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PROJECT REPORT
ON
MERCHANT BANKING WITH REFERENCE TO
STATE BANK OF INDIA AND ICICI BANK L.T.D

SUBMITTED BY
DINESH J. NAYAK
ROLL NO. 30
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE
AWARD OF DEGREE OF
BACHELOR OF COMMERCE ( BANKING & INSURANCE )
UNDER THE GUIDANCE OF
PROF. SHRUTI CHAVARKAR
S.K SOMAIYA COLLEGE OF ARTS, SCIENCE, & COMMERCE.

UNIVERSITY OF MUMBAI
OCTOBER, 2015

Address : S. K. Somaiya Degree College of Arts, Science and Commerce


Aurobindo, Vidyanagar Vidyavihar (E) Mumbai - 400077

.Website: https://www.somaiya.edu

Tel no: 67169614


Fax no: 67169616

Declaration By Student

I, DINESH J. NAYAK , Student of Third Year B.com ( Banking & Insurance ) ROLL NO
30 here by declare that the project titled MERCHANT BANKING WITH

REFERENCE TO STATE BANK OF INDIA AND ICICI BANK L.T.D


submitted By me for semester V during the Academic year 2015 -16 , based actual work
carried out by me under the guidance and supervision of PROF. SHRUTI CHAVARKAR
I further state that this work is original and not submitted anywhere else for any examination.

Signature of the student

ACKNOWLEDGEMENT

Working on this project has been a good experience. I would like to thank a number of people
who helped me directly or indirectly for this project.
Firstly I would like to thank the University of Mumbai, for bringing out a topic like this which
enabled me to explore the whole banking sector environment. Then I want to express my
gratitude towards my college, SK.COLLEGE OF ARTS, SCIENCE AND COMMERCE, the
Principal of my college Dr. SANGEETA KOHLI
I am grateful to my Prof. SHRUTI CHAVARKAR who guided me throughout the procedure in
preparing this project report.
I would like to thank my classmates, friends and family members who supported me in
collecting information and making my project better.

DINESH J. NAYAK
( BANKING & INSURANCE )

Executive Summary

The merchant banker plays a vital role in channelising the financial surplus of the society into
productive investment avenues. Hence before selecting a merchant banker, one must decide what
are the services for which he is being approached. Selecting the right intermediary who has the
necessary skills to meet the requirements of the client will ensure success.
It can be said that this project helped me to understand every details about Merchant Banking
and in future how its going to get emerged in the Indian economy. Hence, Merchant Banking
can be considered as essential financial body in Indian financial system.
Market development is predicated on a sound, fair and transparent regulatory framework. To
sustain the growth of the market and crystallize the growing awareness and interest into a
committed, discerning and growing awareness and interest into a essential to remove the trading
malpractice and structural inadequacies prevailing in the market, and provide the investors an
organized, well regulated market place in future.
Although merchant banking activity was ushered in two decades ago, it was only in 1992 after
the formation of Securities and Exchange Board of India that it is defined and a set of rules and
regulations in place. Today a merchant banker is who has the ability to merchandise that is,
create or expand a need and fulfill capital requirements.
It would help us to develop the ability to study the functioning of Merchant Banking in India &
learn & apply multidisciplinary concepts, tools & techniques to solve vital problems.
It familiarizes with the various services provided by Merchant Bankers.
They would help us to draw comparison between public & private sector companies engaged in
Merchant Banking activities.
Based upon the comparison, it would help us to determine which sector has more growth
potential & where should one invest his/her funds to maximize the return at minimum risk.

Index
1

Introduction
1.1
1.2

Definition
History on Merchant Banking

2-3
3-5

1.3
1.4
1.5

Who are Merchant Bankers


Modern Merchant banking
Traditional Merchant Banking

6
6
7

2.1
2.2
2.3
2.4

Functions of Merchant Bankers


Need and Importance of Merchant Bankers
Role of Merchant Bankers
Problem of Merchant Banker
Qualities & Responsibilities of Good Merchant banker

8
9
10-11
11
12-15

3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8

Merchant Banking in India


Development in Merchant Banking Establishments in India
Guidelines of SEBI
Growth of Merchant Banks in India
Registration of Merchant bankers in India
Leading Merchant Bankers in India
Role in India
Difference between Commercial Banking & Merchant Banking
Difference between Investment Banking & Merchant Banking

16-17
17-18
19-20
20
21-22
23
23-25
25
25

4.1
4.2

Brief Analysis of Merchant banks in India


State Bank of India
ICICI Bank LTD

26
26-34
35-38

5.1
5.2

Current Scenario
Merchant Banking Indian Scenario
Merchant banking International scenario

39
39-40
40-41

6.1
6.2
6.3
6.4

Scope of Services
Service Rendered by Merchant Bankers
Recent Trend
Players in Merchant Banking
Merchant Banking Future Development

42
43-54
55-56
57-63
63-66

7
8
9

Questionnaire
Conclusion
Bibliography

67-68
69
70

1. INTRODUCTION

2.
3. The term Merchant Banking has its origin in the trading methods of countries in the late
eighteenth and early nineteenth century when trade-taking place was financed by bill of
exchange drawn by merchanting houses. At that time the merchants were merely
financing their own activities. As international trade grew and other lesser-known names
wanted to import goods from abroad, the established merchants lent their names to the
newcomers by agreeing to accept bills of exchange on their behalf. The acceptance
houses would charge a commission for this service and thus there grew up the business of
accepting bills of finance trade not merely of themselves, but of others. Acceptance
business thus became and to a degree always has been hallmark of true Merchant Banks.
4.
5. The second historical of Merchant Banks was the raising of capital for foreign
Government. In many cases, the Merchant Banks have been trading in the countries
concerned and gained the confidence of Governments and other authorities in those
countries. Thus the second principal ingredient of Merchant Banking became and still is
raising of capital through the issue of stocks and bonds. Therefore, Merchant Banks can
be accepting houses or issuing houses or both. Merchant Banking started in the beginning
of 20th century in UK and USA. More recently, the services offered by Merchant Banks
have entered into the other areas of operations. Their role is wide ranging and they can
now provide most of the financial services required by a company, touching almost all
aspects of establishing and running of industrial units on sound financial footing.
6.
7. Dictionary meaning of

merchant bank refers to an organization that underwrites

corporate securities and advises such clients on issues like corporate mergers, etc.
involved in the ownership of commercial ventures. This organization may be a bank,
corporate body, firm or proprietary concern.

8.

9.
10.

11.
12.
13.
14.1.1DEFINITION
15.

