Merchant banking

Presented by:
SURAJ
KUMAR -115
RAM DAS -112
SATVINDER
-113

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INTRODUCTION
Investment Banking is an American Synonym of
Merchant Banking;

Merchants used to attend to extending of loans

and arranging finance for trade purposes;

As the time passed the banking assumed more

importance and the merchants switched over to
banking activities, hence the term merchant
Banking took placed.

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Meaning
Merchant banking is a non-banking financial
activity similar to banking;
Merchant banking is a fee based business, where
the bank assumes market risk but no long-term
credit risk.
These are financial institutions providing
valuable solutions such as:-
Acceptance of bills of exchange;
Corporate finance;
Portfolio management;
Other non-banking services.

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definition
An organization that underwrites securities for corporations,
advices such clients on mergers, and is involved in the
ownership of commercial ventures.
According to Mr. Rosenburg

Any person who is engaged in the business of issue

management either by making arrangements regarding selling,
buying or subscribing to the securities as manager; consultant
adviser; or one rendering corporate advisory services in
relation to such activities in the management.
According to MOF, India

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Origin
In Britain started in the 13th century when a few private
firms engaged themselves in foreign trade and finance.

Based on the British model Dutch and Scottish traders

started merchant banking.

In USA merchant banking was developed by the

European bankers.

West Germany developed close link with the commercial

banks thus offering variety of services to customers.

In 1972 merchant banking practice was started in South

Africa

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Indian scenario
In 1857, the chartered mercantile bank of india started its
operations.

During the 19th century, the foreign bankers operated in

India through the popular agency house called East India
House.

National Grindlays Bank opened its branch in 1967.

SBI floated its merchant banking division in 1972.

Some of the banks which started Merchant banking are

Central bank of India, BOI, syndicate bank, BOB, Standard
chartered bank, ICICI, IFCI and IDBI etc.

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 FUNCTION OF MERCHANT BANKERS
PROJECT COUNSELLING
It includes preparation of project reports, deciding upon
the financing pattern, appraising the project relating to
its technical, commercial and financial viability. It
includes filling up of application forms for obtaining
funds from financial institutions
LOAN SYNDICATION
Assistance is rendered to raise loans for projects after
determining promoters contribution. These loans can
be obtained from a single institution or a consortium
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 ISSUE MANAGEMENT
Management of issues involves marketing of corporate securities i.e.equity shares,
preference shares and debentures by offering them to public.

Pre-issue activities
They prepare copies of prospectus and send it to SEBI and then file them to Registrar
of Companies
They conduct meetings with company representatives and advertising agencies to
decide upon the date of opening issue, closing issue, launching publicity campaign etc..
They help the companies in fixing up the prices for their issues

Post-issue activities
It includes collection of application forms, screening of applications, deciding allotment
procedure, mailing of allotment letters, share certificates and refund orders

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UNDERWRITING OF PUBLIC ISSUES
Underwriting is an insurance to the company which
makes public issues. Raising of external resources is easy
for the issues backed by well known underwriters.
MANAGERS,CONSULTANTS OR ADVISERS TO
THE ISSUE
SEBI insist that all issues should be managed by at least
one authorized merchant banker but not more than two.
For an issue of 100 crores, upto a maximum of four
merchant bankers shall be appointed. They help in listing
of shares in stock exchange, completion of formalities
under
03/24/17 Companies Act etc.
XIDAS, Jabalpur 9
PORTFOLIO MANAGEMENT
Portfolio refers to investment in different kinds of securities
such as shares, debenture issued by different companies. It is a
combination of assets but a carefully blended asset combination.

Portfolio management refers to maintaining proper combination

of securities in a manner that they give maximum return

Investors are interested in safety, liquidity and profitability of

his investment but they cant choose the appropriate securities.
So merchant bankers help their investors in choosing the shares.
They conduct regular market and economic surveys.

