INVESTMENT BANKING

“INVESTMENT BANKING”

BACHELOR OF COMMERCE
BANKING & INSURANCE

SEMESTER V

ACADEMIC YEAR
2009-2010

SUBMITTED BY
MITAL. H. CHHEDA
ROLL NO.-06

LAXMI CHARITABLE TRUST

SHRI CHINAI COLLEGE OF COMMERCE & ECONOMICS
ANDHERI (EAST) MUMBAI-400069

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“Investment Banking”

Bachelor of Commerce
Banking & Insurance

Semester V

Submitted
In Partial Fulfillment of the Requirements
For The Award of Degree of Bachelor Of
Commerce- Banking & Insurance

By
Mital. H. Chheda
Roll No.-06

Laxmi Charitable Trust

Shri Chinai College of Commerce & Economics
Andheri (East) Mumbai-400069

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Laxmi Charitable Trust

Shri Chinai College of Commerce & Economics

CERTIFICATE
This is certify that Miss Mital. H. Chheda of B.Com. Banking
&Insurance Semester V (2009-2010) has successfully completed the project on
“Investment Banking” under the guidance of Prof. Pravin Akolkar.

Course Co-ordinator
Principal
Project Guide/Internal Examiner

External Examiner

DECLARATION

I Mital. H. Chheda the student of B.Com. Banking & Insurance Semester V

(2009-2010)hereby declare that I have completed the project on “Investment
Banking”.
The information submitted is true and original to the best of my knowledge.

Signature of Student
Mital.H.Chheda
Roll no.06

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ACKNOWLEDGEMENT

I Have received earnest cooperation & assistance from

number of person towards completion of this project.
Throughout the writing of this project the influence of my
Professor Pravin Akolkar has been a guiding light. I have been greatly benefited
by his guidance, profound knowledge of the subject i.e. “Investment Banking”
and his continued interest in my work. I shall ever remain indebted & grateful
to him, for his deep sense of personal attachment & the ever increasing
encouragement which he has given to me.
This is special pleasure in acknowledging him under whom I
have initiated my work. His intense accuracy in respect of the subject had
provided the impetus for the commencement of the study.
My professors and friends have inevitable played a crucial
role in helping me while preparing the project. I do not have words to thanks
them enough. I can only extend my sense of deep hearted affection to all of
them.
I am highly obliged to acknowledge principal “Mrs.
Malini Johari” and co-ordinator Dr.Nishikant Jha for giving me an opportunity
to conduct a detail study & analysis of my desirable topic relevant to my full of
interest.

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EXECUTIVE SUMMARY
Investment Banking encompasses not merely merchant banking but
other related capital market activities such as – stock trading, market making,
underwriting, and brokering and asset management as well. Besides the above,
investment banks also provide a host of specialized corporate advisory services
in the areas of project advisory, business and financial advisory and mergers
and acquisitions.

Investment banks are different from traditional bank down the

street in the sense that it does not keep any deposits with itself to pay us an
interest nor does it guarantees the “safekeeping” of your money. An investment
bank is more specialized organization that takes in your money and after
analyzing the possible risks and economic condition gives us advice to convert
it into more money. Investment bankers identify capital opportunities, negotiate
and structure deals, and execute private and public financial transactions.

Investment banks differ from commercial banks, which take

deposits and make commercial and retail loans. In recent years, however, the
lines between the two types of structure have blurred, especially as commercial
banks have offered more investment banking services.

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Index
Sr.no. Particular Page no.

1 Introduction 1-2

2 Definition 3

3 Meaning 4-7

4 Evaluation and growth of investment bank 8-9

5 Global industrial structure 10-11

6 Indian scenario 12-14

7 Investment banking & merchant banking 15-16

8 Investment banks as financial intermediary 17-19

9 Organization structure of investment banks 20-22

10 Characteristic of investment bank industry 23-24

11 Types of player in investment bank industry 25

12 Business portfolio of investment banks 26-28

13 Indian investment banking industry 29-31

14 Institutional investing & investment bank 32-33

15 Service portfolio Indian investment banks 34-47

16 Regulatory framework for investment banking 48-50

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INVESTMENT BANKING

INTRODUCTION

What is investment banking? Is it investing? Is it banking? Or is

it investing in banks? Really, it is neither. Investment banking, or I-
banking, as it is often called, is the term used to describe the business of
raising capital for companies and advising them on financing and merger
alternatives. Companies need cash in order to grow and expand their
business; investment banks sell securities to public investors in order to
raise this cash. These securities can come in the form of stocks or bonds.

At a very micro level, ‘Investment banking’ is concerned with

the primary function of assisting the capital market in its function of capital
intermediation i.e. the movement of financial resources from those who have
them (the Investors), to those who need to make use of them (the Issuers).
Banking and financial institutions on the one hand and the capital market on the
other are two broad platforms of institutional intermediation for capital flows in
the economy. Therefore, it could be inferred that investment banks are those
institutions that are the counterparts of banks and the capital market in the
function of intermediation in resource allocation.

From its small beginnings in the seventies and eighties,

investment banking unfolded itself as a full-fledged service industry during
1991. From mere public flotation services such as issue management and
underwriting, the investment banking industry has evolved to encompass many

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high profile corporate actions. The term ‘Investment Banking’ has a much
wider connotation and is gradually becoming more of an inclusive term to refer
to all types of capital market activity, both fund-based and non-fund based.
Investment Banker provides two general functions:
1. raising funds for clients and,
2. assisting clients in the sale or purchase of securities

Over the decades, backed by evolution and also fuelled by recent

technological developments, investment banking has transformed repeatedly to
suit the needs of the finance community and thus become one of the most
vibrant and exciting segments of financial services. Investment bankers have
always enjoyed celebrity status.

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DEFINITION
There appears to be considerable confusion today about what
does and does not constitute an “investment bank” and “investment banker”.
Let us see what is it?

Investment Bank (IB)

A financial intermediary that performs a variety of services.
This includes underwriting, acting as an intermediary between
an issuer of securities and the investing public, facilitating mergers and other
corporate reorganizations, and also acting as a broker for institutional clients.

The role of the investment bank begins with pre-underwriting

counseling and continues after the distribution of securities in the
form of advice.

Investment Banker

A person representing a financial institution that is in the

business of raising capital for corporations and municipalities.

An investment banker may not accept deposits or make

commercial loans. Investment bankers are the people who do the
grunt work for IPO and bond issues.

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MEANING OF INVESTMENT BANKING

In the strictest definition, investment banking is the raising of
funds; both in debt and equity, and the division handling this in an investment
bank is often called the "Investment Banking Division" (IBD). However, only a
few small firms provide only this service. Almost all investment banks are
heavily involved in providing additional financial services for clients, such as
the trading of derivatives, fixed income, foreign exchange, commodity, and
equity securities. It is therefore acceptable to refer to both the "Investment
Banking Division" and other 'front office' divisions such as "Fixed Income" as
part of "investment banking," and any employee involved in either side as an
"investment banker." Furthermore, one who engages in these activities in-house
at a non-investment bank is also considered an investment banker.

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More commonly used today to characterize what was

traditionally termed "investment banking" is "sell side." This is
trading securities for cash or securities (i.e., facilitating
transactions, market-making), or the promotion of securities (i.e.
underwriting, research, etc.).

