Merchant Banking

Scope

• Definition

• Origin of Merchant Banking Services in India

• Merchant banks and Commercial Banks Services Of Merchant Banks.

• Qualities required of Merchant Bankers.

 Definition/ Meaning

• Merchant Banking involves all those professional skill based services

provided by merchant bankers such as issue management, loan services
underwriting services, fundraising project capital, international trade
services for large corporations for adequate consideration in the form of a
fee.
 History-growth-changes in Merchant Banking In India

• Started in the year 1967 by Grindlay’s bank followed by CITI Bank in 1970

• SBI was the first Bank to set up a Merchant Banking division in 1972
followed by ICICI Bank in 1973 followed by other banks such as Canara
bank, bank of Baroda, Bank of India etc.

• Merchant bankers were initially corporate counsellors for restructuring

capital structure of companies, and witnessed a transition to issue and
underwriting services.
• A transition from issue management/underwriting to providing creative
credit products such as bridge financing, mezzanine financing, equity
financing, issuing letters of credit, and facilitating international fund transfer,
apart from other services.
 Continuation

• FERA Regulations 1973 gave a boost to merchant banking In India, led to

increased participation of other developmental banks and financial
institutions.

• The buoyancy of the capital market in the 1980’s was the next driver of
Merchant banking services in India.

• Merchant Bankers roles changed drastically post economic globalisation,

Liberalization and Privatisation of 1991 and continues to change with the
changing needs of customers.
• There are currently 135 Merchant banks registered with SEBI.
 Providers of Merchant Banking Services In India

• Commercial Banks and Subsidiaries- SBI capital markets ltd, IFCI financial services
ltd.
• Foreign banks –Goldman Sachs (India) securities pvt ltd, Morgan Stanley (india)

• All India Financial institutions and Developmental Banks such as ICICI, IDBI, IFCI.

• State level Financial Institutions such as State Industrial Development Corporations and
state Financial Corporations.

• Private financial consultancy firms and brokers such as J.M Financial and Investment
services, DSP financial Consultants etc.

• Technical consultancy services specializing in advisory component.

• Professional Merchant Banking Houses such as VMC project technologies.

 Services provided And Functions Of Merchant bankers

• Marketing and Underwriting of New issue.

• Restructuring Strategies.

• Advisory services for raising funds.

• Project Promotion and Project Finance and project counselling(corporate

counselling services)

• Management of debt and equity offerings of companies

• Portfolio services and Insurance services .

• Venture capitalists for small high potential companies.

 Functions of Merchant bankers.

• Syndication of Rupee Term loans.

• Dealership in government securities , bonds, and commercial papers of

companies.

• Handling government consent for industrial projects .

• Stock broking services

• Services to private sector units.

• Special assistance to small companies.

 continuation

• Management of Interest and Dividend.

• Off shore financing

• Placement and distribution services.

 Qualities of A Merchant banker
Formalities
There are four categories of Merchant bankers
• SEBI has specified norms that are to be complied by each of these
categories.
• Must obtain certificate of registration and fulfil two sets of norms
A) Operational capabilities
B) Capital Adequacy norms.
Personal qualities
a) Versatile knowledge
b) Integrity and Honesty
c) Requisite customer –banker relationship
d) Innovative Approach
 Commercial Banking vs Merchant Banking

• Common man – corporate firms.

• Individuals can open a bank Account- cannot open a bank account.

• Deals with equity related capital whereas M- banking deals with debt
related financing.

• Higher Risk –Lower Risk.

• Management oriented – Asset oriented

• Capital restructuring, underwriting, portfolio management – role of
financers.