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Executive Summary
Merchant Banking is an important service provided by number of financial institutions that helps in the growth of the corporate sector ultimately reflects into the overall economic development of the country. Merchant Banks were expected to perform several functions like issue management, underwritings portfolio management, loan syndication, consultant, advisor and host of other activities. SEBI has also made all powerful to regulate the activities of merchant banks in the best interest of investors and economy. Apart, merchant banking was the necessity of banks themselves which were in the need of non-fund based income so as to improve their profitability margins by all means in the changed economic scenario. Now it could be anybodys anxiety to whether merchant banks are performing their duties honestly as they were expected to do. What duties they perform most and in what capacity. Whether merchant banking business helps bank them to improve their overall profitability. Does, the socio, political and economic environment prevailing today sufficiently warrant, the growth of merchant banking or otherwise? An honest attempt is being made to seek answers of their questions and also to suggest remedial measures wherever possible on the basis of empirical study done.

Consumers know How and Awareness is essential for the profitability of Merchant Banking Business.

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Financial services are an important component of financial system. The smooth functioning of financial system depends upon the range of financial servicers 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 increases in the number of issues and 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

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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 BRTIAN merchant bankers & investments bankers are synonymous. In the U.S., Merchant bank means as investments bank which is well equipped to handle multinational corporations. 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 related to securities market. There is no official category in investment banking.

DEFINITION: In banking, 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.

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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 Origin 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 raising long term 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 issue, acting as registrars and share transfer agents, debentures trustees, portfolio managers, negotiating agents for managers, takeovers etc.

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The history of merchant bank can be dated back to 17th & 18th centuries when it first started in Italy & France. This was started by the Italian grain merchants. It comprised of merchant bankers who intermediated or assisted in financing the transactions of other traders and their own trade too. With the passage of time the practices in evolved and the merchant banking in the modern era started from London where the merchants started to finance the foreign trade through acceptance of bill. Later they extended their services to the governments of under developed countries to raise the long term funds through the floatation of bonds in the London money market. Over the period they extended their services to loan syndication, underwriting the issues, portfolio management etc. The post war period witnessed huge increase in the merchant banking activities.

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Merchant banking activity was officially commenced into the Indian capital Markets when Grindlays bank received the license from reserve bank in 1967. Grindlays started its operations with management of capital issues, recognized the requirements of upcoming class of Entrepreneurs for diverse financial services ranging from production planning and system design to market research. Apart from this it also provides management consulting services to meet the Requirements of small and medium sector rather than large sector. Citibank Setup its merchant banking division in Indian in 1970. Indian banks Started banking Services from 1972.

State bank of India started the merchant banking division in 1972

After that there were many banks which set up the merchant bank division such as; ICICI Bank of India

Bank of Baroda

Canara Bank Punjab National Bank UCO Bank

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The Merchant Bank got more importance in the year 1983 when there was a huge boom in the primary market where the companies were going for new issue. Merchant banking activities are organized and undertaken in several forms. Commercial banks and foreign development finance institutions have organized them through formation divisions, nationalized banks have formed subsidiary companies, share brokers and consultancies constituted themselves into public limited companies or registered themselves as private limited Companies. Some merchant banking companies have entered into collaboration with merchant bankers of foreign countries abroad with several branches. As of now there are 135 Merchant bankers who are registered with SEBI in India. It includes Public Sector, Private Sector and foreign players some of them are:Public Sector Merchant Bankers

SBI capital markets ltd

Punjab national bank Bank of Maharashtra IFCI financial services ltd Karur Vysya bank ltd, State Bank of Bikaner and Jaipur Private Sector Merchant Bankers ICICI Securities Ltd

Axis Bank Ltd (Formerly UTI Bank Ltd.) Tata Capital Markets Ltd
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Bajaj Capital Ltd

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ICICI Bank Ltd Reliance Securities Limited Kotak Mahindra Capital Company Ltd Yes Bank Ltd. Foreign Players in Merchant Banking Goldman Sachs (India) Securities Pvt. Ltd. Morgan Stanley India Company Pvt. Ltd Barclays Securities (India) Pvt. Ltd Bank Of America, N.A

Deutsche Bank

Deutsche Equities India Private Limited Barclays Bank Plc Citigroup Global Markets India Pvt. Ltd. DSP Merrill Lynch Ltd FEDEX Securities Ltd

Requirements for setting up a Merchant Banking Outfit

1) Formation of the Business Organization

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SEBI act, 1992 does not prescribe any specific form business organization to carry on the activities as merchant banker. However, the types of organization are listed below: a. Sole proprietorship b. Partnership firm
c. Hindu Undivided Family(HUF)

d. Corporate Enterprises e. Co-operative Society Generally it is preferred that the Merchant Banking outfit be a registered company. Merchant Banks are generally setup as subsidiary companies of banks (Public or Private). For example, SBI caps ICICI securities etc.