16. Original Definition: A Merchant Bank is a British term for a bank providing various
financial services such as accepting bills arising out of trade, providing advice on
acquisitions, mergers, foreign exchange, underwriting new issues, and portfolio
management.
17. The Focus Definition: A Merchant Bank can be generally described as a financial
services company with a private equity investment arm offering investment banking and
ancillary services as well. Because a merchant bank acts not only as an advisor and
broker but also as a principal, a merchant bank has a longer term approach than a typical
investment bank and is highly concerned with the viability of each investment
opportunity and providing the right advice for a strong partnership with each client
company.
18. In banking, a merchant bank is a traditional term for an Investment Bank. It can also be
used to describe the private equity activities of banking. This article is about the history
of banking as developed by merchants, from the Middle Ages onwards.
19. The first authoritative definition for the term Merchant Banker has been given in the
Rule 2 (e) of SEBI (Merchant Bankers) Rules, 1922. Accordingly, A Merchant Banker
means 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, Adviser of rendering Corporate Advisory Service in relation to such Issue
Management.
20.
21. Sec/5 (b) of the Banking Regulation Act,1949 defines Banking as accepting, for the
purpose of lending or investment of deposits of money from the public, repayable on
demand or otherwise and withdrawable by cheque, draft, order or otherwise.
22.
23. The Notification of the Ministry of Finance defines a merchant banker as, any person
who is engaged in the business of issue management either by making arrangements
regarding selling, buying or subscribing to the securities as manager, consult, adviser or
rendering corporate advisory service in relation to such issue management.
24.
3

25.
26.
27.
28.1.2 HISTORY OF MERCHANT BANKING

29.
30. During the seventeenth and most of the eighteenth century international finance was
centred on Amsterdam. Consequently Amsterdam merchants became the first masters of
the various financial techniques and developments which, in the course of time, became
identified with the emergent profession of Merchant Bankers.
31.
32. Commercial Banking and Investment Banking are often confused with Merchant
Banking. In many ways, there may be similarities in their functions. However, in certain
ways, Merchant Banking is distinctly different from commercial Banking and Investment
Banking.
33.
34. The primary function of a commercial bank is to receive deposits from the public and
lend the same to others. Commercial Banks can undertake some of the merchant banking
activities like Issue Management whereas Merchant Banking Units can not undertake
commercial banking activities. However, the functions of Merchant Banking may not
widely vary from Investment Banking. The Merchant Banker mainly deals with Issue
Management, post issue services, corporate adviser services etc. the Investment Banker
undertaken trading in securities, Investment advises and Bought out deals which are not
the main activities of Merchant Bankers.
35.
36. In todays Scenario the Merchant banker and management consultants undertake advisory
services to the corporate sector. The Merchant Banker advices corporation and firms
relating to opening of issues, receiving loans etc, which the management consultants also
do. The management consultant have a wide area operations like production, Marketing,
Personnel Relations, of finance etc. but they lack statutory recognition to undertake
4

capital market related activities which has enabled the merchant banker to cater to the
needs of the Corporate Sector.
37.
38. A merchant bank may be considered as an institution which centres its operation on all or
most of the following activities.
39. (1) corporate financial advice, on such diverse matters as new share and bond

issues,

capital reconstructions, mergers and acquisitions;


40. (2) The taking of deposits and currency, money market operations including foreign
exchange dealing;
41. (3) Medium-term lending and syndication of loans;
42. (4) Acceptance credits and all forms of export finance;
43. (5) The holding and dealing in quoted and unquoted investment; and
44. (6) Fund management on behalf of clients, most typically pension funds, unit trust,
investment trusts and wealthy individuals.
45. India has entered the 21st century as one of the Asias most dynamic economies. This is
the part of the assessment made by International Financial and Capital Market Institutions
based on Indias economic and financial reforms initiated in 1991 and brought to fruition
in various budget.
46.
47. The progress of any economy mainly depends on the efficient financial system of the
country.

Indian economy is no exception financial system of the country.

The

importance of the financial sector reforms affirms an effective means for solving the
problems of economic, financial and social in India and elsewhere in the developing
nations of the world. The progress of the Securities Industry of any country depends
mainly on the flow of funds. In fact, capital generation is the lifeblood of the capital
market without which the health and soundness of the financial system cannot be geared
and for which well-developed capital market as well as money market is essential.
48.
5

49. Indias capital market is among the largest in the developing world. The market is
comprised of 24 stock exchanges transacting long-term debt; debentures and equity
shares both electronic and physical forms. Derivatives financial instruments are also be
added to the market shortly. The number of firms listed on the Indian Stock Exchange is
more than the USA. Market Capitalisation of listed firms is 1980s was similar to Brazil,
Malaysia, Singapore and Denmark.
50.
51. The capital market of the country, however, underwent dramatic changes since the
beginning of 1980s basically because of a progressive realization that the command
economy on which the emphasis was placed could not lead to higher levels of economic
development and that a slant towards a market-oriented economy is necessary.
52.
53. It is in the context of fast expanding economy and a liberalized and deregulated
atmosphere that the growth of the Indian Stock Market activities has to be viewed. No
wonder that the markets have registered a quantum jump judge by any standards.

54.
55.1.3 Who are merchant bankers ?
56. -Merchant banks are private financial institution.
57. -Their primary sources of income are PIPE (Private Investment In Public Entities)
financings and international trade.
58. -Their secondary income sources are consulting, Mergers & Acquisitions help and
financial market speculation.
59. -Because they do not invest against collateral, they take far greater risks than traditional
banks.
-Because they are private, do not take money from the public and are international in
scope, they are not regulated.
60. -Anyone considering dealing with any merchant bank should investigate the bank and its
managers before seeking their help.

61. -The reason that businesses should develop a working relationship with a merchant bank
is that they have more money than venture capitalists. Their advice tends to be more
pragmatic than venture capitalists.
62. 1.4 TRADATIONAL MERCHANT BANKING
63. Merchant Banking, as the term has evolved in Europe from the 18th century to today,
pertained to an individual or a banking house whose primary function was to facilitate the
business process between a product and the financial requirements for its development.
Merchant banking services span from the earliest negotiations from a transaction to its
actual consummation between buyer and seller.
64. In particular, the merchant banker acted as a capital sources whose primary activity was
directed towards a commodity trader/cargo owner who was involved in the buying,
selling, and shipping of goods. The role of the merchant banker, who had the expertise to
understand a particular transaction, was to arrange the necessary capital and ensure that
the transaction would ultimately produce "collectable" profits. Often, the merchant
banker also became involved in the actual negotiations between a buyer and seller in a
transaction.

