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MERCHANT BANKING
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DEFINITATION
Original Definition: A Merchant Bank is aBritish term fora bankproviding various financial services such as accepting bills arising outof trade, providingadvice onacquisitions, mergers, foreign exchange,
underwritingnew issues, and portfolio management.
The Focus Definition:A MerchantBank can be generally describedas a financial services companywith a private equity investment armoffering investment banking and ancillary services as well.
Because amerchant bankacts not onlyas anadvisorand brokerbut
also as a principal, amerchant bank has alongertermapproach thana typical investment bankand is highlyconcerned with the viability ofeach investment opportunityand providing the right advice fora strongpartnership with each client company.
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Services provided by Merchant Banking
Project counseling
Project appraisal
Pre investment studies
Portfolio management
Mergerand Acquisition Consultation
Mutual funds Corporate Finance Advisoryand Consulting Services
Capitalrestructuring
Credit syndication
Fixed deposit broking
Foreigncurrency finance
Issue management and underwriting Workingcapital finance
Acceptance credit and bill financing
Venture capital
Lease financing
Relief to sick industries
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Corporate Counseling
To ensure efficient running ofcorporate
enterprise
Rejuvenating old line co. & ailing units Guiding existing units inlocatingareas and
diversification
MB (merchant banker) plays the role of
managerial economist and financialandinvestment expert
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Project counseling
Part ofcorporate counselingand relate to
project finance
Covers study of product, offeringadvisoryassistance on viabilityand implementation
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Pre investment studies
Making detailed feasibility exploration to
evaluate alternate avenues ofcapital
investment
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Capital restructuring services
Assist project inachieving theirmaximum
potential through effective capital
restructuring
Strategies to widenand restructure the
capital base
Diversify operations and implement the
scheme foramalgamations, mergers
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Credit syndication
Credit procurement and project financing
Raising Indianand foreigncurrencyloans
from banks and FIs
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Issue management and underwriting
Management of public issues ofcorporate
securities i.e. equity shares, pre.shares &
debentures orbonds,
Mobilization ofmoney fromcapitalmarket
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Portfolio management
Making decisions related to investment of
cash resources ofcorporate enterprise
Involves right choice of investment
Optimum investment mix
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Working capital finance
Advises related to meet day to day expenses
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Acceptance credit and bill financing
Merger and Acquisition ConsultationVenture Financing
Funding high risk high reward projects
Plays a significant role in financing high tech Projects& helpingResearch and Development projects to turn
into commercial production. A typical private equity investment, inagrowth
oriented small/medium business to enable the
investors to accomplish theirgoals . Seed Capital, Start up Financing, Follow on
Financing, Expansion financing , ReplacementFinancing, Turnaround financing , Management Buy
Outs (MBOs)
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Lease financing
Foreign currency financeFixed deposit broking
Mutual funds
Relief to sick industriesProject appraisal
financial appraisal
technical appraisaleconomic appraisal
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Punjab National Bank
Indias one of the Leading Nationalized Bank established in1895, serving over3.5 crore customers through 4520 branchesand 439 extensioncounters is the largest amongst NationalizedBanks. The Bank has recently beenranked 21st among top 500companies and 9th among top 50 brands by the EconomicTimes. All the Branches of the Bank have beencomputerized.The Bank has aconcept of "AnyTime, AnyWhere Banking"through the introduction of Centralized Banking Solution (CBS)and over2511 offices have already been brought under its ambit.
The Bank is registered with SEBI as Category I Merchant
Bankerforprovidingall the majorMerchant Banking services.Ourgamut of Merchant Banking services includes:
Issue Management Services to act as BookRunning LeadManager/Lead Managerforthe IPOs/FPOs/Right issues/Debtissues
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Project appraisal
Corporate Advisory Services
Underwriting of equity issues
Banker to the Issue/PayingBanker
Refund Banker
Monitoring Agency Debenture Trustee
Marketing of the issue through a strongnetwork of
QIBs / HNIEs / Corporates and Retail investor.
The Bank itself is one of the major investor in themarket havinga treasury of 45000 crores.
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Indian bank
Merchant Banking Indbank is a Category 1 Merchant Bankerregistered with Securities
Exchange Board of India (SEBI) undertakingassignments
Undervarious capacities like Lead Manager, Co-Manager, Advisor,Arrangeretc. forpublic issues, rights issues and private placement.