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. Capital adequacy, profitability, growth opportunities and current market size are some of the factors which need to be looked into.

3) Registration of Merchant Banker

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a. Application for grant certificate An application for grant of certificate needs to be made to SEBI. The application can be made for any one of the following categories of the merchant banker namely: Category I, that isi. To carry on any activities of the issue management, which will Inter-alia consist of preparation of prospectus and other Information relating to the issue, determining financial Structure, tie-up of financiers and final allotment and refund of The subscription; and ii. To act as adviser, consultant, manager, underwriter, portfolio Manager.

Category II, that is, to act as adviser, consultant, co-manager, underwriter, portfolio manager; Category III, that is to act as underwriter, adviser, consultant to an issue;

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Category IV, that is to act only as adviser or consultant to an issue.

To carry on the activity as underwriter or portfolio manager a separate certificate of registration needs to be obtained from SEBI.

b. Application to conform to the requirements The application should conform to all the requirements under the SEBI guidelines, otherwise it may be rejected.

c. Furnishing






representation The Board may require the applicant to furnish further information or clarification regarding matters relevant to the activity of the merchant banker for the purpose of disposal of the application. The applicant or its principal officer may appear before the Board for personal representation.

d. Consideration of application The board shall take into account for considering the grant of a certificate, all matters, which are relevant to the activities relating to
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merchant banker and in particular the applicant compliances with the following requirements, namely: The applicant shall be a body corporate other than a nonbanking financial company The merchant banker who has been granted registration by the Reserve Bank of India to act as primary or Satellite dealer may carry on such activity subject to the condition that shall not accept or hold public deposit. The applicant has the necessary infrastructure like adequate office, space equipments, and manpower to effectively discharge his activities The applicant has in his employment minimum of two persons who have the experience to conduct the business of the merchant banker A person directly or indirectly connected with the applicant has not been granted registration by the Board: The applicant fulfils the capital adequacy requirements is as follows: The capital adequacy requirements should not be less than net worth of the person making the application for grant of registration. The net worth shall be as follows,
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Category Category I Category II Category III Category IV

Minimum Amount Rs. 5,00,00,000 Rs. 50,00,000 Rs. 20,00,000 Nil

The applicant, his partner, 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 The applicant has the professional qualification from an institution recognized by the government in finance, law or business management Grant of certificate to the applicant is in the interest of investors.

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e. Procedure for Registration The board on being satisfied that the applicant is eligible shall grant a certificate. On the grant of a certificate the applicant shall liable to pay the fees as prescribed.

f. Payment of fees and the consequences of failure to pay fees Every applicant eligible for grant of a certificate shall pay fees in such manner and within the period specified. Where a merchant banker fails to pay the Annual fees as provided in Schedule II, the Board may suspend the registration certificate, where upon 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.

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, subsidiary companies established by bankers like SBI, Canara Bank Punjab National Bank, Bank of India, etc. Some firms are also organized by
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financial and technical consultants and professionals. Securities and Exchange Board of India has divided the merchant bankers into four categories based on their capital adequacy. Each category is authorized to perform certain functions. From the point of organizational setup Indias merchant banking organizations can be categorized into four groups on the basis of their linkage with parent activity. They A. Institutional base Where merchant banks functions as an independent wing or as subsidiary of various private/central Government/State Governments financial institutions. 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. B. Bankers Base These merchant bankers function as division/subsidiary of banking organization. The parent banks are either nationalized commercial bank or the foreign banks operating in India. These organizations have brought professionalism in merchant banking sector and they help their parent organization to make a presence in capital market. C. Broker Base In the recent past there has been an inflow of qualified and professionally skilled brokers in various stock exchanges of India.

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These brokers undertake merchant banking related operations also like providing investment and portfolio management services.

D. Private Base These merchant banking firms are originated in private sector. These organizations are the outcome of opportunities and scope in merchant banking business and they are providing skill oriented specialized services in their clients. Some foreign merchant bankers are also entering services independently or through some collaboration with their Indian counterparts. Private sector merchant banking firms have come up either as the sole proprietorship or public limited companies. 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 division on the lines of commercial banks and All Financial Institutions.