65. 1.5 MODERN MERCHANT BANKING


66. During the 20th century, however, European merchant banks expanded their services.
They became increasingly involved in the actual running of the business for which the
transaction was conducted. Today, merchant banks actually own and run businesses for
their own account, and that of others.
67. Since the 18th century, the term merchant banker has, therefore, been considerably
broadened to include a composite of modern day skills. 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 who has the ability to
merchandise -- that is, create or expands a need -- and fulfill capital requirements. The
modern European merchant bank, in many ways, reflects the early activities and breadth
of services of the colonial trading companies.
68. Most companies that come to a U.S. merchant bank are looking to increase their
financial stability or satisfy a particular, immediate capital need.
69. Professional merchant bankers must have: 1) an understanding of the product, its industry
and operational management; 2) an ability to raise capital which might or might not be
7

one's own (originally merchant bankers supplied their own capital and thereby took an
equity interest in the transaction); 3) and most importantly, effective skills in concluding
a transaction - the actual sale of the product and the collection of profit. Some people
might question whether or not there are many individuals or organizations that have the
abilities to fulfill all three areas of expertise.

70.2. FUNCTIONS OF MERCHANT BANKING

Consulting advice on going public and international business.


Advice and help in taking your company public. If they are unwilling to supply
Investment Banking bridge loans, they have a low cost strategy for taking your company

71.

public.
They do PIPE (Private Investment in Public Equities) financings.
They can advise or help with a companys M&A strategy.
They are essential advisors for companies seeking to become multinational corporations

72.

73.
74.

75.
76.2.1 NEED & IMPORTANCE IN INDIA

Important reason for the growth of merchant banking is due to exerting excess demand on the
sources of funds forever expanding industry and trade.

Corporate sector had the only alternative to avail of the capital market services for meeting
their long-term financial requirements through capital issues of equity and debentures.

With the growing demand for funds there was pressure on capital market that enthused the
commercial banks, share brokers and financial consultancy firms to enter into the field of
merchant banking and share the growing capital market.

In India have opened their merchant banking windows and are competing in this field, and
also doing advisory functions as merchant bankers as well as managing public issues in
syndication with other merchant bankers.

Merchant banks can play highly significant role in mobilizing funds of savers to investible
channels assuring promising return on investments. activity.

With the growth of merchant banking profession corporate enterprises in both public and
private, sectors would be able to meet the growing requirements for the funds for establishing
new enterprises, undertaking expansion/modernization/diversification of the existing
enterprises.

Merchant banks have been procuring impressive support from capital market for the
corporate sector for financing their projects.

In view of multitude of enactments, rules and regulations, guidelines and offshoot press
release instructions brought out by the Government from time to time imposing statutory
obligations upon the corporate sector to comply with all those requirements prescribed
therein, the need of skilled agency existed which could provide counseling.

Merchant bankers advise the investors of the incentives available in the form of tax reliefs,
other statutory relaxations, good return on investment and capital appreciation in such
investment to motivate them to invest their savings in securities.

Thus, the merchant bankers help industry and trade to raise funds, and the investors to invest
their saved money in sound and healthy concerns with confidence, safety and organizations
for higher yields.
77.
10

78.2.2 ROLE OF MERCHANT BANKERS

79.
80. The role of merchant banker is dynamic in the wake of diverse nature of merchant
banking services. Merchant bankers dynamism lies in promptly attending to the
corporate problems and suggests ways and means to solve it. The nature of merchant
banking services is development oriented and promotional to help the industry and trade
to grow and survive. Merchant banker is, therefore, dedicated to achieve this objective
through his dynamism. He is always awake to renew his skills, develop expertise in new
areas so as to equip himself with the knowledge and techniques to deal with emerging
new problems of corporate business world. He has to keep pace with the changing
environment where Government rules, regulations and policies affecting business
conditions frequently change; where science and technology create new innovations in
production processes of industries envisaging immediate renovations, diversification,
modernizations or replacements of existing plant and machinery or other equipments
putting new demands for finances and necessitating overhauling of the capital structure of
the firms.
81.
82. Merchant banker has to think and devise new instruments of financing industrial projects.
He has to assume wider responsibilities of saving industrial units from going sick and
guiding industries to be set up industrially backward areas to eliminate regional
imbalances in industrial development of the country. He has to guide the wider section of
the community possessing surplus money to invest in corporate securities and other
productive investment channels. He has to help the industry in different forms to ensure
that it runs risk free and devoid of uncertainty by assisting the has to watch the interest
and win over the confidence of the Government, its agencies, along with the
entrepreneurs, the investors and the whole community.

He must bridge the

communication gap between different sections and resolve the problem being faced in
different areas concerned with the business world.
83.
11

84. To discharge the above role, a merchant banker has t be dynamic. For this reason, a
merchant banker is sometimes, called M.B i.e. Moving Bottom, i.e., one who never sits at
one place, always moving- attending meetings and meeting clients and constituents,
doing business and getting business by attending meetings and conferences, imparting
knowledge to others and acquiring new knowledge to maintain his supremacy in
possession of latest information. His role depicts a personality cult, which is unique and
envious to be followed by others.
85. In the days ahead, merchant bankers have very significant role to play tuning their
activities to the requirements of the growth pattern of corporate sector, the industry and
the economy as a whole, which is, in it, a challenging task and to meet these challenges
merchant bankers will have to be more vigorous and strategic in playing their role. They
will have also to adopt new ways and means in discharging their role.

86.
87.2.3 PROBLEMS OF MERCHANT BANKERS
88.
SEBI guidelines have authorized merchant bankers to undertake issue relatedactivities only
with an exception of portfolio management. These guidelines have made the merchant
bankers either to restrict their activities or think of separating these activities from the
present one and float new subsidiary and enlarge the scope of its activities.
89.

SEBI guidelines stipulate a minimum net worth of Rs.1 crore for authorization of merchant
bankers. Small but professional and specialized merchant bankers who do not have a net
worth of Rs.1 crore may have to close down their business. The entry is denied to young,
specialized professionals into merchant banking business.
90.

Non co-operation of the issuing companies in timely allotment of securities and refund of
application money is another problem of merchant bankers. The guidelines have put the
responsibility on the merchant bankers. They have to seek the co-operation of the issuing
company to shoulder the responsibility
12

91.
92.

93.2.4 QUALITIES & RESPONSIBILITIES OF GOOD MERCHANT


94.

BANKERS

95.
96. QUALITIES:
97.
98. Merchant bankers are individual experts who organize and manage the merchant banks.
The operations of merchant banks are, therefore, influenced by the personality trait of
these individuals. For the success of merchant banks operations, the qualities which
merchant bankers should have are discussed below:

LEADERSHIP: merchant banker should possess all relevant skills, update knowledge to
interact with the clients and effectively communicate. Leadership is synonymous with

followers who follow the one who leads.