The "buy side" constitutes the pension funds, mutual funds,

hedge funds, and the investing public who consume the products
and services of the sell-side in order to maximize their return on
investment. Many firms have both buy and sell side components.

 Who needs an Investment Bank?

Any firm contemplating a significant transaction can benefit
from the advice of an investment bank. Although large corporations often have
sophisticated finance and corporate development departments, an investment
bank provides objectivity, a valuable contact network, allows for efficient use
of client personnel, and is vitally interested in seeing the transaction close.
Most small to medium sized companies do not have a large in-
house staff, and in a financial transaction may be at a disadvantage versus larger
competitors. A quality investment banking firm can provide the services
required to initiate and execute a major transaction, thereby empowering small
to medium sized companies with financial and transaction experience without
the addition of permanent overhead.

 What to look for in an Investment Bank?

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Investment banking is a service business, and the client should expect

top-notch service from the investment banking firm. Generally only large client
firms will get this type of service from the major Wall Street investment banks;
companies with less than about $100 million in revenues are better served by
smaller investment banks. Some criteria to consider include:
• Services Offered
For all functions except sales and trading, the services should go well beyond
simply making introductions, or "brokering" a transaction. For example, most
projects will include detailed industry and financial analysis, preparation of
relevant documentation such as an offering memorandum or presentation to the
Board of Directors, assistance with due diligence, negotiating the terms of the
transaction, coordinating legal, accounting, and other advisors, and generally
assisting in all phases of the project to ensure successful completion.

• Experience
It extremely important to make sure that experienced, senior
members of the investment banking firm will be active in the project on a
day-to-day basis. Depending on the type of transaction, it may be preferable
to work with an investment bank that has some background in your specific
industry segment. The investment bank should have a wide network of
relevant contacts, such as potential investors or companies that could be
approached for acquisition.

• Record of Success
Although no reputable investment bank will guarantee success, the
firm must have a demonstrated record of closing transactions.

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• Ability to Work Quickly

Often, investment banking projects has very specific deadlines, for
example when bidding on a company that is for sale. The investment bank must
be willing and able to put the right people on the project and work diligently to
meet critical deadlines.

• Fee Structure
Generally, an investment bank will charge an initial retainer fee,
which may be one-time or monthly, with the majority of the fee contingent
upon successful completion of the transaction. It is important to utilize a fee
structure that aligns the investment bank's incentive with your own.

• Ongoing Support
Having worked on a transaction for your company, the investment
bank will be intimately familiar with your business. After the transaction, a
good investment bank should become a trusted business advisor that can be
called upon informally for advice and support on an ongoing basis.

Because investment banks are intermediaries, and generally not

providers of capital, some executives elect to execute transactions without an
investment bank in order to avoid the fees. However, an experienced, quality
investment bank adds significant cant value to a transaction and can pay for its
fee many times over.

The investment banker has a vested interest in making sure the

transaction closes, that the project is completed in an efficient time frame, and
with terms that provide maximum value to the client. At the same time, the

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client is able to focus on running the business, rather than on the day-to-day
details of the transaction, knowing that the transaction is being handled by
individuals with experience in executing similar projects.

EVOLUTION AND GROWTH OF INVESTMENT BANKS

At the end of World War I, by which time, commercial
banks in the USA were already preparing for an economic recovery and
consequently, to the significant demand for corporate finance. It was expected
that American companies would shift their dependence from commercial banks
to the stock and bond markets wherein funds were available at a lower cost and
for longer periods of time. In preparation for a boom in the capital markets in
the 1920s, commercial banks started to acquire stock broking business in a bid
to have their presence made in such markets. The first of such acquisitions
happened when the National City Bank of New York acquired Halsey Stuart
and Company in 1916. As in the past, in the entire 1920s, investment banking
meant underwriting and distribution of securities.

The stock and bond market boom of the 1920s was an

opportunity that banks could not miss. But since they could not underwrite and

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sell securities directly, they owned security affiliates through holding

companies. However, they were not maintained like water tight compartments.
The affiliates were sparsely capitalized and were financed by the parent banks
for their underwriting and other business obligations.

National City Bank, Chase Bank, Morgan and Bank of America

were the most aggressive banks present at that time. The stock market got over-
heated with investment banks borrowing money from the parent banks in order
to speculate in the bank’s stocks, mostly for short selling. Once the general
public joined the frenzy, the price-earning ratios reached absurd limits and the
bubble eventually burst in October 1929 wiping out millions of dollars of bank
depositors’ funds and bringing down with its banks such as the Bank of United
States.

In order to restore confidence in the banking and financial

system, several legislative measures were proposed, which eventually led to the
passing of the Banking Act 1933 that restricted commercial banks from
engaging in securities underwriting and taking positions or acting as agents for
others in security transactions. These activities were segregated as the exclusive
domain of investment banks. On the other hand, investment banks were barred
from deposit taking and corporate lending, which were considered the exclusive
business of commercial banks. The Act thus provided the water tight
compartments that were absent before. Since the passing of this Act, investment
banking became narrowly defined as the basket of financial services associated
with the flotation of corporate securities, i.e. the creation of primary market for
securities. It was also extended to mean at a secondary level, secondary market
making through securities dealing.

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The range of services offered may cover underwriting services,

funds management, insurance products, credit cards, loans (corporate and
individual), depository services, advisory services in the areas of corporate
restructuring, mergers and acquisitions, fund raising and private equity. On the
dealing and trading side, investment banks participate in derivatives market,
arbitrage and speculation. In the area of structured finance, investment banks
also provide financial engineering through securitization deals and derivative
instruments.
GLOBAL INDUSTRIAL STRUCTURE
The Investment banking industry on a global scale is
oligopolistic in nature ranging from the global leaders (known as the ‘Global
Bulge Group’) to ‘Pure’ Investment banks and ‘Boutique’ Investment banks.
The bulge group consisting of eight investment banks has a global presence and
these firms dominate the league in key business segments.
The top ten global firms in terms of their fee billings as in 2001 are listed
below:
Market shares of Global Investment Banks

% of total
Merrill Lynch 9.0
Goldman Sachs 7.5
Credit Suisse First Boston 7.2
Salmon Smith Barney (Citigroup) 6.7

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Morgan Stanley 6.3

J.P. Morgan 5.5
UBS Warburg 4.6
Lehman Brothers 3.6
Deutsche Bank 3.5
Bank of America 2.4

Within the listing given in the table referred to above are the
top ‘pure’ investment banks, i.e. which do not have commercial banking
connections, which are Merrill Lynch, Goldman Sachs and Morgan Stanley
Dean Witter. Listed therein are also the leading European Universal Banks that
are called so due to their role in both commercial and investment banking.

Therefore, the global investment banking industry ranges from

the acknowledged global leaders listed above to a large number of mid-sized
competitors at a national or regional level and the rear end is supported by
boutique firms or advisory and sector specialists.

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Investment banking is one of the most global industries and is hence

continuously challenged to respond to new developments and
innovation in the global financial markets. Throughout the history
of investment banking, many have theorized that all investment
banking products and services would be commoditized. New
products with higher margins are constantly invented and
manufactured by bankers in hopes of winning over clients and
developing trading know-how in new markets. However, since
these can usually not be patented or copyrighted, they are very
often copied quickly by competing banks, pushing down trading
margins.