Foracquisition of shares & takeovers underSEBI (SubstantialAcquisition of shares and Takeovers)Regulations, 1997, SEBI
(Buyback of Securities)Regulations, 1998 and SEBI (De-listing ofSecurities) Guidelines, 2003.
ForEmployee Stock Option Scheme / StockPurchase Scheme byCorporates under the SEBI (Employee Stock Option Scheme andEmployee StockPurchase Scheme), Guidelines, 1999.
Advisory Services
Valuation of shares & other financial instruments Syndication of Loans
Acquisitions
Mergers & Amalgamations
Project Counseling, appraisaland feasibility studies.
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DAMODARTHREADS LTD
LEAD MANAGERS TO THE ISSUE-
CANARA BANK
REGISTRAR TO THE ISSUE - INTIME
SPECTRUM REGISTRY LIMTED
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Reliance Power
LeadManager- Kotak, UBS, ABN AMRO,
Deutsche, ICICI Securities,
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List of Indian commercial banks merged since
January 1990
Name of the Transferor Bank Name of the Transferee Bank
And DateBank ofTamilnad Ltd. Indian Overseas Bank 20.02.19902.
Bank ofThanjavurLtd. IndianBank 20.02.19903.
ParurCentralBank Ltd. Bank of India20.02.19904. PurbanchalBank Ltd .CentralBank of India29.08.19905
Kashi Nath Seth Bank Ltd .State Bank of India 01.01.19966.
Bari Doab Bank Ltd. OrientalBank of Commerce08.04.19977
Punjab co-op Bank Ltd. OrientalBank of Commerce 08.04.19978.
Bareilly CorporationBank Ltd. Bank ofBaroda03.06.19999.
SikkimBank Ltd. UnionBank of India22.12.199910
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Times Bank Ltd. HDFC Bank Ltd.26.02.200011.
Bank of Madura Ltd. ICICI Bank Ltd.10.03.200112
Benaras State Bank Ltd Bank ofBaroda20.06.200213
Nedungadi Bank Ltd PNB01.02.200314.
South Gujarat L A Bank Ltd. Bank OfBaroda25.06.200415.
GlobalTrust Bank Ltd. OrientalBank Of Commerce14.08.200416
Bank ofPunjab Ltd CenturianBank01.10.200517.
IDBI Bank Ltd. IDBI Ltd.02.04.200518
The Ganesh Bank of Kurundwad Ltd The FederalBankltd.02.09.200619.
United WesternBank Ltd .IDBI Ltd.03.10.200620.
Bharat Overseas Bank Indian overseas Bank31.3.200721.
The Sangli Bank Ltd ICICI Bank Ltd. ( Voluntary) 19.4.200722
Lord KrishnaBank Ltd. CenturionBank ofPunjab Ltd.(voluntary)29.8.2007
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Regulatory framework on Merchant Banking
Priorto 1992, the new issue market activitywas
controlled by the Controllerof Capital Issues under
the Capital of Controller Issues Control Act 1947.
Post 1992 the protection of the interest of the
investors, regulationand of the market activityand
promotionand development has become the
responsibility of Securities and Exchange Board ofIndia .(SEBI).
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SEBI Regulations
Registration under4 categories
Compulsoryapplication
Category 1 - prospectus, other informationpreparation, financial structure , tie up of financiers,finalallotment of securities , refund of subscription ,act as advisors, consultants, and underwriters orportfolio managers.
Category 2 to act as advisor, consultant, co-manager, underwriter, portfolio manager
Category 3 - to act as underwriter, advisor, consultantto an issue
Category 3 - to act as advisor, consultant to an issue
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SEBI Regulations
Consideration ofapplication (Grant ofcertificate) Bodycorporate other than NBFC.
Adequate office space, equipment and manpower.
Atleast two persons with experience inmerchant banking Should not be associated with the applicant as
associate/subsidiary/group company etc.
directors/officer- not involved inanylitigationwith the securities
market.
Directors/officers with professionalqualification infinance/law/business management.
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SEBI Regulations
Capital AdequacyRequirement
Rs.5 crore forcategory I
Rs.0.5 crore forcategory 2
Rs.0.2 crore forcategory 3
Nil forcategory 4
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General Obligations
Sole function
Maintenance of books To be maintained foraminimum of 3 yrs .