AGGRESSIVE ACTION:- aggressiveness is a personality trait of a good leader but in
merchant banking it has a wider connotation. Aggressive merchant bankers are always
looking for new business. Once a business opportunity has been located, the merchant banker
has got to obtain the mandate for the merchant banking assignment from the clients at once
which will depend upon his own communication skills, persuasiveness and the background
of the organization to which he belongs. A good merchant banker is one who does not allow

his client to think anything outside except what has been advised.
COOPERATION AND FRIENDLINESS:- These two characteristics are the symbols of
good leadership but it hardly needs to be stressed that cooperation and friendliness coupled
with persuasiveness are the main instruments with which a merchant banker mixes with the
people, gathers information, obtains business mandate and renders satisfactory services to the
clients. Business of an honest business merchant banker spreads with geometrical
propagation when he shares the thoughts of his clients with sympathetic gestures and offers
pragmatic suggestions without greed or favours.

Very often, rude, intemperate and

indifferent disposition or blunt out burst withdrew fortunate business opportunities forever.

13

Friendliness and cooperation must flow as natural traits in the merchant banker to win the

trust of the clients.


CONTACTS : success of merchant banker depends upon his sociable nature and the
richness of wider contacts. A merchant banker is supposed to be acquainted deeply with all
the constituents of merchant banking. The scope of contact encompasses intimate contiguity
and acquaintances within his own organization, Central and State Government Offices where
compliances under various relevant enactments are to be reported, Indian and foreign banks,
financial institutions at Central and State levels, promoters/directors/owners and chief
executives of the private and public enterprises which would be prospective beneficiaries of
merchant banking services, printers, advertising agencies, brokers and stock exchange
dealers, advocates and solicitors and members of the press whose services are availed of in
executing merchant banking assignments. Merchant bankers should widen contacts and
references and continue to maintain them with goodness, honour and humour by meeting

people.
ATTITUDE TOWARDS PROBLEM SOLVING: The most important personality trait of
a merchant banker is his attitude towards problem solving. Even client coming to him has got
to return fully satisfied having consulted a merchant banker. Positive approach to understand
the view points of others, their difficulties and their adverse circumstances is possible only
when a person is skilled in human relations particularly the inter-personal and intra-personal
behavior. Effective communication and proper feedback are the pre-requisite for creating a
positive attitude towards problem solving. Many persons are effective in this trait without
any training for reasons of cultivating a habit from environment in which they have been
brought up at home, in school, college and office. This is so important that it must be treated

as a separate objective quality of a good merchant banker.


INQUISITINESS FOR ACQUIRING NEW SKILLS,

INFORMATION

AND

KNOLEDGE: merchant bankers lice on their wits they earn by giving information to
needy clients. Therefore, they should keep abreast with latest information in the area of the
service product, they market. This is possible if merchant bankers possess the quality of
inquisitiveness.
99.
14

100.

The above qualities of a merchant banker are only illustrative. All good qualities

in merchant bankers are difficult to be defined so elaborately. Nevertheless, merchant


banker should possess super business acumen, managerial abilities, administrative
capacities and salesmanship so as to understand the problems and sell the service product
to the needy clients.
101.
102.
103.
104.
105.

RESPONSIBILITES:

To the Investors
106.

Investor protection is fundamental to a healthy growth of the Capital Maerket.

Protection is not to be conceived as that of compensating for the losses suffered. The
responsibility of the Merchant Banker in ensuring the completeness of the disclosures is of
paramount importance in view of the fact that entire reliance is based on offer Document
either Prospectus or Letter of Offer because an independent agency like a Merchant Banker
has done the scrutiny.

Capital structuring
107.

The Merchant Bankers while designing the capital structure take into account the

various factors such as Leverage effect on earnings per share, the project cost and the
gestation period, cash flow ability of the company, the cost of capital, the considerations of
management control, size of the company, and general economic factors. These exercise are
done mainly in order to meet the fund requirement of the company taking due cognizance of
the investors preference.

Project Evaluation and due Diligence


108.

Due diligence and project evaluation is another major responsibility of the

Merchant Banker.

Where the project has already been appraised by a bank/financial

institution, the Merchant Banker relies on the said appraisal before accepting an assignment.
However, where the project has not been appraised by as bank/financial instituion, the
15

Merchant Bank undertakes a detailed evaluation of the project before taking up an


assignment for issue management.

Legal aspect
109.

The factors that are looked into in case of the legal aspects are:

Compliance with the SEBI guidelinesand the various guidelines issued by the Ministry of
Finance and Department of CompanyAffairs.
Pending litigations towards tax liabilities or any criminal/civil prosecution any of the
directors for any offenses.
Fair and adequate disclosures in the prospectus.
110.

111.
Pricing of the Issue
112.

The Merchant Banker looks into the various factors while pricing the issue. Some

of the factors are past financial performance of the company, Book value per share, stock
market performance of the shares. The Merchant Banker has a vital role to play in pricing of
the instrument.
113.

Marketing of the Issue


114.

Marketing of the issue is a vital responsibility of the Merchant Banker. The first

stage is Pre-issue marketing for placement of the issue with the financial institutions, banks,
mutual funds, FIIs and NRIs. The second stage is the marketing of the issue to the general
public through various vehicles such as press, brokers, etc.
115.

Bought out Deals


116.

The concept of wholesale but out of public offerings by the Merchant Bankers

started off with over the Counter Exchange of India where a Merchant banker acts also as a
sponsor and either takes up the entire issue to be offered wholly of jointly with other coinvestors and off-loads the same to the public at a later date by an offer for sale. Major

16

amendments were made to the SEBI regulations regarding Merchant Bankers. The duration
of this transaction period has not officially been announced.
117.
118.
119.

120.
121.
3. MERCHANT BANKING IN INDIA
122.

17

123.

124.
125.

In India prior to the enactment of Indian Companies Act, 1956,managing agents

acted as issue houses for securities, evaluated project reports, planned capital structure
18

and to some extent provided venture capital for new firms. Few share broking firms also
functioned as merchant bankers.
126.
127.

The need for specialized merchant banking services was felt in India with the

rapid growth in the number and size of the issues made in the primary market. The
merchant banking services were started by foreign banks, namely the National
Grindlays Bank in 1967 and the City Bank in 1970. The Banking Commission in its
report in 1972 recommended the setting up of merchant banking institutions. This marked
the beginning of specialized merchant banking in India.
128.
129.