THE INDIAN SCENARIO

• Origin
In India, though the existence of this branch of financial services
can be traced to over three decades, investment banking was largely confined to
merchant banking services.

The forerunners of merchant banking in India were the foreign

banks. Grindlays Bank (now merged with Standard Chartered Bank in India)
began merchant banking operations in 1967 with a license obtained from the
RBI followed by the Citibank in 1970. These two banks were providing

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services for syndication of loans and raising of equity apart from other advisory
services.
It was in 1972, the Banking Commission Report asserted the need
for merchant banking services in India by the public sector banks. Based on the
American experience which led to the passing of the Glass Steagall Act, the
Commission recommended a separate structure for merchant banks so as to
distinct them from commercial banks and financial institutions. Merchant banks
were meant to manage investments and provide advisory services.

Following the above recommendation, the SBI set up its

merchant banking division in 1972. Other banks such as the – Bank of India,
Bank of Baroda, Syndicate Bank, Punjab National Bank, and Canara Bank also
followed suit to set up their merchant banking outfits. ICICI was the first
financial institution to set up its merchant banking division in 1973. The later
entrants were IFCI and IDBI with the latter setting up its merchant banking
division in 1992. However, by the mid eighties and early nineties, most of the
merchant banking divisions of public sector banks were spun off as separate
subsidiaries. SBI set up SBI Capital Markets Ltd. in 1986. Other such banks
such as Canara Bank, BOB, PNB, Indian Bank and ICICI created separate
merchant banking entities.

• Growth
Merchant banking in India was given a shot in the arm with the
advent of SEBI in 1988 and the subsequent introduction of free pricing of
primary market equity issues in 1992. However, post-1992, the merchant
banking industry was largely driven by issue management activity which
fluctuated with the trends in the primary market. There have been phases of

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hectic activity followed by a severe setback in business. SEBI started to

regulate the merchant bankers who registered with SEBI were either in issue
management or associated activity such as underwriting or advisor ship. SEBI
had four categories of merchant bankers with varying eligibility criteria based
on their net worth. The highest number of registered merchant bankers with
SEBI as at the end of March 2003 was 124, from a peak of almost thousand in
the nineties. In the financial year 2002-2003 itself, the number decreased by 21.

• Constraints in Investment Banking

Due to the over-dependence on issue management activity in the

initial years, most merchant banks perished in the primary market downturn that
followed later. In order to stabilize their businesses, several merchant banks
diversified to offer a broader spectrum of capital market services. However,
other than a few industry leaders, the other merchant banks have not been able
to transform themselves into full service investment banks. Going by the
service portfolio of the leading full service investment banks in India, it may be
said that the industry in India has seen more or less similar development as its
western counterparts, though the breadth available in the overseas capital
market is still not present in the Indian capital market. Secondly, due to the lack
of institutional financing in a big way to fund capital market activity, it is only
the bigger industry players who are in investment banking. The third major
deterrent has also been the lack of depth in the secondary market, especially in
the corporate debt segment.

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INVESTMENT BANKING AND MERCHANT BANKING

Merchant banks and Investment banks in their purest forms are

different kinds of financial institutions that perform different services. In
practice, the fine lines that separate the functions of merchant banks and
investment banks tend to blur. Traditional merchant banks often expand into the
field of marketing of securities and have an onerous responsibility towards the
investors who invest in such securities. While many investment banks
participate in trade financing activities. In theory, investment banks and
merchant banks perform different functions.

Pure investment banks raise funds for businesses and some

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governments by registering and issuing debt or equity and selling it on a

market. Traditionally, investment banks only participated in underwriting and
selling securities in large blocks. Investment banks facilitate mergers and
acquisitions through share sales and provide research and financial consulting
to companies. Traditionally, investment banks did not deal with the general
public.

Traditional merchant banks primarily perform international financing

activities such as foreign corporate investing, foreign real estate investment,
trade finance and international transaction facilitation. Some of the activities
that a pure merchant bank is involved in may include issuing letters of credit,
transferring funds internationally, trade consulting and co-investment in
projects involving trade of one for or another.
As a general rule, investment banks focus on initial public
offerings (IPOs) and large public and private share offerings. Merchant
banks tend to operate on small-scale companies and offer creative equity
financing, bridge financing, mezzanine financing and a number of corporate
credit products. While investment banks tend to focus on larger companies,
merchant banks offer their services to companies that are too big for venture
capital firms to serve properly, but are still too small to make a compelling
public share offering on a large exchange. In order to bridge the gap between
venture capital and a public offering, larger merchant banks tend to privately
place equity with other financial institutions, often taking on large portions of
ownership in companies that are believed to have strong growth potential.

Merchant banks still offer trade financing products to their clients.

Investment banks rarely offer trade financing because most investment banking

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clients have already outgrown the need for trade financing and the various
credit products linked to it.

But, Investment banking is a term of much wider connotation than

Merchant banking as it implies significant fund-based exposure to the capital
market. Internationally, Investment banks have progressed in both fund-based
and non-fund based segments of the industry.

In India, the dependence has been heavily on Merchant banking

more particular with issue management and underwriting. However, downturn
in the primary market has forced merchant banks to diversify and become full-
fledged Investment banks.

INVESTMENT BANKS AS FINANCIAL INTERMEDIARY

Investment bankers facilitate the flow of money. They are

financial intermediaries, the critical link between users and providers of capital.
They bring together those who need funds with those who have funds, and they
make the markets that allocate capital and regulate price in these financial
exchanges.

Those who desire to raise capital are called “issuers,” since they
issue ownership in their enterprises (i.e. equity) or obligations from their
enterprises (i.e. promises to pay debt interest and repay debt principal) in
exchange for cash or cash equivalents; those who provide capital are called

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“investors,” since they must invest cash or cash equivalents in exchange for
those rights of ownership or obligation. Investment bankers enable issuers to
raise capital (i.e. corporations or companies that sell or “issue” securities for
cash) and investors to place capital (i.e. individuals or institutions that buy or
invest in those securities) in the most efficient manner for both.

Investment Bank as Financial Intermediaries

Issuers Investors
Of Of
Equity or Capital
debt

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Investment banking is a dynamic industry characterized by flux

and transformation. Financial instruments have grown more complex as
financial intermediaries have become more competitive. Blizzards of innovative
instruments are sweeping financial markets. Boundaries among diverse
financial institutions are blurring. Barriers between international financial
markets are eroding. And, amplifying the complexity and the competition,
financial markets, firms, products, and techniques are merging and melding.

Investment banking, long simply synonymous with the

domestic underwriting and market making of corporate equity and debt
securities, has expanded dramatically. The industry has been transformed new
functions (e.g., the prominence of mergers and acquisitions), new products
(e.g., rate risk management mechanisms, such as swaps), new techniques (e.g.,
securitization of illiquid receivables), new markets (e.g., Tokyo, London and
India), and new muscle (e.g., merchant banking) have changed the face of
contemporary Investment banking.

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ORGANIZATIONAL STRUCTURE OF INVESTMENT
BANKS INVESTMENT BANKING

Division of Investment Banks

TYPES OF PLAYER IN THE INVESTMENT BANKING
An investment bank is split into the so-called Front Office, Middle
Office and Back Office. The individual activities are described below:
Front Office
Investment Banking is the traditional aspect of investment
banks, which involves helping customers raise funds in the Capital
Markets and advising on mergers and acquisitions. Investment
banking may involve subscribing investors to a security issuance , coordinating with
bidders , or negotiating with a merger target . Other terms for the Investment
Banking Division includes Mergers & Acquisitions (M&A) and
Corporate Finance (often pronounced “corpfin”).

