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Merchant bankA merchant bank is a financial institution that provides capital to companies in the form
of share ownership instead of loans. A merchant bank also provides advisory on corporate matters
to the firms in which they invest. In the United Kingdom, the term "merchant bank" refers to
an investment bank.
Today, according to the U.S. Federal Deposit Insurance Corporation (acronym FDIC), "the term
merchant banking is generally understood to mean negotiated private equity investment by financial
institutions in the unregistered securities of either privately or publicly held
companies."[1] Both commercial banks and investment banksmay engage in merchant banking
activities. Historically, merchant banks' original purpose was to facilitate and/or finance production
and trade of commodities, hence the name "merchant". Few banks today restrict their activities to
such a narrow scope.
The Reserve bank of India performs merchant banking functions for the central and the state governments; it also acts as their banker.
History[edit]
Main article: History of banking
Merchant banks are in fact the original modern banks. These were invented in the Middle
Ages by Italian grain merchants. As the Lombardy merchants and bankers grew in stature based on
the strength of theLombard plains cereal crops, many displaced Jews fleeing Spanish persecution
were attracted to the trade. They brought with them ancient practices from the Middle and Far
East silk routes. Originally intended for the finance of long trading journeys, these methods were
applied to finance the production and trading of grain.
In France during the 17th and 18th century, a merchant banker or marchand-banquier was not just
considered a trader but also received the status of being an entrepreneur par excellence. Merchant
banks in the United Kingdom came into existence in the early 19th century, the oldest being Barings
Bank.
The Jews could not hold land in Italy, so they entered the great trading piazzas and halls of
Lombardy, alongside the local traders, and set up their benches to trade in crops. They had one
great advantage over the locals. Christians were strictly forbidden the sin of usury, defined as
lending at interest (Islam makes similar condemnations of usury). The Jewish newcomers, on the
other hand, could lend to farmers against crops in the field, a high-risk loan at what would have been
considered usurious rates by the Church; but the Jews were not subject to the Church's dictates. [citation
needed] In this way they could secure the grain-sale rights against the eventual harvest. They then
began to advance payment against the future delivery of grain shipped to distant ports. In both cases
they made their profit from the present discount against the future price. This two-handed trade was
time-consuming and soon there arose a class of merchants who were trading grain debt instead of
grain.
The Court Jew performed both financing (credit) and underwriting (insurance) functions. Financing
took the form of a crop loan at the beginning of the growing season, which allowed a farmer to
develop and manufacture (through seeding, growing, weeding, and harvesting) his annual crop.
Underwriting in the form of a crop, or commodity, insurance guaranteed the delivery of the crop to its
buyer, typically a merchant wholesaler. In addition, traders performed the merchant function by
making arrangements to supply the buyer of the crop through alternative sources—grain stores or
alternate markets, for instance—in the event of crop failure. He could also keep the farmer (or other
commodity producer) in business during a drought or other crop failure, through the issuance of a
crop (or commodity) insurance against the hazard of failure of his crop.
Merchant banking progressed from financing trade on one's own behalf to settling trades for others
and then to holding deposits for settlement of "billette" or notes written by the people who were still
brokering the actual grain. And so the merchant's "benches" (bank is derived from the Italian for
bench, banco, as in a counter) in the great grain markets became centers for holding money against
a bill (billette, a note, a letter of formal exchange, later a bill of exchange and later still a cheque).
These deposited funds were intended to be held for the settlement of grain trades, but often were
used for the bench's own trades in the meantime. The term bankrupt is a corruption of the
Italian banca rotta, or broken bench, which is what happened when someone lost his traders'
deposits. Being "broke" has the same connotation.
A sensible manner of discounting interest to the depositors against what could be earned by
employing their money in the trade of the bench soon developed; in short, selling an "interest" to
them in a specific trade, thus overcoming the usury objection. Once again this merely developed
what was an ancient method of financing long-distance transport of goods.
The medieval Italian markets were disrupted by wars and in any case were limited by the fractured
nature of the Italian states. And so the next generation of bankers arose from migrant Jewish
merchants in the great wheat-growing areas of Germany and Poland. Many of these merchants
were from the same families who had been part of the development of the banking process in Italy.
They also had links with family members who had, centuries before, fled Spain for both Italy and
England. As non-agricultural wealth expanded, many families of goldsmiths (another business not
prohibited to Jews) also gradually moved into banking. This course of events set the stage for the
rise of Jewish family banking firms whose names still resonate today, such
as Warburgs and Rothschilds.
The rise of Protestantism, however, freed many European Christians from Rome's dictates against
usury. In the late 18th century, Protestant merchant families began to move into banking to an
increasing degree, especially in trading countries such as the United Kingdom (Barings), Germany
(Schroders, Berenbergs) and the Netherlands (Hope & Co., Gülcher & Mulder) At the same time,
new types of financial activities broadened the scope of banking far beyond its origins. The
merchant-banking families dealt in everything from underwriting bonds to originating foreign loans.
For instance, bullion trading and bond issuance were two of the specialties of the Rothschilds. In
1803, Baringsteamed with Hope & Co. to facilitate the Louisiana Purchase.
In the 19th century, the rise of trade and industry in the US led to powerful new private merchant
banks, culminating in J.P. Morgan & Co. During the 20th century, however, the financial world began
to outgrow the resources of family-owned and other forms of private-equity
banking. Corporations came to dominate the banking business. For the same reasons, merchant
banking activities became just one area of interest for modern banks.
DEFINITION OF 'MERCHANT BANK'A bank that deals mostly in (but is not limited to) international finance, long-term
loans for companies and underwriting. Merchant banks do not provide regular
banking services to the general public.
Merchant Banking: Meaning and Functions of Merchant Banking
Meaning and Functions of Merchant Banking are as follows:
Meaning:
The term 'merchant banking' has been used differently in different parts of the world.
While in U.K. merchant banking refers to the 'accepting and issuing houses', in U.S.A.
it is known as 'investment banking'. The word merchant banking has been so widely
used that sometimes it is applied to banks who are not merchants, sometimes to
merchants who are not banks and sometimes to those intermediaries who are neither
merchants not banks.
In India merchant banking services were started only in 1967 by National Grindlays
Bank followed by Citi Bank in 1970. The State Bank of India was the first Indian
Commercial Bank having set up separate Merchant Banking Division in 1972. In India
merchant banks have been primarily operating as issue houses than full- fledged
merchant banks as in other countries.
A merchant bank may be defined as an institution or an organisation which provides a
number of services including management of securities issues, portfolio services,
underwriting of capital issues, insurance, credit syndication, financial advices, project
counselling etc. There is a distinction between a commercial bank and a merchant
bank. The merchant banks mainly offer financial services for a fee. while commercial
banks accept deposits and grant loans. The merchant banks do not act as repositories
for savings of the individuals.
Functions of Merchant Banks:
The basic function of a merchant banker is marketing corporate and other securities.
Now they are required to take up some allied functions also.
A merchant bank now takes up the following functions:1. Promotional Activities:
A merchant bank functions as a promoter of industrial enterprises in India He helps
the entrepreneur in conceiving an idea, identification of projects, preparing feasibility
reports, obtaining Government approvals and incentives, etc. Some of the merchant
banks also provide assistance for technical and financial collaborations and joint
ventures
2. Issue Management:
In the past, the function of a merchant banker had been mainly confined to the
management of new public issues of corporate securities by the newly formed
companies, existing companies (further issues) and the foreign companies in dilution of
equity as required under FERA In this capacity the merchant banks usually act as
sponsor of issues.