To begin with, merchant banking services were offered along with other

traditional banking services. In the mid-Eighties, the Banking Regulation Act was
amended permitting commercial banks to offer a wide range of financial services through
the subsidy rule. The State Bank of India was the first India Bank to set up merchant
Banking division in 1972. Later ICICI set up its Merchant Banking division followed by
Bank of India, Bank of Baroda, Canada Bank, Punjab National Bank and UCO Bank. The
merchant banking gained prominence during 1983-84 due to new issue boom.

130.
131.

3.1 Developments in Merchant banking Establishments In India

132.

Setting up of banks Subsidiaries:


133.
134.

In order to meet the growing demand for broad-based financial services from the

corporate sector more effectively, the merchant banking division of the nationalize banks
have stated forming independent subsidiaries. These subsidiaries offer more specialized
services with proffecinal expertise & skills. SBI capital market ltd. was incorporated as
the first such subsidiary of sbi on 2 July, 1986. Then CAN BANK financial services ltd
was set up as wholly owned subsidiary of canra bank in 1987. PNB Capital Market was

19

promoted by PNB during Mid 1988. Many more subsidiaries are being set up by another
nationalize banks.
135.

Reorganization of private Firms:


136.
137.

Expecting tough Competition from growing number of merchant banking

subsidiary of nationalized banks, private merchant bankers have also started reorganizing
their activities e.g., J.M financial & investment consultancy ltd., 20th century finance
corporation ltd., LKP merchant financing ltd are some of the private sector firms of
merchant bankers who have taken steps to reorganize their activities.
138.

Establishment of SUA:
139.
140.
In order to educate and protect the interest of investor , to provide information
about new issues of capital market, to evolve a code of conduct for underwriters & to render
legal & other services to members & public, the STOCKBROKER UNDERWRITER
ASSOCIATION(SUA) was established in 1984

141.
Discount & Finance House of India(DFHI)
142.

DFHI was incorporated as a company under the company act 1956 with an

authorized & paid up capital of rs 100 crore. Out of this rs 51 crores has been contributed
by RBI, rs 16 crores but financial intuitions & 33 crores by public sector banks. It would
also have line of credit from public sector banks , refinance facility from the RBI in order
to meet the working capital requirement.DFHI aims at providing liquidity in money
market as it deals mainly in commercial bills

Credit Rating Information Services of India Ltd.(CRISIL)


143.

CRISIL has been set up in 1987 to provide help to investors, merchant bankers,

underwriters, brokers, banks & financial institutions etc. CRISIL rates various types of

20

instruments such as debt, Equity, & Fixed return security offered to the public. It helps
the investor in taking investment decisions.

Stock-Holding Corporation of India Ltd. (SHC)


144.
145.

SHC was set up in 1986 by the all Indian financial institutions to take care of safe

custody, delivery of shares & collection of sale proceeds of the securities. The setting up
of SHC is bound to affect the capital market aim future
146.

147.
148.

3.2GUIDELINES OF SEBI

149.
150.

After the obligations of the CCI, the place was occupied by a legal organ called as

Securities and Exchange Board of India. The issue of capital and pricing of issues by
companies has become free of prior approval. The SEBI has issued guidelines for the
issue of capital by the companies. The guidelines broadly covers the requirement of the
first issue by a new or the first issue of a new company set up by the existing company,
the first issue by the existing private companies and public issues by the existing listing
companies. The SEBI is the most powerful organization to control and lead both the
primary market and secondary market.
151.

The SEBI has announced the new guidelines for the disclosures by the

Companies leading to the investor protection. They are presented below:


152. If any Companys other income exceeds 10 per cent of the total income, the

details should be disclosed.


The Company should disclose any adverse situation which affects the operations of the
Company and occurs within one year prior to the date filing of the offer document with the

Registrar of Companies or Stock Exchange.


The Company should also disclose the information regarding the capacity utilization of the

plant for the last 3 years.


The Promoters of the Company must maintain their holding at least at 20 per cent of the
21

expanded capital.
The minimum application money payable should not be less than 25 per cent of the issue

price.
The company should disclose the time normally taken for the disposal of various types of

investors grievances.
The Company can make firm allotments in public issues as follows:
Indian mutual funds (20%),
FIIS (24%),
Regular employees of the company (10%),
153. Financial institution (20%).The Company should disclose the safety net scheme
or buy back arrangements of the shares proposed in public issue. This scheme is
applicable to a limited number of 500 shares per allottee and the offer should be valid for

a period of at least 6 months from the date of dispatch of securities.


According to the guidelines, in case of the public issues, at least 30 mandatory collection

centres should be established.


According to the SEBI guidelines regarding rights issue, the Company should give
advertisements in not less than two news-papers about the dispatch of letters of offer. No

preferential allotment may be made along with any rights issue.


The Company should also disclose about the fee agreed between the lead managers and the
Company in the memorandum of understanding.

154.

3.3GROWTH OF MERCHANT BANKING IN INDIA

155.

Formal merchant banking activity in India was originated in 1969 with Merchant

Banking Division set up by the Grindlays Bank, the largest foreign bank in the country.
The main service offered at that time to the corporate enterprises by the merchant banks
included the management of public issues and some aspects of financial consultancy.
Other foreign banks like Citi Bank, Chartered Bank also assumed the merchant banking
activity in India. State Bank of India started merchant banking in 1973 followed by
ICICI in 1974. Both these Indian merchant bankers emerged as leaders in merchant
banking having done significant business during the period of 1974-1987 in comparison
to foreign banks. The early and mid-seventies witnessed a boom in the growth of
merchant banking organizations in the country with various commercial banks, financial
institutions, brokers firms entering in to the field of merchant banking.The early growth
22

of merchant banking in the country is assigned to the Foreign Exchange Regulation Act,
1973 (FERA) where under large number of foreign companies operating in India were
required to dilute their foreign holdings in order to continue business in the country. This
had caused two-pronged effect viz. firstly, in the form of spate in Foreign Exchange
Regulation Act Issues eliciting interest of the investors by creating massive awareness
about capital markets amongst the new class of investing public, secondly, merchant
banking activity became attractive to banks and the firms of consultants and share
brokers who entered into this fields vigorously to reap the advantages of the expanding
capital markets.

156.
3.4 REGISTRATION OF MERCHANT BANKER IN INDIA
157.
158.

Registration with SEBI is mandatory to carry out the business of merchant

banking in India. An applicant should comply with the following norms:


The applicant should be a body corporate
The applicant should not carry on any business other than those connected with the
securities market
The applicant should have necessary infrastructure like office space, equipment,
manpower etc.
The applicant must have at least two employees with prior experience in merchant
banking
Any associate company, group company, subsidiary or interconnected company of the
applicant should not have been a registered merchant banker
The applicant should not have been involved in any securities scam or proved guilt for
any offence

159.

