2. INTRODUCTION
Refers to British
Merchant banking .
Concerned with
mobilising savings of
people .
3. 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.
6. 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 .
7. Merchant banking services were offered along
with other traditional banking services.
SBI was first Indian bank to set up Merchant
banking division in 1972.
8. DIFFERENCE BETWEEN COMMERCIAL
BANKING & MERCHANT BANKING
Deals with Debt &
Debt related finance.
Deals with Equity &
Equity related finance.
Asset oriented.
Management oriented.
Generally avoid risks.
Willing to accepts risks.
10. SERVICES OF MERCHANT BANK
The financial 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.
11. Services of Merchant Banks
Sr
No
1
2
Particulars
Summary
Corporate Counseling
Covers the entire field of
merchant banking, Ltd to
giving suggestions
Project Counseling
Preparing project report for
govt. approval , financial
assistance
12. 3 Loan Syndication
Assistance rendered to get term loan
for project, help client make appraisal,
designing capital structure etc
4 Issue Management
Marketing corporate securities,
intermediary in transfer of capital
from one who owns to needy
5 Underwriting
Guarantee given by the underwriter,
make raising of external resource easy
6 Managers to Issue
Drafting, completion of formalities,
appoint Registrar etc
13. 7 Portfolio
Management
Investment in different kind of
securities
8 Mergers and
takeovers
Middlemen in setting negotiation
9 Off Shore Finance Help in areas involving foreign
currency
10 Non- Resident
Investment
Provide help in better and
smooth trade to NRIs
14. 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.
15. Merchant Banker As lead Manager
Appointment of a lead manager by a company
S.
No
Size of the issue
Maximum
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
16. Duties & Responsibilities Of LM
To enter into an agreement
Certificate of registration with SEBI
Work of issue management
Clearly defined responsibility
Minimum underwriting obligation
17. Due care & diligence
Submitting due diligence certificates
Submit all particulars to SEBI
Suggestions or modifications
Collections of the amount
Ensuring refund
Inform depository participants
18. Qualities Required of Merchant Bankers
(Best merchant bankers)
Ability to analyse
Abundant knowledge
Ability to built up
relationship
Innovative approach
Integrity
(left) Rashesh Shah
Chairman & CEO, Edelweiss
(right) Nimesh Kampani
Chairman & MD, JM Financial
20. The M.B.registered with SEBI classified
according to the category :MERCHANT
BANKER
PUBLIC SECTOR
PRIVATE SECTOR
INTERNATIONAL
BANKER :- 10
COMMERCIAL
BANKS :- 24
BANKS :- 10
FINANCIAL
INSTITUTION :- 6
FINANCE &
INVESTMENT :- 231
STATE
INSTITUTION :- 4
LEASING
22. 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.
23. Minimum net worth of Rs.1 crore
SEBI guidelines
stipulate that a
minimum net worth of
Rs.1 crore for
authorisation of
merchant bankers.
24. Non co-operation of issuing companies
Non co-operation
of the issuing companies
in timely allotment of securities and refund
of application money is another problem
faced by merchant bankers.
25. 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
28. 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
29. 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.
30. 3) Changing policy of FI
Liberalisation of policies
FI would require expert services of M.Bs for
project appraisal, financial management,
financial restructuring etc.
31. 4) Development of debt market
Good portion of capital
can be raised through debt
instruments.
Tremendous opportunities
to M.Bs.
32. 5) Innovations in Financial Instruments
New financial instruments have come up.
M.Bs are market makers for these instruments.
33. 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 of
operation.
34. 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.
35. Conclusion
Inspite of 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.