They obtain consent of the Controller of Capital Issues (now, the Securities and
Exchange Board of India) and provide a number of other services to ensure success in
the marketing of securities. The services provided by them include, the preparation of
the prospectus, underwriting arrangements, appointment of registrars, brokers and
bankers to the issue, advertising and arranging publicity and compliance of listing
requirements of the stock-exchanges, etc.
They act as experts of the type, timing and terms of issues of corporate securities and
make them acceptable for the investors on the one hand and also provide flexibility
and freedom to the issuing companies.
3. Credit Syndication:
Merchant banks provide specialised services in preparation of project, loan
applications for raising short-term as well as long- term credit from various bank and
financial institutions, etc. They also manage Euro-issues and help in raising funds
abroad.
4. Portfolio Management:
Merchant banks offer services not only to the companies issuing the securities but also
to the investors. They advise their clients, mostly institutional investors, regarding
investment decisions. Merchant bankers even undertake the function of purchase and
sale of securities for their clients so as to provide them portfolio management services.
Some merchant bankers are operating mutual funds and off shore funds also.
5. Leasing and Finance:
Many merchant bankers provide leasing and finance facilities to their customers. Some
of them even maintain venture capital funds to assist the entrepreneurs. They also help
companies in raising finance by way of public deposits.
6. Servicing of Issues:
Merchant banks have also started to act as paying agents for the service of debt-
securities and to act as registrars and transfer agents. Thus, they maintain even the
registers of shareholders and debenture holders and arrange to pay dividend or
interest due to them
7. Other Specialised Services:
In addition to the basic activities involving marketing of securities, merchant banks
also provide corporate advisory services on issues like mergers and amalgamations,
tax matters, recruitment of executives and cost and management audit, etc. Many
merchant bankers have also started making of bought out deals of shares and
debentures. The activities of the merchant bankers are increasing with the change in
the money market.
MERCHANT BANKING ACTIVITIES:
The Major Merchant Banking activities which the Bank offers to its clients are:
Issue Management - Management of Public Issues i.e. IPOs, FPOs, Right Issues,etc. as
Book Running Lead Manager
Bankers to the Issue
Payment of Dividend Warrants / Interest Warrants / Refund Orders
Debenture Trustee
Underwriting
Issuing & Paying Agent
Monitoring Agency
Besides promoting / marketing the above Merchant Banking Business in the Bank through
specialized Capital Market Services Branches, Merchant Banking Cells and identified branches,
the Merchant Banking Division also looks after the following activities:
Marketing of Merchant Banking Business
Monitoring / Supporting Capital Market Service Branches
Refund Paid / Payable
MERCHANT BANKERS ASSIGNMENTS:
At present, the Bank is holding following Licenses from SEBI:
Merchant Banker
Banker to the Issue
Underwriting
Debenture Trustee
1. Bankers To The Issue (Collecting Banker):
'Bankers to the Issue' business as a part of Merchant Banking business is one of the good
source of low cost deposits and, therefore, concerted efforts are to be made for its
development. From time to time, Merchant Banking Division is issuing instructions/
guidelines for the benefit of the field staff for the efficient and effective handling of the
Banker's to Issue assignments and for the meticulous compliance of RBI / SEBI
directives.
2. Payment Of Dividend Warrants / Interest Warrants (Paying Banker):
Assignment of payment of dividend warrants / interest warrants is another
opportunity for the bank to get short-term deposits at nominal cost. The
assignment of dividend payment not only provides the free of cost float fund but
also adds to the fee-based income of the Bank.
The Merchant Banking Division has also got enabled a functionality of a new
system in CBS branches for payment assignments, which is similar to Demand
Draft Payable Account under Finacle. The product has the following unique
features that ensure that the payment account of the corporate remains reconciled
at any point of time:
Facility for upfront uploads of the instruments issued by the companies into Core
Banking system
Online payment of the instruments by CBS branches
Validation of instruments details by the system
Online status update of paid instruments by the system
Online MIS on paid/unpaid instruments at any point of time
Facility to cancel lost instruments and to re-upload duplicate instruments issued in
lieu thereof
MIS on cancelled instruments
100% reconciliation of the corporate dividend / refund order payable by a/c by the
system without manual intervention
Facility to provide MIS on paid / outstanding instruments in ASCII format, which
can be suitably converted by the corporate for updating their in-house database
This new facility will help in solving the major problem in handling these
assignments i.e. reconciliation of accounts. This will also help in reducing the cost
of reconciliation, postage and handling cost.
To remain in the fray and be competitive in the prevailing environment in Banking
Industry, Management has approved changes in policy for bidding/offer for "Banker to
Issue" / "Payment Assignment. The policy of sharing of expenses upto 80% of notional
income and waivement of the handling charges upto full extent while bidding for
securing business of Banker to Issue and Payment Assignment have been approved by
the authorities. Circle Offices are requested to forward the proposals to CGM, MBD, HO
for approval.
3. Payment Of Refund Orders:
As compared to the payment of Interest / Dividend Warrants, assignments for payment of
Refund Orders is more lucrative since it involves larger amount, which at times may even
run into several crores of rupees and Deposit float is likely to remain with the Bank for a
longer period of time as the beneficiaries are widely spread and the Bank gets free
publicity.
Normally the refund bankers are decided well before the issue opens. Circle Offices
should maintain close liaison with companies who are intending to come out with public
issues.
The detailed guidelines / procedures to be followed. Powers of the Branches / Charges
etc. for handling the assignments of Bankers to the Issue/ Payment of Dividend warrants /
Refund Orders etc. are available in the circulars of the Division at the Bank’s website.
4. Underwriting:
Underwriting is a contingent liability and this is one sphere of Merchant banking
where outlay of funds on the part of the bank may be involved. As such, it is
necessary to be very careful in accepting / recommending such business.
Proposals that pose clear risk of devolvement should be declined at the outset
unless there is sub underwriting tie up directly or indirectly with promoters and
their related investment companies or a firm commitment of buy back on
reasonable terms.
Major aspects which need close scrutiny before underwriting can be considered
are the project and its viability, project location, promoters and their track record,
product and its marketability, past performance of existing companies in the same
line, Government Policy, projected financial performance, capital market
conditions, underwriting / sub underwriting / buy back arrangements, etc.
5. Debenture Trustee:
In terms of SEBI guidelines, all debenture issues (public rights) of the companies
with the maturity period exceeding 18 months are required to have "Debenture
Trustee" and its name must be stated in the prospectus of the issue.
The necessity of creation of debenture trust is to organize the large number of
debenture holders and facilitate interaction by the companies issuing debentures
with a single entity rather than individual debenture holders. Merchant Bankers
(holding valid Registration with SEBI as debenture trustee) act as Trustees for the
debenture holders to accept security created by the company, to secure the
repayment of principal and payment of interest thereon, taking action for
safeguarding their interest and enforcing their rights in times of needs.