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, the largest foreign bank in the country. The main service offered at that time to the corporate enterprises by

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the merchant banks included the management of public issues and some aspects of financial consultancy. Following Grindlays Bank, Citibank set up its merchant banking division in 1970. The division took up that task of assisting new entrepreneurs and existing units in the evaluation of new projects and raising funds through borrowing and equity issues. Management consultancy services were also offered. Merchant bankers are permitted to carry on activities of primary dealers in government securities.

Consequent to the recommendations o f Banking Commission in 1972, that Indian banks should offer merchant banking services as part of the multiple services they could provide their clients, State Bank of India started the Merchant Banking Division in 1972. In the initial years the SBIs objective was to render corporate advice and assistance to small and medium entrepreneurs. The commercial banks that followed State Bank of India were Central Bank of India, Bank of India and Syndicate Bank in 1977. Bank of Baroda, Standard Chartered Bank and Mercantile Bank in 1978 and United Bank of India, United Commercial Bank, Punjab National Bank, Canara Bank and Indian Overseas Bank in late 70s and early 80s. Among the development banks, ICICI started merchant banking activities in 1973 followed by IFCI (1986) and IDBI (1991)

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Progress of Merchant Banking in India:

Up to 1970, there were only two foreign banks which performed merchant banking operations in the country. SBI was the first Indian commercial bank and ICICI the first financial institution to take up the activities in 1972 and 1973 respectively. As a result of buoyancy in the capital market in 1980s some commercial banks set up their subsidiaries to operate
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exclusively in merchant banking industry. In addition, a number of large stock broking firms and financial consultants also entered into business. Thus, by the end of the of 1980s there were 33 merchant bankers belonging to three major segments viz., commercial banks, all India financial institution, and private firms. Merchant banking functions of these institutions was related only to management of new capital issues. Merchant banking industry which remained almost stagnant and stereotyped for over two decades, witnessed an astonishing growth after the process of economic reforms and deregulation of Indian economy in 1991. 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 the August, 1994. All merchant bankers registered with SEBI under four different categories include 50 commercial banks, 6 all Indian financial institutions ICICI, IFCI, IDBI, IRBI, Tourism Finance corporation of India, infrastructure Leasing and Financial Services Ltd, and private merchant bankers There were 164 Merchant Bankers registered as on 31 March 2002. But of this 104 were actually working. Registered Private Public Foreign 904 40 Working 60 25

30 19 164 104 In addition to Indian Merchant Bankers, a large number of reputed international Merchant Banker like Merrill Lynch, Morgan Stanley, Goldman Sachs, Jardie Fleming Kleinwort Benson etc, are operating in
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Indian under authorization of SEBI. As a result of proliferation, Indian Merchant. Bankers are faced with severe competition not only among themselves but also with the well developed global players.

Scope for merchant banking in India:Scope for merchant banking depends upon size of the market, restriction-liberation, corporate dynamics.
1. Size and dynamics of the market: Indian market is growing. In fact






India is one of the largest emerging markets. Obviously, public issues, FDI, debt raising are on rise. Lots of new and green fried projects are happening. Merchant bankers have lots space to contribute.
2. Restrictions-liberalization: more liberal the market is, more the

things left t o be decided by the corporate. Merchant bankers assist in decision making and hence their scope increases. With significant market freedom, merchant bankers work has increased many folds.
3. Banking policies: RBI prefers that commercial banks do not indulge

in merchant banking business directly. They should setup a subsidiary for the purpose. This limits scope of commercial banks and gives space to merchant bankers. This policy also results in fair business practices. Some countries allow commercial bankers to get involved in IPOs, placement of debentures, etc. Indian scenario is favorable to merchant bankers.
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4. Corporate culture: corporate can do project appraisal, strategic

restructuring in house as well. If the corporate prefer third-party independent assessment, then only they will engage merchant bankers. Otherwise merchant bankers role is only statutory as in issue management. India inc. apparently prefers and is happy with merchant bankers work.
5. Corporate dynamics: more happening in business gives more

opportunities to merchant bankers. Mergers, takeover acquisition, new Greenfield projects, fund raising for government intuitions, active money market are all providing better business prospects to merchant bankers.
6. Growth of New Issue Market :

The growth of new issue market is unprecedented since 1990-91 amount of annual average of capital issues by non-government companies was only about 90crores in the 70s, the same rose to over 1000crores in the 80s, and further to Rs.12, 700crores in the first four years of 1990s. The number of capital issues has also increased from 516 in 1991-92 to 1,211 in 2005-06. The trend is expected to continue in future.
7. Entry of Foreign Investors:

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An outstanding development in the history of Indian capital market was its opening up in 1992 by allowing foreign institutional investors to invest in primary and secondary market and also permitting Indian companies directly tap foreign capital through euro issues. Within two years to march 1994, the total inflow of foreign capital through these routes reached to $5 billion. It is estimated that this figure may go up to $35-40 billion by the turn of this century. Further foreign direct investment as also investment by NRIs have risen considerably due to number of incentives offered to them. They need the services of Merchant Banker of advise them for their investment in India. The increasing number of joint ventures abroad by Indian companies also requires expert services of Merchant Bankers.
8. Changing Policy of Financial Institutions:

With the changing emphasis in the lending policies of financial institution from security orientation, corporate enterprises would require the expert services of merchant bankers for project appraisal finance management etc. The policy of decentralization and encouragement of small and medium industries will further increase the demand for technical and financial services which can be provided by merchant bankers


Innovations in Financial Instruments:

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The Indian capital market has witnessed innovations in the introductions of financial instruments such as non-convertible debentures with detachable warrants, cumulative convertible preference shares, zero coupon bonds, deep discount bonds, triple option bonds, secured premium notes, floating interest rate, auctions rated debentures etc. This has further extended the role of Merchant Bankers as market makers for these instruments. 10 Development of Debt Market: The concept of debt market has set to work through National Stock Exchange and Over the Counter Exchange of India. Experts feel that the estimated capital issues of Rs.40, 000crores in 1994-95, a good portion may be raised through debt instruments. The development of debt market will offer tremendous opportunity to Merchant Bankers. 11 Disinvestment: The government raised Rs.2000crores through disinvestment of equity shares of selected public sector undertakings in 1993-94. The government proposes to shift the present method of periodic sale of public sector shares to round the year off loading of shares of identified public sector at any time during the year when they get a good price above minimum stipulated level. This is likely to provide good business to Merchant Bankers in future.

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Qualities of merchant bankers:To be a successful merchant banker, following qualities are necessary:
1. Knowledge: Through understanding of technical issues related to

business, understanding of legal and statutory requirements, appreciation of business acumen; financial expertise is a key thing a merchant banker must know. Delivery of his services.
2. Capital market familiarity: Merchant banker should be well versed

with stock markets, their movements. He should track imp happening in the market on ongoing basis
3. Liasioning ability: Merchant bankers are required to liaison with

SEBI, RBI, the stock exchange, depositories and other government authorities for public issue related duties. It is imperative that a merchant bank maintains excellent rapport with all of them and also close relations even at informal levels. This only can be see speedy and favorable clearance by the authorities.

Innovation: Corporate may approach with unique requirements. Standard solution and products may not solve problems sometimes. Merchant bankers should do not out of box thinking and be able to do financial engineering. They can device new financial instruments and

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get approved from the authorities. Innovation is required even to address stringent legal requirements.

Integrity: Merchant banker has valuable and confidential information of its customers. Merchant 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.

Problems and hurdles:Not many but some problems are faced by Indian merchant bankers.

Industry compartmentalization: company which is in merchant banking business would have expertise in underwriting, hire purchase, leasing, and portfolio management, money-lending. But RBI does not permit merchant banking firms to get into these activities. So the same promoters have to setup different companies for different purpose. Management cost increase and expertise pooling i.e. multiple use of same talent is not possible.


Malafide practices: India corporate culture is bettering but still many corporate have excessively friendly approach. Favored allotment of shares, tempering with project appraisal report to bankers is common. Corporate like to use merchant bankers for malafide intensions. This gives growth to more boutique fly-by-day firms. Giant professional or

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multinational merchant bankers are cautions their approach to Indian market.


Regulations: though regulations are much better now, there is still scope for further improvement. Merchant bankers can be made more accountable and responsible. Professional qualification focused on merchant banking is not available. Industry is not well organized and all the players do not play the same tune. This is specifically evident in comparison with insurance industry and mutual funds industry.

Services Provided by Merchant Banks

Below mentioned are the major services offered by Merchant Bankers;

Project Counseling

Management of debt and equity offerings Issue Management Managers, Consultants or Advisers to the Issue Underwriting of Public Issue Portfolio Management Restructuring strategies Off Shore Finance Non-resident Investment Loan Syndication

Corporate Counseling and advisory services

Placement and distribution

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Project Counseling

Project counseling comprises 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 and banks. It also includes filling up of application forms with significant information for obtaining funds from financial institutions and obtaining government approval.