SEBI HAS DIVIDED MERCHANT BANKERS IN

160.

FOUR CATEGORIES, WHICH ARE AS FOLLOW:-

161.

CATEGO

RIES

162.

ACTIVITIES

163.

ETWO
23

RTH
164.

Category

I
167.

Category

IV
178.
179.

166.

issue mgt & act as advisor, consultant,

underwriter,

portfolio

management.
168.
To act as advisor, consultant ,
co-manager,
169.

Category

Underwriter,

portfolio

management.
172.
To act as advisor, underwriter
or consultant

III
175.

To carry on the activities of

manager,

II
171.

165.

Category

173.

to an issue

176.

To act

only as

consultant to an issue

advisor&

Crore
170.

50

lakh
174.

20

lakh
177.
N
il

Although Merchant Banking activity ushered in two decades ago, it was only in

1992, in India, after the formation of SEBI that is defined and a set of rules and
regulations governing it are in place. In fact, the origin of Merchant Banking is to be
traced to Italy in late medieval times and France during the seventeenth and eighteenth
centuries. Merchant Banker invested accumulated profits in all kinds of promising
activities. Since they added banking business into the profession of Merchant activities
and became a Merchant Banker. A distinction was existed in banking systems between
moneychanger and exchanger. Moneychangers concentrate on the mutual exchange of
different currencies, operated locally and later accepted deposits for security reasons.
Passage of time money changers evolved into public or deposit banks whereas
exchangers, who operated internationally, engaged in bill-broking that raising foreign
exchange and provision of long-term capital for public borrowers. The exchanges were
remitters and Merchant Bankers. In the seventeenth century, a Merchant Banker was a
dealer in bills of exchange who operated with correspondents abroad and speculated on
the rate of exchange. Initially, Merchant Bankers were not banks at all and a distinction
24

was drawn between banks, Merchant Banks and other Financial Institutions. Among all
these, Institutions it was only banks that accepted deposits from public. No person s
allowed carrying out any activity as a Merchant Banker unless he or she holds a
certificate grated by SEBI. Registration with SEBI is mandatory to carry out the business
of merchant banking in India.
180.

An applicant should comply with the following norms:

The applicant should be a body corporate

The applicant should not carry on any business other than those connected with the securities
market

The applicant should have necessary infrastructure like office space, equipment, manpower
etc.

The applicant must have at least two employees with prior experience in merchant banking

Any associate company, group company, subsidiary or interconnected company of the


applicant should not have been a registered merchant banker

The applicant should not have been involved in any securities scam or proved guilt for any
offence

The applicant should have a minimum net worth of Rs.5 crores

181.

3.5 Leading Merchant Bankers in India

In Public Sector: SBI Capital Markets Ltd., Merchant Banking Divisions of IDBI & IFCI,

PNB Capital Services Ltd., Bank of Maharashtra, etc.


In Private Sector: ABN AMRO, ICICI Bank Ltd, Axis Bank Ltd., Kotak Mahindra Capital
Co., Bajaj Capital, Reliance Security Ltd., Yes bankLtd, Tata capital market ltd., JM

Financial Co. and DCM Financial Services Ltd etc.


Foreign Players: Goldman SACH (India) Security Pvt. Ltd., Morgan Stanley Indian co. Pvt.
Ltd., Barclays Security Indian Pvt. Ltd., Bank of America, Deutsche Bank, Citi Group Global
Market Indian Pvt.Ltd., Fedex Security Ltd.
182.
183.

25

184.

3.6 Role in India

185.

186.

187.

Merchant Banking:

26

188.

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 are very vast in nature of which includes the
following
1

The management of the customers securities

The management of the portfolio

The management of projects and counseling as well as appraisal.

The management of underwriting of shares and debentures.

The circumvention of the syndication of loans.

The management of the interest and dividend etc.

189.
190.

Factors responsible for changes:


27

191.

Globalization of Indian Economy has made the whole economy open, which has

more multinational player in the era of the financial services? This has resulted in to the
emergence of the global investment in financial sector. Govt. has now open up the doors
of investment especially in the area of banks and insurance, which leads to competitive
environment for the present players. Now they have to bring something new which is
efficient and best services to live in the competitive environment. Competition arising out
of Private Company participation is due to liberalization of the economy.

192.

3.7

Difference Between Commercial Banking & Merchant

Banking:

COMMERCIAL BANKING
Deals with Debt & Debt related finance.
Asset oriented.
Generally avoid risks.

MERCHANT BANKING
193.
Deals with Equity & Equity related finance.
Management oriented.
Willing to accept risks.

194.
195.

3.8 Difference Between Investment Banking & Merchant

Banking:
196.

INVESTMENT BANKING
Both fee-based and fund-based.
28

Commit their own funds.


197.

MERCHANT BANKING
Purely fee-based.
Impossible to stay aloof from international trends
198.
4. BRIEF ANALYSIS OF SOME MERCHANT BANKS OF INDIA

199.
200.
As your strategic partner, we provide a broad and complimentary range of
services to address your business needs. Our expertise, insight and competitive rates in
Foreign Currency loans give an edge to your business.
201.
We invite you to use our comprehensive array of strategic and financial advisory
services including mergers and acquisitions, Bilateral Foreign Currency Loans,
Syndicated Loans and Reverse FDIs.
202.
SBI Merchant Banking Group is strongly positioned to offer perfect financial solutions to
your business. We specialize in the arrangement of various forms of Foreign Currency Credits for
Corporate.
203.

State Bank of India is the nation's largest bank. Tracing its roots back some 200 years to

the British East India Company (and initially established as the Bank of Calcutta in 1806), the
bank operates more than 13,500 branches and over 5,000 ATMs within India, where it also owns
majority stakes in seven associate banks. State Bank of India has more than 50 offices in nearly
35 other countries, including multiple locations in the US (California), Canada, and Nigeria. The
bank has other units devoted to capital markets, fund management, factoring and commercial
services, and brokerage services. The Reserve Bank of India owns about 60% of State Bank of
India.
204.

SBI being an Indian entity has no India exposure ceiling. Our Primary focus is On Indian

Clients. SBIs seasoned Team of professionals provides you with Insightful credit Information
and helps you Maximize the Value from the transaction.

29

205.