As per SEBI guidelines lenders cannot act as Trustees to debentures/bond the
issues of the Companies who are their borrowers. Therefore, branches of the Bank
must not obtain 'Debenture Trustee' assignments of the parties/companies which
are availing Credit facilities from our Bank.
6. Issuing & Paying Agent (IPA):
Commercial Paper now being a stand alone product coupled with the complexity\
of legal frame work and in order to protect the interest of various market players /
participants for ensuring smooth flow of the transactions in the CP market, the
Issuing and Paying Agent has been made to play a prominent role and hence made
more accountable.
Risk Management Division HO has issued detailed guidelines with regard to
issuance of Commercial Paper through L&A Circular No. 31 dated 30.3.2007,
inter-alia, providing therein the system for issuance of Commercial Paper (CP)
and providing standby facility to the issuer of Commercial Paper.
In order to ensure that the guidelines prescribed are diligently followed by issuers
of CP, only a schedule bank has been permitted to act as an Issuing & Paying
Agent (IPA) for issuance of CP. Our Bank being a scheduled bank can act as an
IPA for issuance of CP.
For the Functions and Role and Responsibilities of Issuing and Paying Agent
(IPA) and other guidelines, kindly refer to Cir. No. 24/2007 dated 9.4.2007 of
Merchant Banking Division available on the e-circular site of the Bank.
7. Monitoring Agency:
In terms of SEBI (DIP) guidelines, the Company issuing the shares to public shall
make arrangements for the use of proceeds of the issue to be monitored by one of
the financial institutions, in case of issues, which exceed Rs.500 crores.
Though, in terms of SEBI guidelines, it is mandatory for the issuers to appoint
'Monitoring Agency' if the issue size is more than Rs.500 crores, on the insistence
of Merchant Bankers and Stock exchanges, the issuers of issues of less than Rs.
500 crores are also appointing monitoring agency.
Monitoring Agency is required to monitor timely implementation of project and
submit return on half yearly basis to SEBI as per the format specified by SEBI
Monitoring Agency is therefore responsible to act as under:
1. Make arrangement to ensure the monitoring of issue proceeds.
2. Ensure that the proceeds collected is being utilized for the project it was raised.
3. Where the amount is being parked/invested till utilized for the project.
4. Cost of the project as mentioned in the offer document and revision if any to be
reported to the SEBI
5. Cost of the project as mentioned in the offer document and revision if any to be
reported to the SEBI
6. Keep a track on the expenditure incurred from the amount collected.
7. . If total cumulative amount raised is more than the expenditure incurred on the
project, how the surplus funds are utilised/ proposed to be utilised.
8. Reasons for delay in implementation to be reported to SEBI.
9. To ensure that the Government/ statutory approvals related to the project as
disclosed in offer document are being complied with
10. The deviation if any, from the offer document is to be reported to the company
and the SEBI.
Since financial institutions only have been permitted to act as "Monitoring Agency",
many companies have shown interest in appointing our Bank as Monitoring Agency
though they are not offering us any other role in their issue. Bank can act as
monitoring agency provided bank is banker to the issuer. SEBI being the regulator for
the Monitoring Agency assignments, the assignment of Monitoring Agency be
negotiated judiciously and preferably with the existing clients of the Bank and try to
have the proceeds of the issue parked with us. Utmost attention is required for
monitoring the proceeds, submission of statement as per SEBI guidelines to the
company reporting of defaults etc. after acceptance of the assignment. The guidelines
to be observed before accepting assignment of Monitoring Agency are given in
respective circular available in e-circular site of the Bank.
Traditional Merchant Banking
Literally, merchant bankers are businessmen who become bankers. Historically, they
were successful businessmen offering operational and transactional expertise, together
with a deep knowledge of capital markets, to other business owners.
According to financial historians like Dr. K. Ramesha of the Indian National Institute of
Bank Management, “These skills include those inherent in an entrepreneur, a
management advisor, a commercial and/or investment banker plus that of a transaction
broker. Today a merchant banker is [someone] who has the ability to merchandise –
that is, create or expand a need – and fulfill capital requirements.”
We believe that the foundation of merchant banking is a focus on relationships. The
nature of the work and the key to success is the ability to function as a trusted,
independent advisor, agent, partner, or principal. This fundamentally differs from the
focus of investment banks today, which is on generating fees from trading. The largely
self-serving nature of trading is inconsistent with maintaining objectivity while advising
clients. Further, it orients the firm toward short-term returns instead of long-term
relationships.
The Kirchner Group is patterned after the original model for a merchant bank. Our team
is comprised of successful business people who now apply their operational,
transactional and investment experience to the unique needs of early- and mid-stage
companies and their investors. We pride ourselves in both the quality and quantity of
the long-term relationships we have built over the last 30 years.
We believe and our success confirms that today in North American, the early- and mid-
market businesses want what the 18th-century merchant bank pioneered – a trusted,
one-stop source for help in creating value.
Advantages Of Merchant Banks
In the banking sector, one of the fast emerging trends is a merchant bank. Merchant banks mainly deal with commercial services to a large scale or small-scale enterprise and even to home business. People create accounts in these banks in the same manner as done in other banks. Major difference is that these accounts will issue credit cards. Credit cards make the life easier for merchants by enabling to receive payments faster and more reliably. These accounts can be used to do online business. Credit cards have made the trading in foreign countries possible for the merchants. Merchant accounts have made online transactions much easier and reliable. Some of the great services offered by a merchant account can be listed as follows:
Account Management:
Account management is one of the useful services offered by the merchant bank. This allows the customer to manage his own accounts very easily. All the transactions will be listed in the statement of the account, which makes it easier to go through them. This service can save lots of money and make the business more efficient for the merchant who is the account holder, by reducing the employees needed for managing the accounts.
Transactions on Credit Cards:
Merchant accounts can be very effective in receiving credit card payments from the purchaser's account to the merchant's account. At the same time credit card transactions has made the payments from a merchant bank account also very fast.
Hasten Purchasing and Transactions:
The main advantage of a merchant account is the credit card facility. With a credit card, to buy products online you don't need to have money in your account. Credit card transaction is a type of loan. That allows you to buy products online even without having sufficient cash in hand. Therefore this hastens the buying experience, since there is no need for you to wait for money as it is in the case of debit card or net banking. Merchant account gives the facility of credit transactions. So it gives you the privilege of purchasing various products online just by having a credit card.
Security:
It requests you to provide some person information like credit card number when online purchasing is done. But since only the respective parties that are in the transaction will get this information, the fear factor is reduced to a greater extent (i.e. merchant is responsible for processing and verification of the information before submitting). It makes sure that only the required can get access to your credit card information.
This discussion reveals that, Merchant banks provide some valuable benefits to the merchants. Regardless of the size of the enterprise you own, these accounts can give benefits to buyers as well as the seller. A merchant account will be useful for you, either as a buyer or a seller if you are dealing with online business. On the other hand there are some other service providers who provide services for online transactions. In any case I will recommend anyone to select a merchant account to be on the safer side.
REGULATORY FRAMEWORK OF MERCHANT BANKING : Merchant banking activity was formally initiated into the Indian capital Markets in 1967. Started with various services like management of capital issues, production planning and system design to market research and management consulting services to meet the requirements of small and medium sector rather than large sector. Citibank Setup its merchant banking division in 1970. The various tasks performed by this divisions namely assisting new entrepreneur, evaluating new projects, raising funds through borrowing and issuing equity. State bank of India started the merchant banking division in 1972. In the Initial years the SBI's objective was to render corporate advice And Assistance to small and medium entrepreneurs.