Management of Debt and Equity offerings This is the major function of the merchant banker. They assist the companies in raise funds from the market. The main areas of work in this regard include; Instrument designing Pricing the issue

Registration of the offer document

Underwriting support Marketing of the issue Allotment and refund Listing on stock exchanges. Issue Management Management of issue involves marketing of corporate securities like equity shares, preference shares and debentures or bonds by offering them to
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public. Merchant banks act as an intermediary to transfer capital from those who own it to those who need it. After taking action as per SEBI guidelines, the merchant banker organizes a meeting with company representatives and advertising agents to finalize arrangements relating to date of opening and closing of issue, registration of prospectus, launching publicity campaign and fixing date of board meeting to approve and sign prospectus and pass the necessary resolutions. Pricing of issues is done by the companies in consultant with the merchant bankers. Managers, Consultants or Advisers to the Issue The managers to the issue assist in the drafting of prospectus, application forms and completion of formalities under the Companies Act, appointment of Registrar for dealing with share applications and transfer and listing of shares of the company on the stock exchange. Companies can appoint one or more agencies as managers to the issue. Underwriting of Public Issue Underwriting is a guarantee given by the underwriter that in the occurrence of under subscription, the amount underwritten would be subscribed by him. Banks/Merchant banking institutions cannot underwrite more than 15% of any issue. Portfolio Management Portfolio indicates investment in different types of securities such as shares, debentures or bonds issued by different companies. Portfolio management
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means maintaining proper combinations of securities in a mode that they give maximum return with minimum risk. Restructuring strategies A merger is a blending of two companies into a single company where one survives and other loses its corporate existence. A takeover is the purchase by one company obtaining controlling interest in the share capital of another existing company. Merchant bankers act as the middlemen in setting negotiation between the two companies. Merchant bankers assist the management of the client company to successfully restructure various activities such as mergers and acquisitions, divestitures, management buyouts, joint venture among others. Off Shore Finance The merchant bankers help their clients in the following areas involving foreign currency. Long term foreign currency loans Joint Ventures abroad Financing exports and imports Foreign collaboration arrangements Non-resident Investment The services of merchant banker includes investment advisory services to NRI in terms of classification of investment opportunities, selection of
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securities, investment management, and operational services like purchase and sale of securities. Loan Syndication Loan syndication is an assistance provided by merchant bankers to get mainly term loans for projects. Such loans may be obtained from a single development finance institution or a syndicate or consortium. Merchant bankers help corporate clients to raise syndicated loans from banks and other financial institutions.

Corporate Counseling and advisory services Corporate counseling involves the entire field of merchant banking activities such as project counseling, capital restructuring, public issue management, loan syndication, working capital, fixed deposit, lease financing acceptance credit, etc. Merchant bankers also provide customized solutions to their clients financial problems. Apart from this they also explore the refinancing alternatives of the client, and evaluate cheaper sources of funds. Rehabilitation and turnaround management is another area of advice. A merchant banker advises the client on different hedging strategies and suggests the appropriate strategy. Placement and distribution The merchant banker helps in distributing different securities like equity shares, debt instruments, mutual fund products, fixed deposits, insurance
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products, commercial paper, etc. The distribution network of the merchant banker can be classified as institutional and retail in character. The institutional network consists of mutual funds, foreign institutional investors, private equity funds, pension funds, financial institutions etc. The size of such a network signifies the wholesale reach of the merchant banker. The retail network is purely depends on networking with investors.


According to the Regulation of the SEBI of 1992 (Merchant bankers) (, every merchant banker should comply with following codes of conduct. They are: a) The merchant banker must observe high integrity and fairness in all his dealings. b) He shall render at all times high standard of services, exercise due diligence, exercise independent professional judgment.

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c) If necessary, he must disclose to disclose to his clients the possible source of conflict of duties and interests. d) The merchant banker should not indulge in unfair practice or unfair competition with other merchant bankers. e) He should not make any exaggerated statement about his capacity or achievement.
f) He should always Endeavour to give the best possible advice and

prompt efficient cost effective service.

g) He should maintain the secrecy of all the confident information

received during the course of service to his client.

Guidelines of SEBI
After the obligations of the CCI, the place was occupied by a legal organ called as Securities and Exchange Board of India. The issue of capital and pricing of issues by companies has become free of prior approval. The SEBI has issued guidelines for the issue of capital by the companies. 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, the first issue by the next existing private companies and public issue by the existing listing companies. The SEBI is the most powerful organization to control and lead both primary market and secondary market.