Details regardingapplicationmoneyreceived, the names of
investors, the time within which the same is forwarded to theissuingcompany , dates & amts. Ofrefund to investors.
Disciplinary Action byRBI
If RBI takes disciplinaryactionagainst the Bank forhandlingissue payments, the bank has to inform the same to SEBI.
If bank has been prohibited fromcarrying on its activities byRBI,the SEBI registrationautomaticallygets cancelled.
Submission of halfyearlyresults
Preservation of books of Accounts, Records etc.
Reports on steps taken onaudits report
Appointment oflead manager
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Restriction on the appointment of Lead manager
Size of issue no. of MB< thanRs 50 crores 2
>50 cr. But < 100 cr. 3
>100 cr. But < 200 cr. 4>200 cr. But < 400 cr. 5
>400 cr. 5 ormore
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General Obligations
Responsibilities of Lead managers agreement with issuingcompanies formutualrights, obligations for
issues , allotment and refund.
Statement to SEBI of these details , 1 mth before issue. Statements
of obligations of otherassociates also to be furnished.
Cannot associate with amerchant bankerwho has not registered
with SEBI.
Minimum underwritingcommitment Rs. 25 lakhs of total underwriting
amount.
Ifcannot manage the underwritingamount then has to arrange
equalamount through otherassociate lead managers.
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General Obligations
Underwriting obligations 5% of total underwritingcommitment orrupees 25 lakhs
whicheverless
Submission of Due Diligence Certificate has to submit to SEBI two weeks before issue
details regarding the offerletter/prospectus conformitywith thepapers , materials relevant to the issue.
All disclosures are true, fairand adequate to enable investors totake well informed balanced decision.
Submission of documents
all documents like prospectus, offerletter, otherparticulars to besubmitted to SEBI before 2 weeks of issue.
Ifanyrecommendations made by SEBI, they should be dulyincorporated .
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General Obligations
Documents to be furnished to the board
Payment of fee to the board
Information to the board Disclosure to the board
Appointment of Compliance Officer
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Procedure for Inspection
Boards Right to inspect Inspection by SEBI at any time.
Allrecords, documents, computerdate to be provided toinspector.
All provisions on inspectionreport to be complied with.
Notice before inspection
Obligations of Merchant Bankeron Inspection
Submission ofreport to the board Action on inspection or investigationreport
Appointment of Auditor
Communication of findings
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P
rocedure for Action in case ofD
efault Liability foraction incase of default
Suspension ofregistration
Cancellation ofregistration
indulges in deliberate manipulation/price riggingaffectingthe securities market.
Poor financial position ofmerchant banker
is guilty of fraud, orconvicted ofacriminal offence .
Showcause notice and order Effect of suspensionand cancellation
Appeal to Securities Appellate Tribunal
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Procedure for Inspection
Registration Fee paid at the time of originalas wellas renewalregistration
Forcategory I- Rs. 2.5 lakh for first two yrs andRs.1 lakh for the third year.
Category 2- Rs.1.5 lakh for2 yrs and Rs.50000forthird year.
Category 3 -Rs.1 lakh for2 yrs and Rs.25000 forthird year.
Category 4- Rs. 5000 for2 yrs and Rs.1000 forthird year.
Renewal fees
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Code of Conduct for Merchant Bakers
Protect interest of investors
integrity, dignityand fairness
Prompt, ethical
Due diligence
Grievance of investors are redressed obligations fulfilled in prompt and professionalmanner
Investor inquiries and grievances handled on time andappropriate manner
adequate disclosures to investors as perguidelines
True and adequate information
No discriminationamongst clients. Copies of prospectus and offerletterto all investors at time of
offerof issue.
Best advice to clients.
Avoid conflict of interest
Best possible advice
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SEBI Guidelines
Operationalguidelines
Guidelines onadvertisement
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Operational guidelines
Submission of offerdocument
Dispatch of issue material
Underwriting Compliance obligations
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Guidelines on Advertisement
Factualand truthful
Clearand concise
Promise of profits
Mode ofadvertising
Financial data
Risk factors
Issue date
Product advertisement
Subscription
Issue closure Incentives
Reservation
Undertaking
Availability ofcopies