Investment Management is the professional management of

various securities (shares, bonds, etc.) and other assets (e.g. real
estate), to meet specified investment goals for the benefit of the
investors. Investors may be institutions (insurance companies, pension

funds , corporations etc.) or private investors (both directly via investment

contracts and more commonly via collective investment schemes e.g. Mutual
funds).

Financial Markets is split into four key divisions: Sales, Trading, Research and

Structuring .
Sales and Trading is often the most profitable area of an investment bank, responsible for
the majority of revenue of most investment banks. In the process of
market making, traders will buy and sell financial products with the
goal of making an incremental amount of money on each trade. Sales is the
term for the investment banks sales force, whose primary job is to
call on institutional and high-net-worth investors to suggest trading ideas
and take orders. Sales desks then communicate their clients’ orders to the
appropriate trading desks, 20which can price and execute trades, or
 INVESTMENT BANKING

BUSINESS PORTFOLIO OF INVESTMENT BANKS

Globally, investment banks handle significant fund-based

business of their own in the capital market along with their non-fund service
portfolio that is offered to clients. However these distinct segments are handled
either on the same balance sheet or through subsidiaries and affiliates
depending upon the regulatory requirements in the operating environment of
each country. All these activities are segmented across three broad platforms –
equity market activity, debt market activity and merger and acquisitions (M&A)
activity. In addition, given the structure of the market, there is also
segmentation based on whether a particular investment bank belongs to a
banking parent or is a stand-alone pure investment bank.

In the case of universal banks such as the Citigroup or UBS

Warburg, loan products form a significant part of the debt market business
portfolio. Pure investment banks such as Goldman Sachs, Merrill Lynch and
Morgan Stanley Dean Witter do not have commercial banking in their portfolio
and therefore, do not offer loan products. Besides the larger firms, there are a
host of other domestic players present in each country and mid-sized investment
banks, which either specialize in local markets or in certain product segments.
The global mergers & acquisitions business is very large and
measures up to trillions of dollars annually. Investment banks play a lead
advisory role in this booming segment of financial advisory business. Besides,
they come in as investors in management buy-outs and management buy-in
transactions.
On the other occasions, wherein investment banks manage private equity funds,
they also represent their investors in such buy-out deals.

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Some investment banks in the overseas markets also specialize in niche

segments such as – management of hedge funds, bullion trade, commodity
hedges, real estate and other exotic market.
Below given is the diagram, which represents the broad spectrum
of global investment activity.

INVESTMENT BANKING

CORE BUSINESS PORTFOLIO

Non-fund based Fund based

Equity portfolio – Merchant Equity portfolio – Underwriting,

Banking (Issue Management), market making .
Private placements.

Debt portfolio – Issue Management, Debt portfolio – Underwriting,

Private placement, structured finance market making.
issuances such as securitisation.

M & A – M & A advisory, M & A portfolio – Investing in

Corporate advisory, project advisory. private equity.

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SUPPORT ACTIVITY PORTFOLIO

Non-fund based Fund based

Equity portfolio – Equity broking, Equity portfolio – portfolio investing,

distribution, asset management, managing private equity funds and
custodial services, etc. asset management funds.

Debt portfolio – Debt market Debt portfolio – Trading, underwriting,

broking, research, distribution, market making & investing on own
asset management, securitised instruments.
research.

Derivative portfolio – Derivative

Derivative portfolio – Proprietary
broking, risk management, custodial
trading, managing hedge funds.
services.

Investment Banking Spectrum

From this diagram, it may be appreciated that investment
banking encompasses a wide area of capital market based businesses and
services and has a significant financial exposure to the capital market. Though
investment banks also earn a significant component of their income from non-
fund based activity, it is their capacity to support clients with fund-based
services, which distinguishes them from pure merchant banks.

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INDIAN INVESTMENT BANKING INDUSTRY

• CHARACTERISTICS AND STRUCTURE

Investment banking in India has evolved in its own characteristic

structure over the years both due to business realities and the regulatory regime.

On the regulatory front, the Indian regulatory regime does not

allow all investment banking functions to be performed under one entity for two
reasons – to prevent excessive exposure to business risk under one entity and to
prescribe and monitor capital adequacy and risk mitigation mechanisms.

Therefore, bankruptcy remoteness is a key feature in structuring

the business lines of an investment bank so that the risks and rewards are
defined for the investors who provide resources to the investment banks. In
addition, the capital adequacy requirements and leveraging capability for each
business line have been prescribed differently under relevant provisions of law.
On the same analogy, commercial banks in India have to follow the provisions
of the Banking Regulation Act and the RBI regulations, which prohibit them
from exposing themselves to stock market investments and lending against
stocks beyond certain specified limits.

Therefore, Indian investment banks structure their business segments in

different corporate entities to be able to meet regulatory norms. For e.g. it is
desirable to have merchant banking in a separate company as it requires a
separate merchant banking license from the SEBI. Merchant Bankers other than

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Banks and financial institutions are also prohibited from undertaking any other
business other than that in the securities market. However, since banks are
subject to the Banking Regulation Act, they cannot perform investment banking
to a large extent on the same balance sheet. Asset management business in the
form of a mutual fund requires a three-tier structure under the SEBI regulations.
Equity research should be independent of the merchant banking business so as
to avoid the kind of conflict of interest. Stock broking has to be separated into a
different company, as it requires a stock exchange membership apart from SEBI
registration. Investment banking in India has also been influenced by business
realities to a large extent.

Due to the above reasons, the Indian investment banking industry

has a heterogeneous structure. The bigger investment banks have several group
entities in which the core and non-core business segments are distributed.
Others have either one or more entities depending upon the activity profile.

The heterogeneous and fragmented structure is evident even if Indian

investment banks are classified on the basis of their activity profile. Some of
them such as – SBI, IDBI, ICICI, IL & FS, Kotak Mahindra, Citibank and
others offer almost the entire gamut of investment banking services permitted in
India. Among these, the long-term financial institutions are gradually
transforming themselves into full service commercial banks 9called ‘universal
banking’ in the Indian context. They also have full service investment banking
under their fold.

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 INVESTMENT BANKING

• DEVELOPMENTS

Over the subsequent years, two developments have taken

place. Firstly, with the downturn in the capital markets, the merchant banking
industry has seen tremendous shake out and only about a 10% of them remain
in serious business as pointed out earlier. The other development is that due to
the gradual regulatory developments in the capital markets, investment banking
activities have come under regulations which require separate registration,
licensing and capital controls.

Presently, there are no Indian investment banks although there

is a bulge bracket of investment banks in India that have some overseas
presence to serve Indian issuers and their investors. At the middle level are
several niche players including the merchant banking subsidiaries of some
public sector banks. Some of these subsidiaries have been either shut down or
sold off in the wake of the two securities scams seen in 1993 and in 2000.
However, certain banks such as Canara Bank and Punjab National Bank have
had successful merchant banking activities. Among the middle level players are
also merchant banks structured as non-banking financial services companies
such as Rabo India Finance Ltd., Alpic Finance etc. There are also in the middle
level, some pure advisory firms such as – Lazard Capital, Ernst & Young,
KPMG, Price Waterhouse Coopers etc. At the lower end are several niche
players and boutique firms, which focus on one or more segments of the
investment banking spectrum.