The services of merchant bank cover project counseling, pre investment activities, feasibility studies, project reports, design of capital structure, issue management, underwriting, loan syndication, mobilization of funds, foreign currency finance, mergers, amalgamation, takeover, venture capital and public deposits. Merchant banking is skill based activities and involves serving financial need of every client. The depth and sophistication in merchant banking business are improving since the avenues for raising funds are widening and demands for funds is increasing. Merchant bankers can turn to any of the activities depending upon resources, such as capital, foreign tie-ups for overseas activities and skills.
Merchant bankers, irrespective of the form in which they are organized are governed by the Merchant Bankers Rules (M.B. Rules) issued by Ministry of Finance, and Merchant Bankers Regulations (M.B. Regulations) issued by SEBI (22.12.1992) and Amended Regulations, 9.12.1997.
The merchant banker's regulations, which regulate the raising of funds in the primary market, would assure for the issuer market for raising resources at low cost, effectively and easily, ensure high degree of protection of investors interest. The regulations provide for the merchant bankers a dynamic and competitive market with the high standard of professional competence, dignity, integrity and solvency. The regulations promote a primary market, which is fair, efficient, and flexible, and inspire confidence.
The Board may grant or renew a certificate to a merchant banker subject to the following conditions namely: Merchant banker, in case of any change in its status and constitution shall obtain the prior permission of the Board to carry on its activities as a merchant banker; He shall pay the amount of fees for registration or renewal; as the case may be, in the manner provided in the regulations; He shall take adequate steps for redressal of grievances of the investors within 1 month of the date of the receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received; He shall abide by the rules and regulations made under the Act in respect of the activities carried on by the merchant banker.
“Any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager, consultant, advisor or rendering corporate advisory services in relation to such issue management". The Notification of the Ministry of Finance defines merchant banker as,
Category I to carry on any activity of the issue management, which will inter-alia consist of preparation of prospectus and other information relating to the issue, determining financial structure, tie-up of financiers and final allotment and refund of the subscription; and to act as adviser, consultant, manager, underwriter, portfolio manager.
The Applicant . . . . shall be a body corporate other than a NBFC has the necessary infrastructure to effectively discharge his activities. Should have minimum two experienced employees to conduct the business of the merchant banker. Should fulfill the capital adequacy requirement as specified. his partner, director or principal officer should not be involved in any litigation connected with the securities market which has an adverse bearing on the business of the applicant. his partner, director or principal officer has not at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence. Should have the professional qualification from an institution recognized by the Government in finance, law or business management. Should be a fit and proper person.
The Registrar of Companies has been advised that prospectus for public issue can only be filed by merchant bankers who are authorized by SEBI and given a code number.
The Capital Adequacy Requirement(CAR) for a merchant banker is a minimum net worth of Rs. 5 crores.
The SEBI on being satisfied that the applicant is eligible shall grant a certificate in Form B. On the grant of a certificate the applicant shall be liable to pay the fees in accordance with Schedule II as shown below: Registration fee is Rs. 10 lakhs
Three months before expiry of the period of certificate, the merchant banker, may if he so desires, make an application for renewal in Form A. The application for renewal shall be dealt within the same manner as if it were a fresh application for grant of a certificate. The SEBI on being satisfied that the applicant is eligible for renewal of certificate shall grant a certificate in Form B and send intimation to the applicant. On the grant of a certificate the applicant shall be liable to pay the fees in accordance with Schedule II as shown below: Renewal fee is Rs.5 lakhs
RBI exempted merchant banking companies from compulsory registration (section 45 IA), maintenance of liquid assets (section 45 IB), creation of reserve fund (section 45 IC) and all the provisions of the recent directions relating to deposit acceptance and prudential norms. Conditions: Such companies are registered with SEBI under section 12 of the SEBI Act, 1992 and are carrying on the business of merchant banker in accordance with rules/regulations framed by SEBI; They require securities only as part of their merchant banking business; They do not carry on any
other financial activities as mentioned in section 45 IC of the RBI Act, 1934; and They do not accept/ hold public deposits.
Obligations and Responsibilities : Obligations and Responsibilities Code of Conduct Maintenance of Books of Accounts, Records, etc. Submission of Half Yearly Results Appointment of Lead Merchant Bankers & Restrictions Responsibilities of Lead Managers Underwriting Obligations Appointment of Compliance Officers CHAPTER III
Code of conduct : Code of conduct Every merchant banker shall abide by the Code of Conduct as specified in Schedule III. No merchant banker, other than a bank or a public financial institution, who has been granted a certificate of registration under these regulations shall after June 30th, 1998 carry on any business other than that in the securities market. A merchant banker who has been granted certificate of registration to act as primary dealer by Reserve Bank of India, may carry on such business as may be permitted by Reserve Bank of India. Regulation 13A was inserted by SEBI (Merchant Bankers) (Amendment) Regulations, 1996 published in the Official Gazette of India dated 06.06.1996.
Maintenance of books of accounts, records ,etc. : Maintenance of books of accounts, records ,etc. Every merchant banker shall keep and maintain the following books of accounts, records and documents namely:- (a)a copy of balance sheet and P&L account as at the end of each accounting period; (b)a copy of the auditor's report on the accounts for that period; (c)a statement of financial position. Every merchant banker shall intimate to the SEBI the place where the books of accounts, records and documents are maintained. Every merchant banker shall, after the end of each accounting period furnish to the SEBI copies of the balance sheet, profit and loss account and such other documents for any other preceding five accounting years when required by the SEBI.
Submission of half yearly records : Submission of half yearly records Every merchant banker shall furnish to the SEBI half-yearly unaudited financial results when required by the SEBI with a view to monitor the capital adequacy of the merchant banker.
Appointment of lead manager All issues should be managed by at least one merchant banker functioning as the lead merchant banker. Every lead merchant banker shall before taking up the assignment relating to an issue, enter into an agreement with such body corporate setting out their mutual rights, liabilities and obligations relating to such issue and in particular to disclosures, allotment and refund. Restriction on appointment of lead managers The number of lead merchant bankers may not, exceed in case of any issue of Size of issue No. of Merchant Bankers (a) Less than rupees fifty crore - Two (2) (b) Rupees fifty crore but less than rupees one hundred crore - Three(3) (c) Rupees one hundred crore but less than rupees two hundred crore - Four (4)(d) Rupees two hundred crore but less than rupees four hundred crore - Five (5)(e) Above Rupees four hundred crore five or more as may be agreed by the SEBI
Responsibility of lead manager : Responsibility of lead manager No lead manager shall agree to manage or be associated with any issue unless his responsibilities relating to the issue mainly, those of disclosures, allotment and refund are clearly defined, allocated and determined and a statement specifying such responsibilities is furnished to the SEBI at least one month before the opening of the issue for subscription: In case there are more than one lead merchant bankers, the responsibilities should be clearly demarcated . No lead merchant banker shall, agree to manage the issue made by any body corporate, if such body corporate is an associate of the lead merchant banker. Lead merchant banker not to associate with a merchant banker without registration
Underwriter obligations : Underwriter obligations In respect of every issue to be managed, the lead merchant banker holding a certificate under Category I shall accept a minimum Underwriting obligation of five percent of the total underwriting commitment or rupees twenty-five lakh, whichever is less. Incase the lead merchant banker is unable to accept the minimum underwriting obligation, that lead merchant banker shall make arrangement for having the issue underwritten to that extent by a merchant banker associated with the issue and shall keep the SEBI informed of such arrangement.
