1. MERCHANT BANKING

2. MERCHANT BANKING
Merchant banking may be defined as an ‘institution which covers a
wide range of activities such as underwriting of shares, portfolio
management, project counseling, insurance etc…They render all
these services for a fee
ORIGIN :
The term merchant banking originated from the London who started
financing foreign trade through acceptance of bills
Later they helped government of under developed countries to raise
long term funds
Later these merchants formed an association which is now called
”Merchant Banking and Securities House Association”

3. SERVICES 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
promoter’s contribution. These loans can be obtained from a single
institution or a consortium.

4. ISSUE MANAGEMENT :
Management of issues involves marketing of corporate securities ie…
equity shares, preference shares and debentures by offering them to
public.
Pre-issue activities:
They prepare copies of prospectus and send it to 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 certficates and refund orders

5. 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 atleast one
authorised 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 Companies Act etc..

6. 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.

7. 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
mobilising 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 offeror and
offeree,negotiates mode of payment and gets approval from
government.

8. OFF SHORE FINANCE :
Merchant bankers help their clients in :
Long term foreign currency loan
Joint venture abroad
Financing exports and imports
Foreign collaboration arrangement

9. 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…

10. MERCHANT BANKING REGULATIONS :
Certificate from SEBI is a must.They are of four types:
Category I merchant bankers : Can act as Issue managers
Category II merchant bankers : can act only as co-managers
Category III merchant bankers : can act as co-managers but cannot
undertake portfolio management
Category IV merchant bankers :can merely act as consultant or
advisor to issue of capital
CAPITAL ADEQUACY NORMS :
Category I : Rs. 5 crores
Category II : Rs.50 lakhs
Category III : Rs.20 lakhs
Category IV : Nil

11. GUIDELINES FOR MERCHANT BANKERS :
SEBI’s authorization is a must to act as merchant
bankers.Authorisation criteria include
 Professional qualification in finace,law or business management
 Infrastructure like office space,equipment and man power
 Capital adequacy
 Past track of record,experience,general reputation and fairness in
all
transactions
Every merchant banker should maintain copies of balance
sheet,Profit and loss account,statement of financial position
Half-yearly unaudited result should be submitted to SEBI
Merchant bankers are prohibited from buying securities based on the

12. SEBI has been vested with the power to suspend or cancel the
authorisation in case of violation of the guidelines
Every merchant banker shall appoint a ‘Compliance Officer‘ to
monitor compliance of the Act
SEBI has the right to send inspecting authority to inspect books of
accounts,records etc… of merchant bankers
Inspections will be conducted by SEBI to ensure that provisions of the
regulations are properly complied
An initial authorisation fee,an annual fee and renewal fee may be
collected by SEBI
A lead manager holding a certificate under category I shall accept a
minimum underwriting obligation of 5% of size of issue or Rs.25 lakhs
whichever is less

13. CODE OF CONDUCT :
Should make all efforts to protect the interest of investors
Should maintain high standards of integrity,dignity and fairness in
conduct of business
Should fulfill all obligations in a professional and ethical manner
Should not discriminate among the clients
Should ensure that prospectus, letter of offer etc.. is available to
investors at the time of issue
Should render best possible advice to its clients
Any penal action taken by SEBI should be informed to its clients

14. Should inform the board about any legal proceedings
initiated against it
Should abide by the rules of ‘‘Securities and Exchange
Board of India Regulations,2003 “
Shall develop its own internal code of conduct for
governing its internal operations
Should ensure that any person it employs should have the
capacity to be a merchant banker
It is responsible for the act of its employees and agents
Should not create false market

15. 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