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The SEBI has announced the new guidelines for the disclosures by the Companies leading to the investor protection. They are presented below:
a) If any companys other income exceeds 10 percent of the total

income, the details should be disclosed.

b) The Company should disclose any adverse situation which affects the

operations of the company and occurs within one year prior to the date filling of the offer document with the Resister of Companies or Stock Exchange.
c) The company should also disclose the information regarding the

capacity utilization of the plant for the last years.

d) The Promoters of the company must maintain their holding at least 20

percent of the expanded capital. e) The minimum application money payable should not be less than 25 percent of the issue price. f) The company should disclose the time normally taken for the disposal of various types of investors grievances. g) The company can make firm allotments in public issues as follows: Indian mutual funds (20%) FIIS (24%) Regular employees of the company (10%) Financial institution (20%) h) The company should disclose the safety net scheme or buy back arrangement of the shares proposed in public issue. This scheme is
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applicable to a limited number of 500 shares per allottee and the offer should be valid for a period of at least 6 months from the date of dispatch of securities.
i) According to the guidelines, in case of the public issue, at least 30

mandatory collection centers should be established. j) According to the SEBI guidelines regarding rights issue, the company should give advertisements in not less than two newspapers about the dispatch of letters of offer. No preferential allotment may be made along with any rights issue. k) The company should also disclose about the fee agreed between the led managers and the company in the memorandum of understanding.


As determined by the Financial Ministry, Government f India, Merchant Bankers are eligible to charge commission/fee from their client as detailed below: i. A Merchant Banker can charge 0.5% as the maximum as commission for whole of the issue. ii. iii. They can charge project appraisal fees. A lead manager can claim a commission of 0.5% up to Rs. 25crores and 0.2% in excess of Rs. 25crores. Type of Security On amount devolving on Underwriters
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On amount subscribed by

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1. Equity shares 2. Preferences shares/debentures a) Up to Rs. 5lakhs b) Excess 5lakhs iv. v. of


public 2.50

2.50 Rs. 2.00

1.50 1.00

Brokerage commission 105% Other expenses like advertising, printing, Registrars expenses, stamp duty etc., in connection with issue can be reimbursed from its client.


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The role of merchant bankers is dynamic in the wake of diverse nature of merchant banking services. Merchant bankers dynamism lies in promptly attending to the corporate problems and suggests ways and means
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to solve it. The nature of merchant banking services is development oriented and promotional to help the industry and trade to grow and survive. Merchant Banker is, therefore, dedicated to achieve this objective through his dynamism. He is always awake to renew his skills, 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. He has to keep pace with changing environment where government rules, regulations and politics affecting business conditions frequently change; where science and technology create new innovations in production processes of industries envisaging immediate renovations, diversifications, 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 banker has to think and devise new instruments of financing industrial projects. 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.

Main Objectives of Merchant Bankers :Merchant bankers render their specialized assistance in achieving the main objectives which are presented below: 1. To carry on the business of merchant banking, assist in the capital formation, manage advice, underwrite, provide standby assistance, securities and all kinds of investment issued, to be issued or
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2. Guaranteed by any company, corruption, society, firm, trust person,

government, municipality, civil body, public authority established in India. 3. 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. 4. Merchant bankers other objective is to set up and provide services for the venture capital technology funds. 5. They also provide services to the finance to the finance housing schemes for the construction of houses and buying of land. 6. They render the services like foreign exchange dealer, money exchange, and authorized dealer and to buy and sell foreign exchange in all lawful ways in compliance with the relevant laws of India. 7. They will invest in buying and selling of transfers, hypothecate and deal with dispose of shares, stocks, debentures, securities and properties of any other company

Obligation and Responsibility

Merchant bankers have the following obligations and responsibility.

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1. Merchant banker should maintain proper books of accounts, records and submit half/ annual financial statements to the SEBI within stipulated period of time. 2. No merchant banker should associate with another merchant banker who registered in SEBI. 3. Merchant bankers should not enter into any transactions on the basis of unpublished information available to them in the course of their professional assignment. 4. Every merchant banker must submit himself to the inspection by SEBI when required for and submit all the records. 5. Every merchant banker must disclose information to the SEBI when it requires any information from them. 6. All merchant banker must abide by the code of conduct prescribed for them 7. Every merchant banker who acts as lead manager must enter into an agreement with the issuer setting out mutual rights, liabilities, obligations, relating to such issues with particular reference disclosure allotment, refund etc. MERCHANT BANKER AS A LEAD MANAGER As per the SEBI guidelines it is mandatory that all public issues should be managed by merchant bankers in the capacity of lead managers. Only in the case of right issues not exceeding Rs. 50lakhs such an obligation is not necessary. The number of lead manager to be appointed by a company depends upon the size of the issues as shown below:
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Vivek College of Commerce 1. 2. 3. 4. 5.