Appointment of compliance officer : Appointment of compliance officer Every merchant banker shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions etc., issued by the SEBI or the Central Government and for redressal of investors’ grievances. The compliance officer shall immediately and independently report to the SEBI any non-compliance observed by him and ensure that the observations made or deficiencies pointed out by the SEBI in the draft prospectus or the Letter of offer as the case may be, do not recur. Regulation 28A was inserted by SEBI (Investment advice by intermediaries) (Amendment) Regulations, 2001 published in the Official Gazette of India dated 29.05.2001.
SEBI’s right to inspect Notice before inspection Submission of Reports to the SEBI Appointment of Auditors
SEBI’s right to inspect The SEBI may appoint one or more persons as inspecting authority to undertake inspection of the books of accounts, records and documents of the merchant banker.
Purpose of Inspection . to ensure that the books of account are being maintained in the manner required; to ensure the provisions of the Act, rules, regulations are being complied with; to investigate into the complaints received from investors, other merchant bankers or any other person on any matter having a bearing on the activities of the merchant banker; and to investigate suo-moto in the interest of securities business or investors interest into the affairs of the merchant banker. SEBI’s right to inspect
SEBI’s right to inspect Notice before inspection Submission of Reports to the SEBI Appointment of Auditors Procedure of inspections
Notice before inspection Before undertaking an inspection under regulation 29 the SEBI shall give a reasonable notice to the merchant banker for that purpose. During the course of inspection, the merchant banker against whom an inspection is being carried out shall be bound to discharge his obligations.
Procedure for inspections : Procedure for inspections SEBI’s right to inspect Notice before inspection Submission of Reports to the SEBI Appointment of Auditors
Submission of reports to the SEBI : Submission of reports to the SEBI The inspecting authority shall, as soon as may be possible submit an inspection report to the SEBI. Action on inspection The SEBI or the Chairman shall after consideration of inspection or investigation report take such action as the SEBI or Chairman may deem fit and appropriate including action under the Securities and Exchange Board of India. Following regulation 33 was substituted by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 published in the official Gazette of India dated 27.09.2002
Slide 40: SEBI’s right to inspect Notice before inspection Submission of Reports to the SEBI Appointment of Auditors Procedure of inspections
Appointment of an auditors : Appointment of an auditors The SEBI may appoint a qualified auditor to investigate into the books of account or the affairs of the merchant banker provided that the auditor so appointed shall have the same powers of the inspecting authority The SEBI may appoint a qualified auditor to investigate into the books of account or the affairs of the merchant banker provided that the auditor so appointed shall have the same powers of the inspecting authority The SEBI may appoint a qualified auditor to investigate into the books of account or the affairs of the merchant banker provided that the auditor so appointed shall have the same powers of the inspecting authority The SEBI may appoint a qualified auditor to investigate into the books of account or the affairs of the merchant banker provided that the auditor so appointed shall have the same powers of the inspecting authority.
Procedure for actions in case of defaults CHAPTER V : Procedure for actions in case of defaults CHAPTER V Suspension of Registration Cancellation of Registration Show-cause notice and order Effect of Suspension & cancellation of Registration of Merchant Bankers Publication of Order of Suspension
Defaults : Defaults Types of defaults General defaults Minor defaults Major defaults Serious defaults Penalty point- 1 Penalty point- 2 Penalty point-3 Penalty point- 4
Procedure for actions in case of defaults : Procedure for actions in case of defaults Suspension of Registration Cancellation of Registration Show-cause notice and order Effect of Suspension & cancellation of Registration of Merchant Bankers Publication of Order of Suspension
Suspension of registration : Suspension of registration A penalty of suspension of registration of a merchant banker may be imposed where – The merchant banker violates the provisions of the Act, rules or regulations; The merchant banker – fails to furnish any information relating to his activity as merchant banker as required by the SEBI; furnishes wrong or false information; does not submit periodical returns as required by the SEBI. does not co-operate in any enquiry conducted by the SEBI Following regulation 35 was substituted by the Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 published in the official Gazette of India dated 27.09.2002
Suspension of registration : Suspension of registration The merchant banker fails to resolve the complaints of the investors or fails to give a satisfactory reply to the SEBI in this behalf; The merchant banker indulges in manipulating or price rigging or cornering activities; The merchant banker fails to maintain the capital adequacy requirement; The merchant banker fails to pay the fees; The merchant banker violates the conditions of registration; The merchant banker does not carry out his obligations as specified in the regulation.
Procedure for actions : Procedure for actions Suspension of Registration Cancellation of Registration Show-cause notice and order Effect of Suspension & cancellation of Registration of Merchant Bankers Publication of Order of Suspension
Cancellation of registration : Cancellation of registration A penalty of cancellation of registration of a merchant banker may be imposed if The merchant banker indulges in deliberate manipulation or price rigging or cornering activities affecting the securities market and the investors interest; The financial position of the merchant banker deteriorates to such an extent that the SEBI is of the opinion that his continuance as merchant banker is not in the interest of investors; The merchant banker is guilty of fraud, or is convicted of a criminal offence.
Procedure for actions in case of defaults : Procedure for actions in case of defaults Suspension of Registration Cancellation of Registration Show-cause notice and order Effect of Suspension & cancellation of Registration of Merchant Bankers Publication of Order of Suspension
Show case notice and order : Show case notice and order On receipt of the report from the enquiry officer, the SEBI shall consider the same and issue a show-cause notice as to why the penalty as proposed by the enquiry officer should not be imposed. The merchant banker shall within twenty-one days of the date of the receipt of the show- cause send a reply to the SEBI. The SEBI after considering the reply to the show-cause notice, if received, shall as soon as possible but not later than thirty days from the receipt of the reply, if any, pass such order as it deems fit. Every order passed shall be self- contained and give reasons for the conclusions stated therein including justification of the penalty imposed by that order. The SEBI shall send a copy of the order to the merchant banker.
Procedure for actions in case of defaults : Procedure for actions in case of defaults Suspension of Registration Cancellation of Registration Show-cause notice and order Effect of Suspension & cancellation of Registration of Merchant Bankers Publication of Order of Suspension
Effect of suspensions & cancellation of registration : Effect of suspensions & cancellation of registration On and from the date of the suspension of the merchant banker, he shall cease to carry on any activity as a merchant banker during the period of suspension. On and from the date of cancellation the merchant banker shall with immediate effect cease to carry on any activity as a merchant banker.
Procedure for actions in case defaults : Procedure for actions in case defaults Suspension of Registration Cancellation of Registration Show-cause notice and order Effect of Suspension & cancellation of Registration of Merchant Bankers Publication of Order of Suspension
Publication of order of suspension : Publication of order of suspension The order of suspension or cancellation of certificate passed shall be published in at least two daily newspapers by the SEBI. Any person aggrieved by an order of the SEBI made, on and after the commencement of the Securities Laws (Second amendment) Act, 1999, (i.e., after 16th December 1999), under these regulations may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter.