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NRI INVESTMENT
NRIs has to follow lots of complicated rules for investing in the
shares in India. Merchant bankers help them in choosing the
shares and offer expert advice fulfilling government regulations
thus mobilizing more resources for corporate sector.
ADVISORY SERVICE RELATING TO MERGERS AND
TAKEOVERS
Merger is a combination of two or more companies into a singe
company where one survives and other loses its existence
Takeover is the purchase by one company acquiring controlling
interest in the share capital of another company
Merchant banker acts as middlemen between offer or and
offeree, negotiates mode of payment and gets approval from
government.
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BANKS PROVIDING MERCHANT BANKING SERVICES IN
INDIA

Commercial banks
Foreign banks like National Grindlays Bank, Citibank, HSBC bank
etc..
Development banks like ICICI,IFCI,IDBI etc..
SFC , SIDCs
Private firms like JM Financial and Investment service , DSP Financial
Consultants, Ceat Financial Services,Kotak Mahindra, VMC Project
Technologies,Morgan Stanley,Jardie Fleming,Klienwort Benson etc
Categories
To act as a merchant banker, a person or firm should hold a
certificate granted by the regulator- the securities and
exchange board of India. SEBI regulations provide for 4
categories of Merchant Bankers;

Category I: It Will take up activities associated with

issue management.
Category II: Allowed to carry the roles of advisor, consultant,
co-manager, underwriter and portfolio manager;
Category III: Allowed to act as underwriter, advisor, and
consultant; and
Category IV: Only allowed to act as advisor or consultant.

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CAPITAL ADEQUACY NORMS

Category I : Rs. 5 crores

Category II : Rs.50 lakhs
Category III : Rs.20 lakhs
Category IV : Nil
Principal steps in the issue of
Prospectus
Design and vetting of prospectus;
Nature of instrument;
Pricing of the issue;
Appointment of underwriters;
Appointment of bankers;
Appointment of registrars;
Appointment of brokers and principal brokers.

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Qualities of Merchant Banker
Should have knowledge and information about
the capital markets, trends in the stock
exchange, psychology of the investing public,
and technological and economical changes in
the country;

Ability to analyze and evaluate various technical,

financial, and economical aspects concerning the
formation of an industrial project;

Safeguard the interest of the investing public.

Integrity and maintenance of high professional
standards are necessary for the success;

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Conti
Should realize the changing environment of
capital market and keep cordial relationship with
the investors;

They should develop innovative capital market

instruments for satisfying the changing needs of
investors;

Must restrict, concentrate and develop their

strength to keep costs under control.

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Filing of the prospectus
Printing and dispatch of prospectus and
application form;
Filing of initial listing application;
Promotion of the issue;
Statutory announcement;
Collection of applications;
Processing of applications;
Allotment of shares;
Listing of the issue;
Cost of public issue.

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Problems of Merchant Bankers
As per SEBI guidelines, Merchant Bankers are authorized to
undertake only issue related activities, which restrict their
scope of activities.
Issuing companies do not adhere to the schedule in allotment
and refund of application money thereby creating trouble for
the image of these bankers at the investors.
Yet merchant banking is vast but should develop adequate
expertise to provide a full range of merchant banking services

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SOME PROBLEMS OF MERCHANT BANKERS

SEBI stipulates high capital adequacy norms for authorisation

which prevents young,specialised professionals into merchant
banking business
Non co-operation of the issuing companies in timely allotment of
securities and refund of application of money etc.. is another
problem
Yet merchant banking is vast but should develop adequate
expertise to provide a full range of merchant banking services
Guidelines for the Merchant
Bankers
Should have qualification in finance, law or business
management;

Should have adequate office space, equipment and

manpower;

At least 2 merchant bank operations qualified persons

to be appointed;

Should be fair in all transactions;

SEBI will supervise the activities of merchant bankers.

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Continue

o SEBI has laid responsibility on merchant banks for the true

disclosures and factual statements made on the prospectus and
the authenticity of such statements;
o SEBI has the power to suspend or cancel the authorization of
merchant bankers in case of any violation of the guidelines;
o Merchant bankers should send quarterly reports on the public
issue and rights issue on hand, the names of the companies,
size of the issue, and other details;
o Should abide by the code of conduct prescribed by SEBI;
o For the issue over Rs. 100 crs, the number of BRLMs should
be 4 to 5;
o Merchant bankers should make an agreement with corporate
bodies about their mutual rights, liabilities and obligations etc.

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Future prospects in India
Growth of primary market;

Entry of foreign investors;

Changing policy of financial institutions;

Development of debt market;

Corporate restructuring.

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References
http://www.answers.com/topic/merchant-banking
http://pnbindia.in/mbddetail.htm
Financial Services : Nalini Prava Tripathy, Prentice-
Hall of India Pvt ltd.(Publisher)

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