MERCHANT BANKING

SUBMITTED TO K.K JINDAL SIR SUBMITTED BY VINAY SHUKLA 66 VIVEK AGRAWAL 69 AVINASH KUMAR 86 BALAMURLI KRISHNA 87 ASHOK KUMAR MAITY 88

*
In banking, a merchant bank is a financial institution primarily engaged in international finance and long-term loans for multinational corporations and governments.[1] It can also be used to describe the private equity activities of banking

* Merchant Banking refers to negotiated private equity

investment by financial institutions in the unregistered securities of either privately or publicly held companies. A bank that offers these services is called a merchant bank. Both commercial and investment banks may engage in merchant banking activities. The original purpose of merchant banks was to facilitate and/or finance production and trade of commodities and hence the name "merchant"

Commercial banks are the normal banks that provide day to day banking services like checking/saving accounts, fixed deposits, loans etc.

* Key

differentiators between Commercial Banking and Merchant Banking

* Commercial

banks verify and uphold savings accounts of individuals; provides loans and mortgages to individuals or small-scale businesses. But, merchant banks operate as fiscal consultants to large-scale companies. Commercial banking is usually reachable to everyone for elementary banking requirements,
large corporations and very wealthy persons.

* whereas merchant banking is concerned to hand out primarily

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 etcThey 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

Merchant

Banking:

The merchant banker are those financial intermediary involved with the activity of transferring capital funds to those borrowers who are interested in borrowing. The activities of the merchant banking in India is very vast in nature of which includes the following a) The management of the customers securities b) The management of the portfolio, c) The management of projects and counseling as well as appraisal d) The management of underwriting of shares and debentures e) The circumvention of the syndication of loans f) Management of the interest and dividend etc

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 promoters contribution. These loans can be obtained from a single institution or a consortium.

ISSUE MANAGEMENT : Management of issues involves marketing of corporate securities ieequity 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

*
* The basic
function of merchant banker or investment banker is marketing of corporate and other securities. In the process, he performs a number of services concerning various aspects of marketing, viz., origination, underwriting, and distribution, of securities. During the regime of erstwhile Controller of Capital Issues in India, when new issues were priced at a significant discount to their market prices, the merchant bankers job was limited to ensuring press coverage and dispatching subscripttion forms to every corner of the country. Now, merchant bankers are designing innovative instruments and perform a number of other services both for the issuing companies as well as the investors. The activities or services performed by merchant bankers, in India, today include:

* 1. * 2. * 3. * 4. * 5. * 6. * 7. * 8. * 9. * 10. * 11. * 12.

Project promotion services. Project finance. Management and marketing of new issues. Underwriting of new issues. Syndication of credit. Leasing services. Corporate advisory services. Providing venture capital. Operating mutual funds and off shore funds. Investment management or portfolio management services. Bought out deals. Providing assistance for technical and financial collaborations and joint ventures. * 13. Management of and dealing in commercial paper. * 14. Investment services for non-resident Indians.

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..

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.

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.

OFF SHORE FINANCE :

Merchant bankers help their clients in : Long term foreign currency loan

Joint venture abroad

Financing exports and imports Foreign collaboration arrangement

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

Dsp Merrill Lynch Ltd. Merchant Banking, Stock Brokin... Prime Securities Ltd Debit and Equity Organisation.... Dash Impex Merchant Exporter & Importer... Desai Financial Services P L... Mercbanker Fin. Consultant Dsp Merrill Lynch Ltd Merchant Banking Emjay Enterprise Merchant Exporters Erudite Capital Creation Ltd Merchants Banking Esoffina Svcs Ltd Merchants Bankingdivn Associat... Everex Infotech P Ltd Merchant Exporter Expo Gas Containers P Ltd Merchant Exporters Exta Exprots Merchant Exporters Sicom Ltd Merchant Banking Division Asso... Tata Finance Merchant Banker... Finance Solutions V B Dalal & Co Merchant Bank Abn Amro Securities India P ... Merchant Bank Ak Capital Services Ltd Merchantile Banking Firm Allianz Securities Ltd Merchant Banker Arihant International General Merchandise Bahtco Essem Trading Co P Lt... Merchant Exporter Bajaj Consultants P Ltd Merchant Bankers Bhavesh Traders Merchant Exporters Boom Exports International Merchant Exporter Bramco India P Ltd Merchant Exporter Dandy Exports Merchant Exporters French & International Bank Ho Merchant Bank Harvey Rud & Co Merchant Exporters Ind Bank Merchant Services L... Merchant Bank Jay Shree Trading Company Merchant Exporter Jaya Green Acres P Ltd Merchant Exporter Kena Exim Merchant Exporters Keymed Merchant Exporter Kinjal Export Merchant Exporter- Eng. Produ... Kk Thaker Merchant Exporter L& T Capital Ltd Merc. Banking Co. Corp Fina Meghraj Fincl Svcs i) P Limited( Merc. Bnk Fin. C... Mitul Exports Merchant Exporters Nouveau Finance Ltd Merchant Bankers/ Nse Brokers Priti International Merchants Exporters Puneet Advisory Services P L... Merchant Banking Sbi Capital Marketltd Fin Invt& Leas Compn Mrh Bnkg Sbi Coml & Intl Bank Ltd Banking, Branch, Ambika Enterprises Merchandising Service Merchand... Mehta Traders

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

GUIDELINES FOR MERCHANT BANKERS :

SEBIs 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 unpublished price sensitive information of their clients

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

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

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

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