MERCHANT BANKING SERVICES & ISSUE MANAGEMENT
PNBISL is a Category I Merchant Banker registered with Securities Exchange Board of
India (SEBI). PNBISL has team of experienced and skilled professionals having in-depth expertise in
Merchant Banking and Issue Management, insight of regulatory compliances, understanding of market
dynamics & support of wide retail distribution network and liaison with domestic institutional investors. We
believe in ensuring good corporate governance and wealth maximization of company as well as the stake
holders along with compliance and transparency.
Our product portfolio includes: Managing Initial Public Offerings and Follow-on Public
offerings and Offers-for-Sale. Managing Rights Offering, be it the traditional or the
structured formats. Qualified Institutional Placements. Open offers, Buyback and Delisting of securities. Equity Mobilisation for infrastructure projects from
Private Equity investors. Bulk and Block trades on Exchanges, and off-market
transactions (Auction based transactions for GoI divestments).
Offerings of convertible securities. Public offering of Corporate structured bonds.
Arranging Private Equity to include growth capital, pre-IPO convertibles, private investments in public equity (PIPES), mezzanine debt and equity, and equity offerings completed as a private placement.
Private placement of bonds. Arranging Promoter’s contribution in new projects, expansion restructuring or dilution of stake from Venture
Capital or other Private Equity player. Capital restructuring advisory services. Advisory and arrangement services for products such as AIM Listing, Indian Depository Receipts, ADR/GDR
and other off-shore equity or bond listing options.
Issue Management
Equity/Debt Issue
The Issue Management Team is capable of devising innovative solution for raising capital - debt and equity - from the market suiting
the unique needs and constraints of the corporate clients. Issue Management services of Merchant Banking Division include Public
Issue Management of Initial Public Offering, Repeat Public Offering, Bond Issuance, Rights Share Offering, Corporate Advisory
Service in various matters. The team is staffed with some of the most qualified, experienced and innovative personnel in the sector
to offer corporate clients the best solution in terms of managing public offers.
Scope of Work as Issue Manager
Review valuation of the organization to justify issue price
Review VAT / TAX / CIB status of the company and its directors
Review previous audited and current management accounts
Company's business appraisal and due diligence visits
Long-term performance objective and factors that could adversely affect on achieving target
Meeting with top management of the Issuer Company
Analyzing Financial Ratios, Business Strategies and other indicators
Review legal and regulatory issues
Compliance of regulatory issues
REGISTRATION OF MERCHANT BANKERS WITH SEBI
It is mandatory for a merchant banker to register with the sebi. Without holding a certificate of
registration granted by the securities and exchange board of India, no person can act as a
merchant banker in India.
Only a body corporate other then a non-banking financial company shall be eligible to get
registration as merchant banker.
The applicant should not carry on any business other than those connected with the
securities market.
All applicants for merchant bankers should have qualifications in finance, law or business
management.
The applicant should have infrastructure like office space, equipment, manpower etc.
The applicant must have at least two employees with prior experience in merchant banking.
MERCHANT BANKERS IN INDIA
There are 135 merchant bankers who are registered with sebi now in India. There are public sector,
private sector and foreign players registered with sebi. The below are the examples of few of the
merchant bankers in each of the public, private and foreign players.
PUBLIC SECTOR MERCHANT BANKERS
SEBI CAPITAL MERKETS LTD.
PUNJAB NATIONAL BANK.
IFCI FINANCIAL SERVICES LTD.
KARUR VYSYA BANK LTD.
STATE BANK OF BIKANER AND JAIPUR.
PRIVATE SECTORS MERCHANT BANKERS:
ICICI SECURITIES LTD.
AXIS BANK LTD(FORMERLY UTI BANK LTD.)
BAJAJ CAPITAL MARKETS LTD
TATA CAPITAL MARKETS LTD.
ICICI BANK LTD.
RELIANCE SECURITIES LIMITED.
KOTA MAHINDRA CAPITAL COMPANY LTD.
YES BANK LTD.
FOREGN PLAYERS IN MERCHNT BANKING.
GOLDMAN SACHS(INDIA)SECURITIES PVT.LTD.
BARCLAYS SECURITIES(INDIA)PVT.LTD.
BANK OF AMERICA.N.A.
DEUTSCHE BANK.
DEUTCHE EQUITIES INDIA PRIVATE LIMITED.
SERVICES OF MERCHANT BANKS
PROJECT COUNSELLING:
Project counseling includes preparation of project reports,deciding upon the financing pattern to
finance the cost of the project and appraising the project report with the financial institutions or
banks.it also includes filling up of application forms with relevant information for obtaining funds from
financial institutions and obtaining government approval.
MANAGEMENT OF DEBT AND EQUITY OFFERINGS
This forms the main function of the merchant banker.he assists the companies in raising funds from
the market.the main areas of work in this regard include: instrument designing, pricing the issue,
registration of the offer document, underwriting support and marketing of the issue, allotment and
refund, listing on stock exchanges.
ISSUE MANAGEMENT
Management of issue involves marketing of corporate securities viz. equity shares, preference
shares and debentures or bonds by offering them to public. Merchant banks act as per SEBI
guidelines, the merchant banker arranges a meeting with company representatives and advertising
agents to finalize arrangements relating to date of opening and closing of issue, registration of
prospectus, launching publicity campaign and fixing date of board meeting to approve and sign
prospectus and pass the necessary resolutions. Pricing of issues is done by the companies in
consultant with the merchant bankers.
MANAGERS, CONSULTANATS AND ADVISERS OF THE ISSUE:
The managers of the issue assist in the drafting of prospectus, application forms and completion of
formalities under the companies act, appointment of registrar for dealing with share applications and
transfer and listing of shares of the company on the stock exchange. Companies can appoint one or
more agencies as managers to the issue.
UNDERWRITING OF PUBLIC ISSUE:
Underwriting is a guarantee given by the underwriter that in the event of under subscription, the
amount underwritten would be subscribed by him. Merchant banking subsidiaries cannot underwrite
more than 15% of any issue.
PORTFOLIO MANAGEMENT:
Portfolio refers to investment in different kinds of securities such as shares, debentures or bonds
issued by different companies and government securities. Portfolio management refers to
maintaining proper combinations of securities in a manner that they give maximum return with
minimum risk.
RESTRUCTURING STRATEGIES:
AA merger is a combination of two companies into a single company where one survives and other
losses its corporate existence. A takeover is the purchase by one company acquiring controlling
interest in the share capital of another existing company. Merchant bankers are the middlemen in
setting negotiation between the companies. Merchant bankers assist the management of the client
company to successfully restructure various activities, which include mergers and acquisitions,
management buyouts, joint ventures among others.
OFFSHORE FINANCE:
The merchant bankers help their clients in the following areas involving foreign currency:
1. Long term foreign currency loans
2. Joint ventures abroad
3. Financing exports and imports
4. Foreign collaboration arrangements
Guidelines for merchant banking :
A merchant banker will require authorization by SEBI to carry out the business.
SEBI has classified the merchant bankers into four categories based on the nature and range of the activities and the responsibilities.