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 INVESTMENT BANKING

INSTITUTIONAL INVESTING AND INVESTMENT

BANKING

Institutional investors have been a recent phenomenon in the

Indian capital market, which till then had the presence of a handful of public
financial institutions such as the UTI and the insurance companies. The term
lending institutions such as the IDBI and IFCI did not participate in
secondary market dealing as a matter of policy. With the advent of
liberalization, there are presently a large number of domestic institutional
investors in the secondary market apart from approved foreign institutional
investors.

In addition, institutional investments have risen significantly in

the primary markets through venture capital and private equity investments
by investors in both the domestic and non-resident categories. Several of the
leading investment banks either have dedicated venture funds or private
equity funds that invest in primary market.

What does the 'FIG' at an investment bank refer to?

The 'FIG' at an investment bank usually refers to the

financial institutions group - a group of professionals that provides

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 INVESTMENT BANKING

investment banking and mergers and acquisitions expertise to financial

institutions. In order to provide more tailored services, some investment
banks further segment their areas of expertise under the financial institutions
group into a banking or financial services group, and an insurance
group. Some investment banks use these sorts of divisions more as a
marketing technique than as a representation of real expertise.

Some examples of companies that may represent

prospective FIG clients include insurance companies specializing in personal
or commercial insurance products, commercial finance companies
that provide financial services to businesses, banks, brokerages,
investment dealers, and wealth management companies.

The services that the FIGs may provide to clients include, but are not
limited to: private and public equity or debt financing, recapitalization,
financial restructurings, mergers, acquisitions, corporate valuations, expert
financial opinion and corollary analysis and advisory services.

Some other investment banking segments include: health care, industrial,

media, telecommunications, mining, energy, retail, technology and real
estate, although this is by no means an exhaustive list of the business
divisions within which investment banks operate.

SERVICE PORTFOLIO OF INDIAN INVESTMENT BANKS

The core services provided by Indian investment banks are broadly

divided into two categories:

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A) Management of public offers and private placements.

B) Corporate advisory services.
These are profiled below:

(A)Management of public offers and private placements

♦ Initial Public Offer

The first exposure of a company to the capital market – i.e.
Initial Public Offer. Initial public offering or IPO, in financial market
terminology, is the initial sale of the common shares of a corporation to the
public. It represents a primary market. Companies typically issue stock when
they first go public through initial public offerings (IPOs), and they may issue
stock and bonds periodically to fund such enterprises as research, new product
development, and expansion. IPO, which is currently, perceived by
entrepreneurs and start-up executives is a good way to secure money to expand
the business without over-reliance upon third-party debt.

Before stocks and bonds are issued, investment bankers perform due
diligence examinations, which entail carefully evaluating a company's worth in
terms of money and equipment (assets) and debt (liabilities). This examination
requires the full disclosure of a company's strengths and weaknesses.
Investment banks aid companies and governments in selling
securities as well as investors in purchasing securities, managing investments,
and trading securities. Investment banks take the form of brokers or agents who
purchase and sell securities for their clients; dealers or principals who buy and
sell securities for their personal interest in turning a profit; and broker-dealers
who do both.

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 INVESTMENT BANKING

The primary service provided by investment banks is

underwriting, which refers to guaranteeing a company a set price for the
securities it plans to issue. If the securities fail to sell for the set price, the
investment bank pays the company the difference. Therefore, investment banks
must carefully determine the set price by considering the expectations of the
company and the state of the market for the securities.

The lessons are clear. IPO is a complex process requiring hard work
by a skilled team of investment bank: in the end, the market will punish the ill-
prepared.

Thus, IPO market is of special significance to investment banking

since this is an area that provides statutory exclusivity to them as lead
managers. In the days when the public offers market is very vibrant, this area of
service forms the main activity for most Indian investment banks.

♦ Rights Issues and Secondary Public Offers

A rights issue is made to the existing shareholders of a company. The

‘right’ herein refers to the entitlement of a shareholder to apply for and receive
additional shares in the company. It is a right and not obligation.

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 INVESTMENT BANKING

Secondary public offer also known as follow on offering, consists of

post-listing public issues, offers for sale and composite issues. A listed
company shall be eligible to make rights issue and secondary public offers.

A listed company has to consider many more aspects than an

unlisted company in approaching its shareholders or the primary market for
funds. From Investment banking prospective too, a listed company has a set of
opportunities and limitations as compared to an unlisted company.

 Role of Investment Banker in Listed Companies

The functional areas for investment bankers in listed companies are thus listed
below:
1) Acting as advisers and arrangers in raising debt and equity finance through
the capital market.
2) Acting as advisers and arrangers for private placement of debt and equity.
3) Acting as merchant bankers for transactions relating to rights issues and
secondary public offers.
4) Advise companies on pricing and valuation for various types of offers.
5) Advise companies on post-listing issues and offerings.
6) Advise companies on buy backs and act as merchant bankers for such offers.

♦ Private Placement of Equity

Equity capital can be raised through public offers or through private issues. The
term ‘private issue of equity’ has to be interpreted in terms of issue of equity

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shares in the non-public route either through a private offering or by other

means.

Private placement is distinguished from the “public” offering of securities.

Depending upon the category of investors being looked at and the status of the
investor company, the private market for raising equity can be broadly
classified as INSTITUTIONAL and NON-INSTITUTIONAL private
placements.

The institutional investors are Venture Capital funds and Private Equity
funds. Investment Bankers also place securities with a limited number of
institutional investors such as insurance companies, investment companies, and
pension funds.

• Venture Capital funds is institutional risk capital that has the mandate of
investing in start-up companies. The investment banker plays a key advisory
role in formulating the business of a start-up company and also helps it to
raise its finances.
Broadly, the investment banker can deliver the following services
to a start-up company:
 Strategy and business advisory services in formulating the business model

for the company’s stated business objective.

 Perform a study of the industry landscape and competitor analysis, product

pricing strategy and SWOT analysis.

 Advise the company on the necessary steps to be taken to make the business

model credit worthy and investor friendly.

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 Act as the arranger for the company’s debt or equity financing as per the

financing plan that includes representation and negotiations.

 Raise financing for the company in the most efficient way possible.

Considering the fact that investment banks provide transaction-

oriented services, it is found that most of the top line investment banks do not
prefer to work with start-ups in pure advisory role unless the company’s
business plan is large enough to their linking.

• Private Equity funds on the other hand, are larger investors investing in
later stage companies. In this area, the role of investment banker is more
transaction oriented than in venture capital fund raising. This is because, the
business model of the company is more established, the organization is fully
in place and the cash flow model is proven.
The ‘engagement’ in connection with a private equity transaction
can be summarized as follows:
 Identify and initiate contact with prospective investors, including road

shows, and following up as necessary;

 Represent or accompany the company in meetings, presentations and

ensuring negotiations with prospective Investors;

 Review the outcome of such meetings with the company, and recommend to

the company further action as may be required;

 Review and advise on proposals/offers from prospective investors;

The NON-INSTITUTIONAL investors include high

networth investors (called HNIs), seed stage venture investors (also called
‘angel’ investors), financial and investment companies, other corporate, stock
broking companies, portfolio investors, institutional market investors such as
mutual funds and, foreign institutional investors and non-resident Indians.

