Unit 1

Merchant Banking
 Meaning
• A merchant bank is a financial institution
primarily engaged in rendering financial
services and advice to the corporate how to use
their money in an efficient manner.
 In Simple words
• Merchant banking is a combination of banking
and consultancy services.
• It provides consultancy, to its clients for financial,
marketing, managerial and legal matters for a fee.
• It helps a businessman to
– Start a business.
– Raise finance.
– Expand and modernize the business.
– Revive sick business units.
– Helps companies to register, buy and sell shares at the
stock exchange.
 Definition
• According to SEBI, “ any person who is
engaged in the business of issue management
either by making arrangements regarding
selling, buying or subscribing to securities
or
• Acting as manager, consultant, advisor
or
• Rendering corporate advisory service in
relation to such issue management”.
 Origin
• Started by London merchants by entering in
financing foreign bills.
• Later they assist Government to raising long term
loan through flotation of bonds in London Money
Market for under developed countries.
• Over a period they extended their activities to
domestic business such as, loan syndication,
debenture trustees, take over, acting as registrars
and share transfer agents etc.
 Merchant Banking in India
• Merchant Banking was started in India by
• Foreign bank, viz. Grindlays Bank in 1967 and
Citi Bank in 1970.
• Andhra Bank, Bank of Maharstra, Barclays
Bank, BNP Paribas, Bank of India, Canara Bank,
Central Bank of India, HDFC Bank, HSBC, SBI,
ICICI, IDBI, IOB, INDUS IND and many more
• At present there are 229 MB in India.
 Functions
Corporate Counseling
Set of activities undertaken to ensure
efficient functioning of the enterprise at
its maximum potential through effective
management of finance.
Project Counseling
The study of the project and offering
advisory assistance on the viability and
procedural steps for its implementing

Issue Management & Underwriting Credit Syndication

Management of the public issues of Credit procurement and project
corporate securities and are aimed at financing aimed at raising Indian and
mobilization of money from the capital Foreign loans from banks and financial
market institutions
 Functions
Bill Discounting Merger and Acquisition
Activities relating to the acceptance and Negotiating acquisitions and mergers by
the discounting of bills of exchange offering expert valuation regarding the
quantum and the nature of
consideration and other matters
Lease Financing Venture Financing
Financial facilities are provided to the Equity financing for funding High-Risk
companies that undertake leasing and High-Reward projects
activity.
Portfolio Management Working Capital Financing
Decisions relating to the investment of Finance required for meeting the day to
cash resources of a corporate enterprise day expenses of an enterprise.
in marketable securities by deciding the
quantum, timing and the type of security
to be purchased
 SEBI Guidelines
• 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, man power, 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 Rs 5 Crores.
 Issue Management
• Marketing of Corporate Securities i.e
Equity Shares
Preference Shares
Debentures
By offering them to Public for subscription
 Capital Issue Management

CIM

Pre Issue Post Issue Compliance

 Pre Issue Management
• The Merchant Bankers prepare the copies of
prospectus and send it to SEBI and then file them
to Registrar of Companies
• Merchant Bankers (Banker to an Issue) conduct
meeting with the company representatives and
advertising agencies to decide upon the date of
opening issue, closing issue, launching publicity
campaign, etc
• Also help the companies in in fixing the prices for
their issue.
 Post Issue Management
Collection of Application forms

Screening of Applications

Deciding the Allotment Procedure

Mailing of Allotment Letters

Share Certificates
 Compliance
• Every Merchant Bankers to Appoint
Compliance Officer.
• To Monitor and Report to Board any non
compliance of Act, Rules, Regulations,
Notifications, Guidelines or Instructions
Issued.
• Deficiencies do not occur again.