Category I: It consists of merchant bankers who carry on the business of issue management which consists of preparation of issue management which consists of preparation of prospectus, determining the financial structure, tie-up of the financiers and final allotment/refund of subscription and to act in the capacity of managers, advisors or consultants to an issue, portfolio manager and underwriter. Minimum networth required is Rs. 1 crore.
Category II: It consists of those authorized to act in the capacity of co-manger/advisor, consultant underwriter to an issue. The Minimum networth required is Rs. 50 Lakhs.
Category III: It consists of those authorized to act as underwriter, advisor or consultant to an issue. The Minimum networth required is Rs. 20 Lakhs.
Category IV: It consists of Merchant Banker who act as advisor or consultant to an issue. There is no Minimum networth required.
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
SEBI has been vested with the power to suspend or cancel the authorization 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 authorization 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.
ANALYSIS OF ARTICLESARTICLE 1:- Marketing effectiveness in Merchant Banking
In this article author Alka Sharma discuss about the economic reforms that took place in Indian
financial sector. This type of reforms has gaining more importance as financial intermediaries and
also help in opening new opportunity for growth and development of various financial services. As a
result of this new reforms there is a shift in financial services from quantitative to qualitative services.
Financial institution is highly competitive due to which many financial institutions comes with new
and modern services and its best example is Merchant Banking as almost all the banks are
providing this type of services. In this article it has been further explained that how effectively the
banks providing this services and how much competition is these banks facing while providing this
services because these services is almost same in all the banks and that's why they are focusing on
different marketing Strategy while providing these services and how private and public banks differ in
providing these services this article also further tells that private banks are more successful while
providing these services
Article:- 2 Merchant Banking Services -Some thoughts on Indian Scenario
http://www.articlesbase.com/banking-articles/merchant-bankingservicessome-thoughts-
1351247.html
In this article author DR. R.Srinivasan discuss about the merchant banking services in India and
article tells that this services first started in Italy and from there it is famous in all around the world
and now India is become major hub of providing these services Indian bank are provided these
services very successfully and they are regulated by SEBI. This article also discuss the Services of
merchant banker like Management of Debt, Placement and distribution, loan syndication services,
project advisory services and providing venture capital.
Article 3:- Final rule on Merchant Banking activities.
In this article author discuss about the rule of governing merchant banking services it tells how
merchant bank performed this services and how SEBI regulated the banks. This article also discuss
that a new competition has been started between the banks in order to attract more business and
the bank are more focusing on qualitative services like marketing network, Brand name, and
advisory functions. Finally this article conclude that Merchant Banks following no uniform strategy by
providing these services because they are fighting on service bases.
Article4 : - Merchant Banking Past and present
This article begins by defining merchant banking and provides a short history of it. The article then
looks at the private equity market and changes in stock exchange in India, examining that market in
terms of its evolution, typical uses of funds, and forms taken by the investments. Discussed next is
commercial bank involvement in merchant banking: the structure of commercial bank involvement,
the evolution of that involvement, and the recent track record. The major provisions of the SEBI,
legislation which authorizes financial holding companies to engage in merchant banking, is looked at
next. The final section focuses on the relationship among merchant banking, risk, and the regulators.
Note: OE: Overall Excellence; FSS: Financial Soundness ; QPS: Quality Product/Service; QM: Quality Management; INN: Innovativeness. Major services of Merchant Banking in Detail:-
Project Counseling:- it is one f the important function of merchant banks, it includes all the functions
starting from taking decision whether the project is feasible or not on the basis of financial cost and
profitable scope of the project and this function also includes giving financial help to these projects
with the help of government and financial institutions.
Issue Management: - Now a days it is one of important of Merchant Banks. Many companies issues
there IPO, shares, debentures in order to raise their funds and Merchant Banks act as a
intermediary between Public and cooperates helps in successfully issue of these securities.
Merchant Banker has to perform this function as per SEBI guidelines. All the important decisions like
date of opening and closing of issue, registration of prospectus, launching publicity campaign, fixing
date f board meeting and all other major decisions are taken by Merchant Banker.
Managers, Consultants and Advisers: - Merchant banks act as a consultants and advisors of
corporate while issuing any type of securities. They performed the functions like drafting of
prospectus, application forms and completion of formalities under Company Act 1956. Companies
usually appoint one or two Merchant Banks for issuing their securities.
Underwriting of Public Issue: - By underwriting we mean guarantee given by the underwriter in event
of under subscription. Merchant banks perform this function now days and cannot subscribe more
than 15% of any issue.
Portfolio Management: - Portfolio management means to diversified the investment of the investors
or to plan their investment in different type of securities like in shares, Mutual Fund, government
securities etc. so has to gain better returns at a minimum risk. This function is performed by all the
Merchant Banks now a days.
Credit Syndication:- Credit syndication relates to activities connected with credit procurement and
project financing, aimed at raising Indian and foreign currency loans from banks and financial
institutions, are collectively known as 'credit syndication'.
Merger and Acquisition:-This is a specialized service provided by the merchant banker who arranges
for negotiating acquisitions and mergers by offering expert valuation regarding the quantum and the
nature of considerations, and other related matters.
The various functions that form part of this activity are as follows:
1. Undertaking management audit to identify areas of corporate strength and weakness in
order to help formulate guidelines and directions for future growth.
2. Conducting exploratory studies on a global basis to locate overseas markets, foreign
collaborations and prospective joint venture associates.
3. Obtaining approvals from shareholders, depositors, creditors, government, and other
authorities.
4. Monitoring the implementation of merger and amalgamation schemes.
5. Identifying organizations with matching characteristics.
Venture Financing:-Venture capital is the equity financing for high-risk and high-reward projects. The
concept of venture capital originated in the USA in the 1950s, when business magnates like
Rockefeller financed new technology companies. The concept became more popular during the
sixties and seventies, when several private enterprises undertook the financing of high-risk and high
reward projects.
Lease Financing:-Leasing is an important alternative source of financing a capital outlay. It involves
letting out assets on lease for use by the lessee for a particular period of time.
Following are the important services provided in regard to leasing:
1. Providing advice on the viability of leasing as an alternative source for financing capital
investment projects.
2. Providing advice on the choice of a favorable rental structure.
Off Shore Finance: - Following are the offshore functions performed by Merchant bankers:-
Long-term foreign currency loans
Joint venture abroad
Financing Imports and Exports
Foreign Collaboration arrangements
Corporate Counseling
The set of activities that is undertaken to ensure the efficient running of a corporate enterprise is
known as corporate counseling. It may include the rejuvenating of old line companies and ailing
units, and guiding the existing units in identifying the areas or activities for growth and diversification.
The merchant banker guides the clients on various aspects like Location factors, organizational size,
operational scale, choice of product, market survey, cost analysis, cost reduction, allocation of
resources, investment decision, capital management and expenditure control, pricing, etc.
Examples of Best Merchant Banker:- ( BEST MERCHANT BANKERS IN INDIA)
SBI CAPITAL MARKET: -According to Business outlook magazines SBI capital Markets , Subsidiary
of SBI is the oldest and best Merchant Banker in 2009. It mainly offers services in Mergers and
Acquisition, it also offers services in Publics and right offers, private placements and buybacks and it
provides Project advisory in mainly core sector i.e. Telecom and Power sector. SBI caps have got
this appreciation after successfully doing IPO in 2008.