206.
What is a Merchant Payment Limit?
207.
208.
Merchant Payment Limit is merely a pre-authorization of payment limit where the
Corporate can set a limit by pre-approving it for the purpose making payment to any
Merchant (Utility bills/taxes) in a single session. Actual payment can take place only if
sufficient balance is available in the account.
209.
By creating a Merchant Payment Limit for a merchant, payments of utility
bills/taxes can be made to that merchant in a single session up to the balance available in
the Merchant Payment Limit. Since the limit is already pre-approved by the authorizer,
there will be no need for multiple users to login and authorize the merchant transactions.
The authorizer can make the payment directly in a single step by visiting the merchant
website.
210.
Merchant Payments by Corporates are now easier than ever. Follow the 3 simple
steps for making your payment

Administrator has to add the merchant in "Manage Vendors > Manage


Merchant > Enable Merchant"
Corporate User has to create the Merchant Payment Limit in "Merchant Limit > Create
Merchant Limit" using any one of the accounts mapped to him/her.
The Authorizer for that account has to authorize the Merchant Payment Limit within 7
days
in
"Merchant
Limit > Authorize
Inbox".
The Authorizer has to be different from the user who has created the Merchant Payment
Limit.
211.
The Merchant Payment Limit is Valid only for 48 hours for making payment. You
can create a new limit after the old one has expired.

30

212.
Now the Authorizer can go to the Merchant Site and make the payment
directly.
213.
Government Tax Payments can be made with or without creation of Merchant
Payment Limit. There is no need for the Administrator to add Government as a Merchant.
Corporate user can create the Merchant Payment Limit and the Authorizer has to
authorize the same. While getting redirected from the Government site you may choose
to pay either through:
o
o

Merchant Pre-approved limit available for Corporate user (Authorizer) OR


Pay without using your Merchant Pre-Approved limit by directly selecting your Debit
Account.
214.

Choose your option and make your payment.

215.
216.

OUR PRODUCTS AND SERVICES

Arranging External Commercial Borrowings (ECB)


Arranging and participating in international loan syndication
Loans backed by Export Credit Agencies
Foreign currency loans under the FCNR (B) scheme
Import Finance for Indian corporate

217.
218.

SBI CAPITAL MARKETS LIMITED (SBICAPS) is India's leading investment bank and

project advisor, assisting domestic companys fund-mobilization efforts for last many years.
219.

We began operations in August 1986 as a wholly owned subsidiary of the State Bank of

India, which is the largest commercial bank in India. In January 1997, fresh equity shares were

31

issued to Asian Development Bank (ADB) and ADB now holds 13.84% stake in the equity of
SBICAPS. The distinguished parentage (with a 86.16% stake) together with the long standing
association of an internationally renowned financial institution like the Asian Development Bank
further enhances our image as a truly 'World Class Investment Bank'.
220.
221.

Our Mission - To provide Credible, Professional and Customer Focused world-class

investment banking services.


222.

Our Vision - To be the best India based Investment Bank.

223.

SBI Group:

224.

The largest commercial bank group in India


Position in the domestic banking sector as on 31 March 2008:
15.44% of the aggregate deposits.
15.28 % of total advances.
The only Indian Bank to find a place in the Fortune Global 500 List.
First Indian Bank to take up merchant banking in 1986.

225.
226.

SBI Capital Markets Limited:

227.
No. 1 in Asia Pacific for Project Advisory. Rating by Thomson Project Finance
International.
No. 1 in IPOs, managed 700+ issues (since 1989 source Prime Database).
The only Indian Merchant Banker in the Global 10, Thomson Project Finance
International 2007.
Pioneer in Privatization.
228.
229.

Subsidiary:-

230.

SBICAPS Ventures Ltd.


SBICAP Securities Ltd.
SBICAPS (UK) Ltd.
SBICAP Trustee Company Ltd.

231.
232.
233.
234.
235.

32

236.
237.
238.
239.
240.
241.

242.

Associates Bank:-

243.

St

245.

St

247.

249.

251.

ate Bank

ate Bank

BI

BI

ommerci

of

of

Factors

(Californ

al Bank

Bikaner

Saurasht

&

ia)

of India

& Jaipur

ra

Comm.

244.

246.

250.

LLC

Services

252.

Ltd.
253.

St

255.

St

248.
257.

259.

ate Bank

ate Bank

BI Funds

BI

of

of

Manage

Internati

Hyderab

Travanc

ment (P)

onal

ad

ore

Ltd.

(Mauriti

254.
262.

256.
St

264.

258.
S

266.

us) Ltd.
S

260.
268.

In

ate Bank

BI

BI DFHI

do-

of Indore

Capital

Ltd.

Nigerian

263.

Markets

267.

271.

St

270.

Merchan

Ltd.
265.
273.

261.

t Bank
S

275.

269.
277.

ate Bank

BICI

BI Life

epal SBI

of

Bank

Insuranc

Bank

279.

33

Mysore
272.

Ltd.

e Co. Ltd

274.

276.

Limited
278.

280.
281.

282.
283.
284.
285.
286.
287.
288.
289.
290.

Key Personnel:-

291.

Board of

293.

Directors

Committe

295.

e of Directors

292.

294.

udit

297.

Manag

ement Team

Committ

298.

ee
296.
299.

Shri O. P.

300.

Bhatt
(Chairman)

Shri R.
Sridharan

301.

(Chairman
)

302.

Sh

303.

Shri S.

ri D.

Vishvanathan

Sundara

(MD & CEO )

m
(Chairma
n)
34

304.

Dr. R. H.

305.

Dr. R. H.

Patil

309.

Shri R.
Sridharan

306.

Patil

310.

Shri S.

307.

Shri M.

ri R.

K. Nag

Sridhara

(Executive

Vice President)

312.

Vishvanathan
311.

Sh

Dr

308.
313.

R. H.

(MD &

Patil

CEO)
314.

Shri

315.

316.

317.

Bansi S. Mehta
318.
Smt.

319.

320.

321.

Bharati Rao
322.
Shri D.

323.

324.

325.

326.

Sundaram
Shri Ajay

327.

328.

329.

330.

Sagar
Dr. Swati

331.

332.

333.

336.

337.

338.

A. Piramal
334.
Shri S.
Vishvanathan
335.

(MD &
CEO)

339.

340.

341.
35

342.
343.
344.

Promoters Share: -

Performance:-

345.

346.

347.
348.

SBI Capital Markets Limited (SBICAP) offers expertise in structuring

investments to enhance enterprise value and build long term mutually beneficial
partnerships. The team has been painstakingly built over the years. At SBICAP we offer:
349.
36

ADVICE
350.

We offer seamless investment banking advice in buying or selling other

businesses, or executing capital market deals, thereby helping our clients grow and
achieve their strategic business objectives.
FINANCING ASSISTANCE
351.

We act as a key ally for both the Government and Private Sector in their

endeavours towards infrastructure development.


INNOVATION
352.

We develop innovative fund raising solutions both for domestic and international

fundraising in debt, equity and hybrids.