Maximum Number of Lead Managers. Less than Rs. 50crores 2 Rs. 50 cores to Rs. 100 cores 3 RS. 100 cores to RS.200 4 cores 5 Rs. 200 cores to Rs. 400 cores 5 or more as Above Rs. 400 cores prescribed by SEBI

Size of the issue


The most important aspect of Merchant Banking business is to function as lead managers to the issue management. As lead managers, they have to exercise reasonable care and diligence in issue management by paying attention to the following things: i. It is the duty of every lead managers to enter into an agreement with the issuing companies stating the details regarding their responsibilities, liabilities, mutual rights, function, disclosures, refund, allotment etc. copy of this agreement should be submitted to the SEBI at least one month before the opening of the issue for subscription. ii. One merchant banker cannot have association with another merchant banker who does not hold a certificate of registration with the SEBI. iii. A lead manager cannot undertake the work of issue management if the issuing company is its associate. iv. A lead manager is under an obligation to accept a minimum underwriting obligation of 5 percent of the total underwriting commission or Rs.
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25lakhs whichever is less. If he is not able to comply with another Merchant Banker to underwrite the said amount. v. A lead manager has to exercise due care and diligence in the verification of prospectus or letter of offer. vi. He has to submit due diligence certificate rating that the prospectus or letter of offer is in conformity with the document relevant to the issue, the disclosures are true, fair and adequate and all legal requirements connected with the issues have been duly complied with. vii. Every lead manager has to submit all the particulars of an issue, draft prospectus or letter of offer etc. To the SEBI at least two weeks before the date of filling with the Registrar of companies or regional stock exchanges or both. viii. Any suggestions or modifications given by the SEBI, he has to ensure that they are properly incorporated in the appropriate areas. ix. In case of development, the lead manager has to ensure the collection of the specified amount from the underwriters. x. It is his duty to mail the share /debenture certificate immediately on allotment or inform it to the depository participants.


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INVESTMENT BANKS Both fee based and fund based. Commit their own funds. MERCHANT BANKS Purely fee-based. Impossible to stay aloof from international trends.


COMMERCIAL BANKS Deals with debt and debt related finance. Asset oriented. Generally avoid risk. MERCHANT BANKS Deals with equity and equity related finance. Management oriented. Willingly to accept risk.

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RBI allows cash withdrawal from merchant banker terminals Besides ATMs, customers can now also withdraw cash up to Rs1000 from terminals at different merchant establishments, the Reserve Bank. As a further step towards enhancing the customer convenience in using the plastic money, it has been decided to permit cash withdrawals at POS (point of sale) terminals. To start with, this facility will be available for all debit cards issued in India, up to Rs1000 per day, RBI said in a statement issued here. The use of debit cards at POS terminals at different merchant establishments has been steadily increasing, it said. This facility is available only against debit cards issued in India. 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 44,857. There are 4, 70,237 POS terminals in the country. 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. Morgan Stanley makes I-banking come back The joint venture between JM Financial and Morgan Stanley was inked in 1997 and formalized in1999. The JV had investment banking operations other than equity broking research, wealth management and advisory and securities distribution operations. Post the split; JV
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Financial acquired the investment banking company together with its subsidiaries, which were engaged in fixed income, equity broking wealth management and advisory and securities distribution business of $ 20 million. The Indian partner sold its 49% holding in JM Morgan Stanley Securities (JMSPL), the institutional equity broking company to Morgan Stanley for $445 million. Bulge bracket investment banking major, Morgan Stanley has re-entered investment banking business on its own, after parting way with JM Financial-its former Indian partner. PNB aims profit of 7,500crore by2013 The countrys second largest public sector lender Punjab National bank aims to double its profits to 7,500crore in the next four years. The bank has set a target to total business to Rs.10crore and earn net profit of Rs.7, 500crore in 2013, said PNB Chairman and Managing director K C Chakrabarty, who is in charge of Deputy Governor of RBI. The growth driver would be better asset liability management, thrust on recovery, focus on customers and financial inclusion, he had said. Besides, the bank plans to open new line of businesses in the current fiscal including merchant banking subsidiary. PNB Investment Services aims to provide investment consultancy and merchant banking services and would be operational in the next three months. Currently, these operations are run by a division of the bank.