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Private placements in the non-institutional category are generally made through

close sources. Such kind of limited private offers are generally made by
appointing a suitable agency that can facilitate the fund raising.

While some investment banks specialize only in raising venture

capital and private equity, others that have strong investor relationships
especially in the HNI category, offer private placements to non-institutional
investors as a service. These are boutique investment banks that are often an
extension of stock broking houses.

♦ Private Placement of Debt

The private placement market for debt securities essentially
consists of medium to long-term debt securities such as debentures and bonds
being placed privately with selected investors, mostly institutional or high net
worth private investors. As of now, the private placement market which is
considered as a market for the informed investor and the placement being made
in a close loop, has been hugely popular due to its simple and quick deal
process, lack of elaborate disclosures and regulatory clearances.

Private placement of Debt is an important source of funds both for

companies under the Companies Act and other types of entities such as public
sector corporations, financial institutions and banks. Debt securities issued
through private placement can also be listed on the stock exchange to provide
them with liquidity.
Therefore, there are three main constituents in this market – the
issuers, the investors and both these are brought together by the investment
banker who acts as the arranger to the placement. The deal process typically

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starts with the issuer rolling out a plan to raise funds through the private
placement route. The first step in this direction would be to appoint the
investment bank as an arranger to the whole placement.
The first step for the investment banker is to ascertain that the
company has taken the necessary approvals from its board, shareholders and
existing lenders for the proposed debt and has the necessary powers under its
memorandum and articles of association, Sec 293(1)(a) and 293(1)(d) of the
Companies Act. The arranger has to then become familiar with the company’s
business, the industry space, the financials of the company and the financing
requirements. Usually a check-list of the required information is prepared and
the information is put together in the form of a private placement memorandum.
All the necessary back-up papers and documents are also compiled and kept
ready for the requirement of investors.
One of the important tasks of the investment banker is to
arrive at the instrument in offer and the deal structure. The investment banker
has to use his conventional wisdom, ingenuity and market intelligence to arrive
at the coupon rate and suitable enhancements if any, required for the
instrument. Credit rating is an important process in the deal as it enhances the
possibility of closing the deal early by providing all the necessary comfort to
investors.

(B)Corporate Advisory Services

♦ Corporate Re-organizations
As a result of liberalization and globalization the
competition in the corporate sector is becoming intense. To survive in the

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competition, companies are reviewing their strategies, structure and

functioning. This has led to corporate restructuring. This is the most important
business segment for investment bankers after management of public offers.
Globally, in the traditional days of investment banking, this business segment,
popularly known as M&A, contributed to a significant share of the bottom line
of investment banks, sometimes becoming the largest revenue stream.

In a corporate restructuring involving a split-up or a

disinvestment by the promoters, the investment banker prepares the entire
feasibility plan, deal structure, identifies the buyers or the sellers as the case
may be, conducts the valuation and due diligence and negotiations for arriving
at the term sheet. The investment banker also works closely with other
professionals such as accountants and legal advisors in order to look at the
legal, accounting and tax issues involving such corporate re-organizations.

Thus in all corporate re-organizations, the investment banker

performs the pivotal role of transaction service, acting as a catalyst for the
entire deal. With a growing number of mergers and acquisitions as well as
corporate re-organizations, investment banks have become increasingly
involved in the process of arranging these transactions as part of their primary
services.

♦ Project Advisory Services

Probably one of the most fascinating areas in corporate finance is project

finance, not only because of its complexity but because of its profound
economic significance as well. Project financing has traditionally been a term

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loan based activity, where investment banks had very little to do unless an
element of capital market financing was involved. However, it has now become
an integral part of the advisory service portfolio of leading investment banks,
especially of those with a Universal Banking background.

Project advisory services relate to all facets of project

finance, which begin at the stage of project conceptualization and extend till the
completion of financial closures and beyond. Most projects in recent times have
used the services of investment banks in this area of high finance. Broadly, the
range of services entails the following:

 Bid advisory services in projects wherein the project is awarded to a

particular consortium through a bidding process

 Advise in entering into other key project contacts

 Structuring the means of finance for the project

 Preparation of Project Report, loan applications and associated documents

 Act as ‘arranger’ on behalf of the client for representation and negotiations

with lenders and equity investors

 Management of private placements/public offers of debt or equity

 Achieve financial closure with the best terms and in the best possible time

for the project.

♦ Financial Restructuring Advisory

‘Financial Restructuring’ as the term denotes is the art of

restating the financial position of a company as reflected by its Balance Sheet as

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on a given date. In order to achieve such restatement a complex financial and

legal process is involved as it concerns several conflicting interests.

Financial Restructuring can be triggered off either from the asset

side of the Balance Sheet or the liability side. Therefore, Financial
Restructuring encompasses restructuring of debt capital (outside liability) as
well as equity capital.

The Investment Banking Services in Debt Restructuring

Investment bankers, of late, have developed a service area in advising and
representing companies in debt restructuring programmes. The various steps
involved are as follows:
 The first stage would be to formulate a viability plan for the company. For

this purpose, the investment banker has to understand the business model,
present financial position, existing borrowings and their carrying cost, future
business opportunities and the resulting cash flow there from.
 Once the company’s viability and future operating plan have been

formulated, the next step would be to float the ‘Debt Restructuring Scheme’
(DRS). The DRS has to comply with statutory norms and applicable
guidelines issued by the RBI.
 The investment banker has to use his expert knowledge and prior experience

in formulating the scheme, so as to envisage workable terms of sacrifice

from lenders and attractive terms of liability and cost reduction for his client.
 The next step would be to present the DRS to lenders and represent the

client in discussion and negotiations with the consortium of leaders or

individual lenders as the case may be.

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The Investment Banking Services in Equity Restructuring

 The investment banker plays an important role in the equity restructuring of

a company, in the area of share buy-back. More often than not, companies
that intend to restructure their equity capital are listed on the stock
exchanges and therefore, such restructuring may need to comply with the
relevant provisions of the SEBI guidelines. However, the real need for an
investment banker in equity restructuring is to play the role of a merchant
banker for a proposed share buy-back if any, as part of the restructuring
programme.
 Since SEBI guidelines stipulate that share buybacks have to comply with

SEBI guidelines, and a merchant banker holding a valid license should

manage the offer, it becomes imperative for the company to appoint a
merchant banker as manager to the offer.
 The major contribution that the merchant banker makes in such assignments,

apart from managing the offer, is in advising the company on the proper
method to be adopted for the buy-back accordingly.
 The pricing becomes critical because if the buy-back is under-priced, the

offer may not be successful. On the other hand, if the buy-back is over
priced, it may erode shareholders value for those who remain with the
company post-buyback.
Therefore, the role of the merchant banker becomes extremely
important.
♦ Mergers and Acquisitions Advisory

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In simple words, merger is a combination of two or more

companies into a single where one survives and other lose their corporate
existence.

M&A advisory firms are referred to by a number of names

including: investment banks, bulge bracket firms, middle market M&A firms,
business intermediaries and business brokers. As a general rule, business
brokers represent client of smaller transactions, middle market firms handle the
mid-size transactions and investment banks handle the largest transactions.