KOTAK MAHINDRA BANK:- According to Business outlook magazine Kotak Mahindra Bank
because this bank manages 13 equity issue which includes ONGC, Biocon and Infosys ADR
offerings.
How Merchant Banks Help In Launching an IPO:-
If we talk about the previous method of issuing IPO , in this method merchant banker and issuer
fixed the price and then investor's buy IPO by filling the application form but this traditional method is
changed due to changing role of Merchant Banks and changing scenario in Indian stock market.
Recently Hughes software is used in order to launch an IPO. Following are new method of launching
an IPO now and how Merchant Banks helps in doing that:-
First of all Merchant bankers and Issuer fixed the price by using Bidding Method, in India
Price has been fixed which seems to be below 50% lower as compared to this price which
should be fixed, so, IPO is issued underpriced.
Then Merchant Bankers Selects Syndicate members who help them in selling the issue
Orders were then collected by Merchant bankers and then they submitted it to NSE by using
the computerized IPO system
Then in next step Investors could place, modify and delete orders in book building period.
Then NSE system revealed this information to Merchant Bankers. Full database of the
orders was passed on by NSE to Merchant Bankers.
CURRENT SCENARIO OF MERCHANT BANKING
At present merchant banks following main services and major Merchant Bankers in India is providing
these services
Portfolio Management
Credit Syndication
Acceptance Credit.
Counsel onmergers and acquisitions.
Insurance, etc.
Indian merchant banks initiate loans and then sell them to investors.As planning and industrial policy
of the country envisaged the setting of up of new industries and technology, greater financial
sophistication and financial services are required.
There is a well proven link between economic growth and financial technology. Economic
development requires specialist financial skills: savings banks to marshal individual savings; finance
companies for consumer lending and mortgage finance; insurance companies for life and property
cover; agricultural banks for rural development; and a range of specialized government or
government sponsored institutions. As new units have been set up and business is expanding, they
require additional financial services. A public equity or debt issue is the logical source of fund in this
situation and merchant banks can tap this opportunity of growth. The areas of great scope could be,
Growth of Primary market:
If the primary market grows and number of issues increases, the scope of merchant banking
will be enhanced.
Entry of Foreign Investors:
Now India capital market directly taps foreign capital through euro issues.FDI is increased in
capital market. So Merchant bankers are required to advice them for their investment in
India. The increasing number of joint ventures also requires expert services of Merchant
Bankers. If more and more NRIs participate in capital market, there will be great demand for
merchant banker services. Changing policy of Financial Institutions: and the lending policies
of financial institutions are based on project orientation, so the merchant banker services will
be needed by corporate enterprise to provide expert guidance.
Development of debt markets:
If the debt market is enhanced, there will be tremendous scope for Merchant bankers. Now
NSE and OTCEI are planned to raise their fund through debt instruments.
Corporate restructuring:
Due to liberalization and globalization Companies are facing lot of competition. In order to
compete, they have to go for restructuring, merger, acquisitions or disinvestments. They may
offer good opportunities to merchant bankers
The scope could be extended to
1. Advising the company on designing of its Capital Structure.
2. Advising the company on the instrument to be offered to the public.
3. Pricing of the instrument.
4. Advising the company on Legal/ regulatory matters and interaction with SEBI/ ROC/ Stock
5. Exchanges and other regulatory authorities.
6. Assisting the company in marketing the issue.
7. In channelizing the financial surplus of the general public into productive investment
avenues.
8. To coordinate the activities of various intermediaries to the share issue such as the registrar,
bankers, advertising agency, printers, underwriters, brokers etc.
9. To ensure the compliance with rules and regulations governing the securities market
THE FACTORS ON WHICH GROWTH OF MERCHANT BANKING DEPENDS:
1. Planning and industrial policy of the country i.e. India in this case
2. Prevailing Economic condition of the country
3. Regulatory system of the market and economy prevailing in India
4. Confidence of the people, traders, buyers, marketers, business houses, financial institutions
etc
5. The economic environment of the outside world.
6. Competition among the existing players and the upcoming entrants.
CANARA BANK
Canara Bank is one the best commercial bank in India it was amongst the oldest Indian Bank in
India. Its head office in india is in Banglore, India this bank is present all around the world i.e. in
London, Hong Kong, Moscow, Shanghai, Doha and Dubai. It is very well known for its centricity, at
present it occupies premier position in the comity of Indian banks. It has shown very good profits and
its current growth is very good. Canara Bank has launched several new revolution in the banking
industry:-
It introduce Inter-City ATM network
It obtains ISO certification for a branch
It introduced Bank's Citizen Charter
It issued credit card for farmers
It also provides Agriculture consultancy services
Merchant Banking Services by Canara Bank:-
In India Canara bank is one of the Best Merchant banker and it provides best merchant banking
services as compare to its competitors. It also holds SEBI registration certificate and act as a banker
to an issue and has the network of exclusive capital market services to handle collecting, refund and
paying Banker assignments. It also undertakes project appraisal and helps in raising capital from
capital/ debt issue.
Canara Bank is one of the leading Merchant banker and has been associated with the issues
ranging from 1 to 1500 crores which involves issues of various types of industries, banks and
statutory bodies etc. and helps in handling issues of both retail and HNS. Following are the major
merchant banking services provided by Canara Bank:-
EQUITY ISSUE MANAGEMENT
DEBT ISSUE MANAGEMENT
PRIVATE PLACEMENT
PROJECT APPRAISAL
MONITORING AGENCY ASSIGNMENTS
IPO FUNDING
SECURITY TRUSTEE SERVICES
AGRICULTURE CONSULTANCY SERVICES
CORPORATE ADVISORY SERVICES
MERGERS AND ACQUISITION
BUY BACK ASSIGNMENT
SHARE VALUATION
SYNDICATION
ESOS CERTIFICATION
ABOUT INDBANK
INDBANK establish in 1907 and its head quarter is at Chennai. It is no. 1 merchant banker in India it
has 1667 branches and of the biggest public sector bank is India. It is nationalized and had branches
all over the world i.e. 229 branches in 69 countries.
Merchant Banking services provided by this bank:-
It acts as a function of lead manager, Co-manager, advisor, arrangement for public and right
issue.
It also performs the function of Merger and acquisition and also buyback of securities under
SEBI regulation 1996
Merchant banking services of INDBANK also includes following Advisory services:-
Valuation of shares and other financial instruments
Syndication of loans
Acquisition
Project Counseling and feasibility studies
Performance on the bases of last three years:- ( 2006 to 2009)Interpretation:-
If we compare these two Banks on the terms of their profile then there is no doubt Indbank is far
ahead as compare to Canara Bank because of two reasons:-
Firstly this bank is Government bank and their capital base is much higher as compare to
Canara Bank.
Secondly Indbank is older than Canara bank and it is well established.
But if we compare it on the bases of performance in providing these Merchant Banking services then
in case of equity issue,Allottess and M & A Canara bank is ahead of Indbank whereas In case of
AVG IPO IND bank is ahead of Canara bank. So, we can say that these banks are very close on the
bases of competition if we compare their performance. So, it is very hard to compare these two
banks but we can say that they are very close to each other.