Merchant Banking

INTRODUCTION
 Refers

to

British Merchant banking .
 Concerned

with mobilising savings of

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

ORIGIN

Originated through London merchants. Extension of activities to domestic business of syndication of long-term & shortterm finance, share transfer agents,

Merchant Banking
In India…?

Merchant banking in India
 Need

for merchant banking was felt with rapid growth in number & size of issues made in primary market. banking services were started by foreign banks, namely National Grindlays in 1967 & City bank in 1970 .

 Merchant

 Merchant

banking services were offered along with other traditional banking services. was first Indian bank to set up Merchant banking division in 1972.

 SBI

DIFFERENCE BETWEEN COMMERCIAL BANKING & MERCHANT BANKING

Deals with Debt & Debt related finance. Asset oriented. Generally avoid risks.

Deals with Equity & Equity related finance. Management oriented. Willing to accepts risks.

Merchant Banking
Services…?

SERVICES OF MERCHANT BANK
 The

financial institutions in India could not meet the demand for long-term fund required by the ever expanding industry and trade. sectors enterprise meet their demand through

 Corporate

Services of Merchant Banks Sr Particulars Summary
No 1 Corporate Counseling Covers the entire field of merchant banking, Ltd to giving suggestions Preparing project report for govt. approval , financial assistance

2

Project Counseling

3 Loan Syndication

4 Issue Management

Assistance rendered to get term loan for project, help client make appraisal, designing capital structure etc Marketing corporate securities, intermediary in transfer of capital from one who owns to needy

5 Underwriting Guarantee given by the underwriter, make raising of external resource easy 6 Managers to Issue Drafting, completion of formalities, appoint

7 Portfolio Investment in different Manageme kind of securities nt 8 Mergers and takeovers 9 Off Shore Finance Middlemen in setting negotiation Help in areas involving foreign currency

1 NonProvide help in better 0 Resident and smooth trade to Investment NRIs

Merchant Banker as Managers, Consultants or Advisors

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

Merchant Banker As lead Manager
 Appointment
S. No 1. 2. 3. 4. 5.

of a lead manager by a company
Size of the issue Maximum Number Of Lead Manager 2 3 4 5 5 or more as prescribed by SEBI Less than Rs.50 crores Rs.50 crores to Rs.100 crores Rs.100 crores to Rs.200 crores Rs.200 crores to Rs.400 crores Above Rs.400 crores

Duties & Responsibilities Of LM 
To enter into an agreement

Certificate of registration with SEBI Work of issue management Clearly defined responsibility

 Due

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

Qualities Required of Merchant Bankers
(Best merchant bankers)

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

(left) Rashesh Shah Chairman & CEO, Edelweiss (right) Nimesh Kampani Chairman & MD, JM Financial

CATEGORY OF MERCHANT BANKER
CATEGORY
1st 2nd 3rd 4th
::::-

MINIMUM NETWORTH 1 crore 50 lacs 20 lacs NIL

The M.B.registered with SEBI classified according to the category :MERCHANT BANKER PUBLIC SECTOR COMMERCIAL BANKS :- 24 FINANCIAL INSTITUTION :- 6 STATE INSTITUTION :- 4 PRIVATE SECTOR INTERNATIONAL BANKER :- 10

BANKS :- 10 FINANCE & INVESTMENT :- 231 LEASING

Merchant banking
Problems….?

Restriction of merchant banking activities
 SEBI

guidelines have authorised merchant bankers to undertake issue related activities and made them restrict their activities or think of separating these activities from present one and float new subsidiary and enlarge

Minimum net worth of Rs.1 crore

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

Non co-operation of issuing companies
 Non

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

MERCHANT BANKERS COMMISSION
 Maximum

0.5%  Project appraisal fees  Lead Manager :- 0.5% upto Rs.25 crores - 0.2% more in excess of Rs.25 crores

Underwriting fees  Brokerage commission 1.5%  Other expenses :- Advertising - Printing - Registrar’s expenses

Merchant banking
Scope in India…?

1) Growth of new issues market
 Indian

market largest emerging market  Domestic and foreign investors setting up their biz here.  Many public and private issues coming up  Growth in new issues market  Scope for M.Bs. have risen

2) Entry of FII

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

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

3) Changing policy of FI
 Liberalisation  FI

of policies

would require expert services of M.Bs for project appraisal, financial management, financial restructuring etc.

4) Development of debt market

Good portion of capital can be raised through debt instruments. Tremendous opportunities to M.Bs.

5) Innovations in Financial Instruments
 New

financial instruments have come up. are market makers for these instruments.

 M.Bs

6) Corporate Restructuring

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

7) Disinvestment

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

Conclusion
 Inspite

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

Thank you...