M&A have traditionally been the forte of investment banks world

over. In the earlier era of investment banking, M&A advisory constituted the
only advisory area and accounted for the second largest revenue stream of their
business. This service warrants high range of skill in the art of financial deal
making that investment banks specialize in. It has become an important
advisory area at a time when Indian industry is passing through a
transformation to meet the demands of globalization.

The investment banking domain in M&A advisory is mainly in

partner search, negotiations and deal structuring, valuation, due diligence and
deal closure. M&A advisory is also an area wherein investment banks face
competition from pure advisory and professional firms and financial services
companies.

The key differentiate or between a firm designated as an investment bank and a

firm that operates as an M&A advisor is that an investment bank – in
addition to performing an M&A advisory role – may also:

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 Advise companies on matters related to the issue and placement of stock

 Act as an underwriter or agent for corporations and municipalities

issuing securities

 Maintain broker/dealer operations

 Maintain markets for previously issued securities

 Offer advisory services to investors

Hence some of the services or business segments form the core of investment
banking, others provide invaluable support.

Interdependence between Different Verticals of Services

There are different verticals in investment banking and they do enjoy synergies
with one another. This inter-independence and complementary existence has
been explained below.

Merchant banking largely relates to management of public floatation of

securities or reverse floatation such as the buy-backs and open offers,
underwriting is an inherent part of merchant banking for public issues. While,
advisory and transaction services help in maintaining an enduring relationship
with clients during those times when merchant banking is not a hot activity due
to depressed market conditions.

The other segment of primary market activity, i.e. venture capital and private
equity has equal synergies with merchant banking. The support business
verticals in the secondary market operations also have synergies with those in

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the primary equity and debt market segment as far as investment banking is
concerned.

Thus, it may be seen that the growth and success of an investment bank
depends on its strengths in each vertical and how well it combines them for
synergies. To sum up, investment banking is a business that is very sensitive to
the economic and capital market scenario and therefore, the broader the
platform of its operations, the more is the likelihood of an investment bank
surviving business cycles and sudden shocks from the market.

REGULATORY FRAMEWORK FOR INVESTMENT

BANKING

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 INVESTMENT BANKING

Investment banking in India is regulated in its various facets under

separate legislation’s or guidelines issued under statute. The regulatory powers
are also distributed between different regulators depending upon the
constitution and status of the investment bank. Primarily the capital market
regulator (SEBI) governs pure investment banks, which do not have presence in
the lending or banking business. However, primarily the RBI regulates
universal banks and NBFC investment banks in their core business of banking
or lending and so far as the investment banking segment is concerned, they are
also regulated by SEBI. An overview of the regulatory framework is furnished
below:
a) At the constitutional level, all investment banking companies incorporated
under the Companies Act 1956 are governed by the provisions of that Act.

b) Investment Banks that are incorporated under a separate statute such as the
SBI or the IDBI are regulated by their respective statute. IDBI is in the
process of being converted into a company under the Companies Act.

c) Universal Banks are regulated by the Reserve Bank of India under the RBI
Act 1934 and the Banking Regulations Act which put restrictions on the
investment banking exposures to be taken by banks. The RBI has relaxed the
exposure limits for merchant banking subsidiaries of commercial banks. Till
now, such companies were restricting their exposure to a single entity
through the underwriting business and other fund based commitments such
as standby facilities etc. to 25% of their net owned funds (NOF). Therefore,
these companies are now on par with other investment banks, which can do
so upto 20 times their NOF.

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d) Investment banking companies that are constituted as non-banking financial

companies are regulated operationally by the RBI under chapter III B (sec
45H to 45QB) of the Reserve Bank of India Act, 1934. Under these sections
RBI is empowered to issue directions in the area of resource mobilization,
accounts and administrative controls. The following directions have been
issued by the RBI so far:
♦ Non-Banking Financial Companies Acceptance of Deposits
(Reserve
Bank) Directions, 1998.
♦ NBFCs Prudential Norms (Reserve Bank) Directions, 1998.

e) Functionally, different aspects of investment banking are regulated under the

Securities and Exchange Board of India Act, 1992 and the guidelines and
regulations issued there under. These are listed below:
♦ Merchant banking business consisting of management of public
offers is a licensed and regulated activity under the Securities and
Exchange Board of India (Merchant Bankers) Rules 1992 and SEBI
(Merchant Bankers) Regulations 1992.
♦ Underwriting business is regulated under the SEBI (Underwriters)
Rules, 1993 and the SEBI (Underwriters) Regulations 1993.
♦ The activity of secondary market operations including stock
broking are regulated under the relevant by-laws of the stock exchange
and the SEBI (Stock brokers and Sub brokers) Rules 1992 and
Regulations 1992. Besides, foe curbing unethical trading practices, SEBI
has promulgated the SEBI (Prohibition of Insider Trading) Regulations,

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1992 and the SEBI (Prohibition of Fraudulent and Trade Practices

Relating to Securities Markets) Regulations 1995.
♦ The business of asset management as mutual funds is regulated
under the SEBI (Mutual Funds) Regulations 1996. The business of
venture capital and private equity by such funds that are incorporated in
India is regulated by the SEBI (Venture Capital Funds) Regulations, 1996
and by those that are incorporated outside India is regulated under the
SEBI (Foreign Venture Capital Funds) Regulations 2000.
♦ The business of institutional investing by foreign investment banks
and other investors in Indian secondary markets is governed by the SEBI
(Foreign Institutional Investors) Regulations 1995.
f) Investment banks that are set up in India with foreign direct investment
either as joint ventures with Indian partners or as fully owned
subsidiaries of the foreign entities are governed in respect of the foreign
investment by the Foreign Exchange Management, 1999 and the Foreign
Exchange Management (Transfer or issue of Security by a Person
Resident outside India) Regulations 2000 issued there under as amended
from time to time through circulars issued by the RBI.

g) Apart from the above specific regulations relating to investment banking,

investment banks are also governed by other laws applicable to all other
businesses such as the – tax law, contract law, property law, local state laws,
arbitration law and other general laws that are applicable in India.

TREND ANALYSIS OF INVESTMENT BANKING

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• The recent trends in investment banking have shifted sources of profitability

for firms.
⇒ In the last few years, the major trends in investment banking have been:
⇒ Growth in equity business, particularly IPOs;
⇒ Increase in mergers and acquisitions;
⇒ Dominance of “new-economy” sectors, such as Technology and telecom.
• The winners in the market have been the bulge bracket
investment banks and highly focused boutiques.
• The growth of investment banking and research costs is
exceeding growth in revenues, especially for second tier major bracket and
boutique investment banks.
Recent Trends in Investment Banking
One of the trends that have been developing in the past few
years in the global and Indian investment banking arena, is the strong
emergence of universal banks ahead of pure investment banks as market
leaders. These universal banks have the additional financial muscle of their
banking arms that add to their pure investment banking strengths.
Pure investment banks have found it unmanageable to
maintain leadership positions due to difficult market conditions and the
economic downturn. The year 2002 has been dubbed as the watershed year in
investment banking. Globally, universal banks such as the – Citigroup, JP
Morgan Chase and Deutsche Bank are emerging strongly against pure
investment banks such as Goldman Sachs and Morgan Stanley. This trend could
probably reappear in India as well with the emergence of SBI, ICICI, IDBI and
Kotak Mahindra Bank as strong universal banks.
Case study on
ICICI Securities Ltd. (I-Sec).

