Merchant

Banking
INTRODUCTION
 Refers
to British
Merchant
banking .

 Concerned with
mobilising savings
of people .
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
& short-term finance,
share transfer agents,
debenture trustees,
takeover etc.
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.

 Merchant banking services were started

by foreign banks, namely National
Grindlays in 1967 & City bank in 1970 .
 Merchant banking services were offered
along with other traditional banking
services.

 SBI
was first Indian bank to set up
Merchant banking division in 1972.
DIFFERENCE BETWEEN COMMERCIAL
BANKING & MERCHANT BANKING
 Deals with Equity
Debt &&Debt
Equity
related
related
finance.
finance.

 Asset oriented.oriented.
Management

 Generally
Willing to accepts
avoid risks.
risks.
Merchant Banking

Services…?
SERVICES OF MERCHANT BANK
 Thefinancial institutions in India could
not meet the demand for long-term fund
required by the ever expanding industry
and trade.

 Corporate sectors enterprise meet their

demand through issuing share and
debenture in capital market.
Services of Merchant Banks
Sr Particulars Summary
No
1 Corporate Counseling Covers the entire field of
merchant banking, Ltd to
giving suggestions

2 Project Counseling Preparing project report

for govt. approval ,
financial assistance
3 Loan Syndication Assistance rendered to get term
loan for project, help client make
appraisal, designing capital
structure etc

4 Issue Marketing corporate securities,

Management intermediary in transfer of
capital from one who owns to
needy

5 Underwriting Guarantee given by the

underwriter, make raising of
external resource easy
7 Portfolio Investment in different kind
Management of securities

8 Mergers and Middlemen in setting

takeovers negotiation
9 Off Shore Help in areas involving
Finance foreign currency
10 Non- Resident Provide help in better and
Investment smooth trade to 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, maximum upto
four M.B. could be associated as managers.
Merchant Banker As lead Manager
 Appointment of a lead manager by a
company
S. Size of the issue Maximum
No Number Of
Lead Manager
1. Less than Rs.50 crores 2
2. Rs.50 crores to Rs.100 crores 3
3. Rs.100 crores to Rs.200 crores 4
4. Rs.200 crores to Rs.400 crores 5
5. Above Rs.400 crores 5 or more as
prescribed by
SEBI
Duties & Responsibilities Of LM
 To enter into an agreement

 Certificate of registration with SEBI

 Work of issue management

 Clearly defined responsibility

 Minimum underwriting obligation

 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 (left) Rashesh Shah
Chairman & CEO, Edelweiss
 Integrity
(right) Nimesh Kampani
Chairman & MD, JM Financial
CATEGORY OF MERCHANT
BANKER
CATEGORY MINIMUM
NETWORTH
1st :-

2nd :-
1 crore
3rd :-
50 lacs
4th :-
20 lacs
NIL
The M.B.registered with SEBI
classified according to the
category :-
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 the scope of
its activities.
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

 Nonco-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
- Stamp duty
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 expert
services of M.Bs.
3) Changing policy of FI

 Liberalisation of policies

 FIwould 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.

 M.Bs are market makers for these

instruments.
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 their area

 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 obtain funds.
Conclusion
 Inspiteof 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...