ICICI Bank to overseas mergers and acquisitions

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ICICI bank and its merchant banking arm, ICICI securities (I-sec), have entered into an agreement, whereby all M&A deals will be done out of ICICI Bank. The agreement goes on to define an M&A deal as one which involves change in management control. This arrangement replaces the earlier of both I-Sec and ICICI Bank working together on M&A deals. Since a predominant number of people, who wish to be advised on M&A, also look for acquisition finance, it was decided that the business should be housed in the bank, I-Sec MD Madhabi Puri Buch told ET. Now, if a corporate is seeking a sell mandate or a buy mandate, where the transfer of controlling interest takes place, the deal will be done by ICICI Bank. ICICI Bank had initially entered the investment banking space in 2006. Over the past couple of years, both the bank and its subsidiary have been vying for deals. The new deal has taken effect between both entities from April 1. 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. The license will enable the company to offer a wide range of on-shore investment banking advisory and underwriting services in the Indian market. The company, which is a part of the Yash Birla conglomerate, will initially concentrate on regulated services like initial public offerings, takeovers, buybacks, delisting and valuations. It also offers non-regulated services like PE Syndications, M&A Advisory and other corporate advisory.
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Birla Capital & Financial Services Ltd is a part of the 3,000crore Yash Birla Group that has diversified interest in sectors like auto & engineering, textiles & chemicals and power & electrical, education & IT. Primary market slowdown, affects merchant bankers wallet The recent slowdown in the primary market has impacted not only investors but merchant bankers as well, as there has been a significant decline of nearly 60% in their percentage fees so far this year. There is a clear drop in the merchant banking fees to Rs 216crore in comparison to Rs.771crore for the calendar year 2007, indicating a drop of 57.9% on annualized basis, Nexgen Capitals, the merchant banking arm brokerage firm SMC Global securities. Merchant bankers are those who advise the issuer about the public offer and manage the issue. The average percentage fee has declined to 1.21% so far this year from 2.245 in 2007, the report added. Reliance Power IPO of Rs 11,563crore during this year with the merchant banking fee of Rs 50.6crore, amounting to 0.44% of the issue size had a great bearing on this trend. Normura launches its investing banking operations in India Normura Financial Advisory and Securities (India) Private Limited (Normura India), a wholly owned subsidiary of Normura Holdings, Inc. (Normura), has launched its equity sales and trading and investment banking operations in India. In October 2008, Normura, a global investment bank, acquired the majority of Lehman Brothers employees in India including the equities sales and trading and investment banking teams. By
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integrating the former Lehman Brothers India franchise and obtaining its merchant banking license and stock exchange memberships, Nomura India said in a statement it has significantly expanded its capabilities in India through wide range of onshore financial solutions spanning securities brokerage, securities underwriting and advisory services.



State Bank of India

SBIs Merchant Banking Group is strongly positioned to offer perfect financial solutions to your business. They specialize in the arrangements of various forms of Foreign Currency Credits for Corporate. They provide the

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resources, Conveniences and services to meet your needs by arranging Foreign Currency credits through: Commercial loans Syndicated loans

Lines of credit from Foreign Banks and Financial Institutions

FCNR loans Loans from Experts Credit Agencies Financing of imports. They internationally the most Preferred Bank by Exports Credit Agencies for Guarantees in case of the Indian Clients or Projects. SBI being an Indian entity has no India exposure ceiling. The primary focus is On Indian Clients. SBIs seasoned team of professionals provides you with Insightful credit information and helps you Maximize the Value from the transaction. Products and Services 1) Arranging External Commercial Borrowing(ECB) 2) Arranging and participating in international loan syndication 3) Loans backed by exports Credit Agencies 4) Foreign currency loans under the FCNR(B) scheme 5) Import Finance for Indian Corporate.

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Punjab National Bank

Indias one of the Leading Nationalized Bank established in 1985, serving over 3.5crore customers through 4250 branches and 436 extension counters is the largest amongst Nationalized Banks. The bank has recently been ranked 21st among top 500 companies and 9th among top 50 brands by the Economic Times. All branches of the banks have been computerized. The Bank has concept of Any Time, Any Where Banking through the introduction of Centralized Banking Solution (CBS) and over 2511 offices have already been brought under its ambit. The Bank is registered with SEBI as Category-I Merchant Bankers for providing the entire major Merchant banking Services. Our gamut of Merchant Banking services includes: Issue Management Services- to act as Book Running/Lead Manager/Lead manager for the IPOs/FPOs/Rights issues/Debt issues Project appraisal Corporate Advisory Services
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Underwriting of equity issues Banker to the Issue/Paying banker Refund Banker Monitoring Agency Debenture Trustee Marketing of the issue through a strong network of QIBs/HNIEs/Corporate and Retail Investors. The bank itself is one of the major investors in the market having treasury of45000crores. Their software for handling the Refund Banker is one of the best systems in the industry. Its unique features provides online payments of the instrument by our 2470 branches in 733 centers, online status of paid instruments, 100% reconciliation at any point of time etc. The Bank as exclusive and specialized Capital Market Service Branch un New Delhi for providing Merchant Banking Services to the corporate.

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


References Books: Merchant Banking J. C. Verma

Financial Services :- Gordon Natrajan

References Sources:

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