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I-Sec is a part of the ICICI group whose parent company is the

ICICI Bank, which till recently was a financial institution that converted itself
into a universal bank by its merger with its own commercial bank, the ICICI
Bank in 2003. I-Sec, which was initially a joint venture with J. P. Morgan of the
US, became fully owned by ICICI after J.P. Morgan exited from the business.

I-Sec is a subsidiary of ICICI Bank, the largest private sector bank

in India and operates out of Mumbai with offices in New Delhi, Chennai,
Kolkatta, New York, London and Singapore. Under the able leadership of Mr. S
Mukherji, Managing Director and CEO, ICICI Sec continues to grow as
reflected in its performance over the past couple of years.

Board of Directors of ICICI Sec Ltd.

 Mr. K.V. Kamath – Chairman
 Ms. Lalita d. Gupte
 Ms. Kalpana Morparia
 Mr. Uday Chitale
 Dr. Nachiket Mor
 Mr. S. Mukherji – M.D. and CEO

ICICI Securities Limited (I-SEC), India's leading full service

investment banking firm with a dominant position in all segments of its
operations – Corporate Finance, Fixed Income and Equities. Insightful,
Thorough and convincing these three words define everything they have done
since the last 25 years and will continue to do so in the years to come.

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Their services provided by them are as follows:

Corporate Finance
The window to the world

ICICI Securities Ltd. is a leader across the spectrum of

investment banking. They are experienced in every
aspect of the business from domestic and international capital markets advisory,
to M&A advisory, Private equity raising, Restructuring and infrastructure
advisory.

Their unique understanding of the Indian corporate sector and deep

relationships with all their relevant stakeholders gives them the ideal platform
to consistently provide quality advise and service. They identify and structure
transactions for a range of clients including central and state governments,
private and public sector corporations and financial institutions.
Key transactions handled by ICICI Sec in the recent past have included:
 Initial public offerings of Reliance Petroleum and Deccan Aviation,

 Delisting of Digital Globalsoft by HP,

 Private equity investment in Apar industries.

 Acquisition by ICICI Ventures of ACC Refractors

 Acquisition of Shaw Wallace by The UB group

 Spentex’s acquisitions of Indo Rama Textiles Ltd. and Tashkent-To’yepta

Tekstil Ltd. of Uzbekistan.

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 INVESTMENT BANKING

ICICI Sec Ltd. was amongst the first Indian investment banks to
form a dedicated M&A practice and continues to be a leader by providing
innovative and unique solutions to achieve varied objectives of the client. It also
has a dedicated practice to assist companies with capital mobilization through
the private equity/venture capital route across their life cycle. They assist
companies in raising capital during the seed, growth and expansion and
acquisition financing.

They are also at the forefront of capital markets advisory having

been involved in most major book building and fixed price offerings over the
last decade. ICICI Sec is amongst the leading underwriters of Indian equity with
unparalleled execution capabilities. It has a dedicated infrastructure vertical
focused on assisting clients in identifying and capitalizing on the opportunities
thrown up by the all pervasive boom in the Indian infrastructure sector.

Fixed income
Of Bonds and Yields

ICICI Sec. Ltd. is an acknowledged leader in the Indian

fixed income and money markets, with a strong franchise

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across the spectrum of interest rate products and services – institutional sales
and trading, resource mobilization and research. One of the first entities to be
granted Primary Dealership license by RBI, I-Sec has made pioneering
contributions since inception to debt market development in India.

The Fixed Income Group features desks trading actively in

government securities, swaps and corporate bonds markets. The bond research
of the Fixed Income team is a benchmark for the industry.

Innovation and insight into rate markets drive I-Sec’s advice to

clients. They actively assist clients in designing and marketing interest rate
structures to suit their objectives. I-Sec Sales team has developed a strong
network of relationships covering institutional investors such as banks, mutual
funds, insurance companies, provident funds and non-banking finance
companies. These relationships are serviced by a wide distribution network with
footprints across the country. I-Sec is also credited with pioneering debt market
research in India. Their in-depth research, independent and well-considered
market commentaries are widely read and acclaimed.

Equities
Dealing with Bulls and Bears

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ICICI Securities Limited assists global institutional investors to make the right
decisions through insightful research coverage and a client focused Sales and
Dealing team. Mentions in various client survey polls, commending this team
for the quality of analysis and client servicing standards, are a testimony to the
quality of the team.

So welcome to the world of equities. Where Bulls and Bears often

collide, run amuck or even go awry. To survive and excel you need a cool head
and an analytical mind. With a combined market experience of over 150 years,
the equities team at ICICI Securities comprises some of the finest minds in the
country manning the research desk, sales desk and the trading desks.

But don’t take their word for it. Let some of finest equity magazines
in the world do the job for them: The only Indian research team to figure in the
top ten rankings conducted by Institutional Investor in 2005; Adjudged by Asia
money as the Best Brokerage House in 2003.

The equity group leverages research and distribution reach to

domestic and foreign institutional investors in case of public offerings. The
equity research team tracks over 15 key sectors of the Indian economy and
publishes in-depth research reports every year. Coverage of the Indian corporate
scene which is at once exhaustive and in-depth.

ICICI Securities Subsidiaries

ICICI Sec has wholly owned subsidiary, ICICI Brokerage

Services Ltd. (IBSL), whish buys and sells equities for their institutional clients.

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ICICI Sec has a U.S. subsidiary, ICICI Sec Inc., which is a member of the
National Association of Securities Dealers, Inc. (NASD). As a result of this
membership, ICICI Sec Inc. can engage in permitted activities in the U.S.
securities markets. These activities include dealing in securities markets
transactions in the United States and providing research and investment advice
to US investors.

VISIT TO THE STATE BANK OF INDIA BANK

QUESTIONAIRE
Name :-Pramod Bhoyar

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Post:- Relationship Manager

Experience:-16 years

? What is the effect of recession on investment banking?

 The loans and advances increased and the public deposit have gone down.

? Where do you invest the money collected from the public?

 We provide loans like Education loan, home loan, car loans and invest in
stock, bonds etc.

?who are the competitor of your bank?

 ICICI and HDFC

?What are your future plan?

 To be best bank in the market.

CONCLUSION

The Investment Banking industry is come of age and is now

growing by leaps and bounds. Investment Banking companies in India has

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joined hands with global majors to adapt to global standards and also to
collaborate to work on cross border transactions and participate in international
offerings.
Hence, given the scope for investment banking in India, the
future looks bright for the industry as a whole in India. Many more pure
merchant banks and advisory firms could convert themselves into full service
investment banks that would broaden the market and make the service delivery
much more efficient. In addition, the technological and market developments
shaping the capital market would also provide an added impetus to the growth
of investment banking.

The market regulator, Securities Exchange Board of India (SEBI)

has continuously played an effective role in increasing transparency and has
been able to put adequate safeguards to protect general investor’s interest. This
effort has been the single most important factor because investor confidence is
supreme and as long as investor confidence is high, both the capital market and
the investment banking industry will continue to do well.

Thus, investment banking can be quoted as – “Investment Banking

– the financial facilitator of market driven capitalism and the economic
catalyst of national and international development”

BIBLIOGRAPHY

 www.wikipedia.org.

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 www.managementparadise.

 www.wisegeek.com

 www.investorwords.com

 Book of Environment and management of financial services

P.K.BANDKAR

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