Merchant Banking

Presented By:
Saloni Jain, Nikhil Vaid, Vinita Sen, Raghvendra Singh.

Section 2(e) of SEBI Act, 1992 defines 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, adviser or rendering corporate advisory service in relation to such issue management’.

Merchant banking… is the financial intermediation that matches the entities that need capital and those that have capital. It is a function that facilitates the low of capital in the market.

In banking a merchant bank is a traditional term for an investment bank. The so called merchant banks, were in fact the original ‘banks’. These were invented in the middle ages by Italian grain merchants. Merchant bankers were individuals or banking houses whose major objective was to provide capital for commodity traders, cargo owners, and buying, selling and shipping of goods. They carried out their lending operations from a bench, which in Italian term was known as ‘banco’. Thus the merchant banking came into existence. Later on, the centre of merchant banking operations was shifted from Italy to Amsterdam and thereafter to London.

A merchant bank should contain the following characteristics:  High proportion of decision makers as a percentage of total staff.  Quick decision process.  High density of information.  Intense contact with the environment.  Loose organizational structure.  Emphasis on fee and commission income.  Innovative instead of repetitive operations.

Commercial banking and merchant banking both involve the provision of financial services and advice. Merchant banking, however, often focuses on investing a depositor’s assets in a finance portfolio and managing these investments. Merchant banks are commonly called investment banks. Apart from investing and managing the assets of wealthy clients, merchant banks also offer counsel and advice to large corporations Commercial banking is also sometimes defined as the provision of banking services such as checking and loans to large businesses, as distinguished from individual citizens. In this case, banking provided to individuals is referred to as retail banking

Grindlays Banks-196 Citibank-1970 SBI-1972

Categorization Category I to act as lead manager and carry on any activity of the issue management, including 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 to act as a adviser ,consultant, manager, underwriter, portfolio manager Category II : to act as adviser ,consultant, co-manager, underwriter, portfolio manager Category III : to act as underwriter , adviser and consultant to an issue Category IV : to act only as advisor or consultant to an issue

SEBI has prescribed the following net worth requirements for merchant bankers. The total paid up capital and free reserves is considered as net worth Category Minimum Amount of Net Worth I Rs 5,00,00,000 II Rs 5,00,000 III Rs 20,00,000 IV Rs Nil

The merchant banking activity in India is governed by SEBI (Merchant Bankers) Regulations, 1992. Registration with SEBI is mandatory to carry out the business of merchant banking in India. An applicant should comply with the following norms: i) The applicant should be a corporate body. ii) The applicant should not carry on any business other than those connected with the securities market. iii) The applicant should have necessary infrastructure like office space, equipment, manpower, etc. iv) The applicant must have at least two employees with prior experience in merchant banking. v) Any associate company, group company, subsidiary or interconnected company of the applicant should not have been a registered merchant banker. vi) The applicant should not have been involved in any securities scam or proved guilt for any offence. vii) The applicant should have a minimum net worth Rs50 million.

The services provided by merchant bankers includes management of mutual funds, public issues, trusts, securities and international funds. It involves dealing with the corporate clients and advising them on various issues like- mergers, acquisitions, public issues, etc.

Merchant banking activities help in channelizing the financial surplus of the general public into productive investment avenues. They help to coordinate the activities of various intermediaries to the share issue such as the registrar, bankers, advertising agency, printers, underwriters, brokers, etc. and to ensure the compliance with rules and regulations governing the securities market. This being the era where mergers and acquisitions are hot, the scope of merchant banking has grown to a large extent.

Merchant Banker ICICI Securities IDBI SBI Caps DPS IFCI Bank of Baroda Jardine Fleming JM Finance ENAM PNB Caps

OE 4.0 4.2 4.4. 6.1 6.1 6.7 5.8 6.0 6.3 6.8

FSS 4.0 3.2 3.9 5.7 5.7 6.5 6.2 6.5 6.8 6.8

QPS 4.2 4.5 4.6. 6.0 6.0 6.7 5.9 5.5 6.4 6.7

QM 3.8 4.0 6.7 6.0 6.0 6.6 5.0 5.9 6.3 6.8

INN 4.3 4.8 5.2 5.3 6.3 6.8 5.5 5.4 6.2 6.8

Note: OE: Overall Excellence; FSS: Financial Soundness ; QPS: Quality Product/Service; QM: Quality Management; INN: Innovativeness.

Well Known Example of Merchant Banker:
Karvy is well networked with 200 full-fledged branches and 350 Investor Service Centers with a workforce of over 3500 personnel drawn from various disciplines. Karvy Investor Services Limited, a SEBI registered Merchant Banker is a 100% subsidiary Of Karvy Consultants Limited and is among the top 10 merchant Bankers in India today. The parent Company i.e. Karvy Consultants Limited was founded by a group of professionals in 1982 and today it has evolved as integrated financial services company of repute, offering various financial services to suit every requirement/need of our customers.

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