total respondents. Satisfaction by Security Margin Yes No Total: Nos. 80% respondents Satisfied and rest 20% respondents don‘t Satisfied. 4. 2. 56 . 3.5 0 62.No. 1.MERCHANT BANKING Q7 What type of security have you deposited/you will deposit with the banks? Sr. 18 0 50 12 80 Percentage 22. 2.

60 20 80 Percentage 75 25 100 Interpretation Out of total respondents. 1 2 Depends on M.B Yes No Total Nos. No. Source : .(http://www. No. 1 2 Difference Yes No Total Nos.scribd.MERCHANT BANKING Q 9 Are you satisfied with timely services provide by banks? Sr.com/) 57 . 56 24 80 Percentage 70 30 100 Interpretation Out of total respondents. Q10 Will it differ from investment banks? Sr. 75% respondents think that it is differ and rest 25% respondents don‘t think so. 75% respondents Say that they are timely heard and rest 25% say that They are not timely served by merchant banking.

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