353.

354.
355.
356.
357.

358.

SERVICES:-

Project Advisory & Structured Finance


359.

SBICAP has built a formidable presence in the area of Project Finance Advisory

and Funds Syndication with several prestigious mandates in almost every sector of the
industry to its credit.
360.

Our product portfolio includes:

Project Appraisal
Structured Finance and Syndication
Infrastructure Project Advisory
Securitisation
Debt & Equity Syndication
361.
Capital Markets

37

362.

Capital Markets Group handles transactions in the capital markets space across

multiple instrument structures.


363.

Our product and solutions bouquet 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
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
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

364.

M&A and Advisory


365.

The M & A product portfolio includes:

Mergers & Acquisitions


Private Equity
Foreign Currency Convertible Bonds (FCCB)
Corporate Advisory

366.
367.
368.
369.
38

370.
371.

372.

373.

Employees:41,871

Employee growth: 37.2%


374.

You see, ICICI Bank is India's #2 bank (after State Bank of India), with more than

600 branches and 2,200 ATMs nationwide. ICICI's retail banking group offers lending
and deposit services to small businesses and individuals. Larger businesses are served by
the corporate banking group, which offers finance services and treasury products. ICICI's
rural and government banking unit offers micro-loans and agricultural banking. Foreign
operations, as well as services related to international trade finance and expatriate
Indians, fall under the international banking group. Other ICICI offerings include online
banking, asset management, and insurance.
375.

Key numbers for fiscal year ending March, 2008:

Sale: $5,796.3M
One year growth: 99.1%
Net income: $524.1M
Income growth: 167.4%
376.

ICICI Advice on Wide Varity of Product:

Private Equity Financing


Secondary sale transactions
39

pre IPO deals


377.

378.
379.
380.
ICICI Bank, India's largest private sector bank, and First Data, a global leader in
electronic commerce and payment services, have formed a merchant acquiring alliance
named ICICI Merchant Services which has acquired ICICI Bank's merchant acquiring
portfolio. The venture brings together one of India's largest merchant portfolios,
representing approximately 30% of the current Indian acquiring market, and a leading
acquirer and payment services provider with global expertise. Over time, ICICI Merchant
Services expects to deliver an enhanced suite of card acquiring services to existing and to
new merchants.
381.
382.
ICICI Bank is India's second largest bank with over 2,000 branches across the
country. First Data, a KKR company, provides payment processing services for 5.3
million merchant locations globally and serves customers in 36 countries around the
world. First Data's services include offering merchants the ability to view and interrogate
their payment transactions securely via the Internet while benefiting from loyalty, prepaid
and market-leading e-commerce solutions based upon advanced processing technologies.
383.

384.
385.

ICICI Securities Ltd is the largest equity house in the country providing end-to-

end solutions (including web-based services) through the largest non-banking distribution
channel so as to fulfil all the diverse needs of retail and corporate customers. ICICI
Securities (I-Sec) has a dominant position in its core segments of its operations Corporate Finance including Equity Capital Markets Advisory Services, Institutional
Equities, Retail and Financial Product Distribution.
40

386.

ICICI Securities Inc., the step-down wholly owned US subsidiary of the company

is a member of the National Association of Securities Dealers, Inc. (NASD). As a result


of this membership, ICICI Securities Inc. can engage in permitted activities in the U.S.
securities markets. These activities include Dealing in Securities and Corporate Advisory
Services in the United States and providing research and investment advice to US
investors.
387.

is a SEBI Registered CAT-1 Merchant banker. ICICI Securities Inc. is also

registered with the Financial Services Authority, UK (FSA) and the Monetary Authority
of Singapore (MAS).
388.
389.

390.

Board of Directors:-

391.

ICICI Securities
Limited.
392.

397.Ms. Chanda D. Kochhar,


(Chairperson)

393.

ICICI Securities

395.

ICICI Securities,

Holding Inc.

Inc.

394.
399.Ms. Sanker Parameswaran,

396.
402.

400.(Director)

398.

401.

405.Mr. Uday Chitale,

408.Mr. Sriram Iyer,

406.(Independent director)

409.(Director)

407.
413.Mr. Vinod kumar dhall,

410.
416.Mr. Warreen Law

414.(Independent director)

417.

415.
420.Ms. Zarin Daruwala

422.

421.

423.

426.Ms. Shilpa Kumar

428.

Mr. Anup
Bagchi,

403.
411.

(Chairman)
404.
Mr. Ajay Saraf
412.

418.

Mr. Subir Saha


419.

424.

Mr. Jaideep
Goswami
425.

429.

427.
430.Mr. Anup Bagchi,

433.

434.

Mr. Bishen
Pertab
Mr. Robert Nd

431.(Managing Director & CEO)


432.

41

435.Mr. Ajay Saraf,

438.

439.

436.(Executive Director)
437.

440.
441.

Institutional
ICICI Securities is awarded as the Best Investment Bank 2008 by Global Finance
Magazine
The Corporate Finance group also was awarded a runner-up Best Merchant
Banker by Outlook Money in 2007.
ICICI Securities (I-Sec) topped the Prime Database League Tables 2007 for
money raised through IPOs/FPOs.
The equities team was adjudged the 'Best Indian Brokerage House-2003' by
Asiamoney.

442.
443.

Retail
ICICIdirect wins the prestigious Outlook Money - India's Best e-Brokerage House
for 2009.
ICICIdirect, the neighborhood financial superstore won the prestigious Franchise
India `Service Retailer of the Year 2008 award.
ICICIdirect wins the prestigious Outlook Money - India's Best e-Brokerage House
for 2008.
ICICIdirect been winning the prestigious Outlook Money - India's Best eBrokerage House for 2003-2004, 2004-2005, 2006-2007 and 2007-2008.
ICICIdirect has also won the CNBC AWAAZ Consumer Award for the Most
Preferred Brand of Financial Advisory Services.
Best Broker - Web 18 Genius of the Web Awards 2007
Franchisor of the year award 2009
Retail concept of the year awards 2009

444.

Technology
IDG India's CIO magazine has recognized ICICI Securities as a recipient of 2009
CIO 100 award
42

Indian Bank's Association Business Technology Awards for Best Online Trading
Platform in 2006 and 2007

445.
446.
447.
5. CURRENT SCENARIO

448.
449.

Merchant banking is an area that we need to build and grow in the years to come.

As India forms part of the global village, it becomes increasingly necessary for us to look
at this business in a more holistic manner.
450.

Obviously, international players with strong domestic partners such as DSP

Merrill Lynch, JM Morgan Stanley, Kotak Mahindra Capital, together with experienced
organisations like Enam and institutional backed investment bankers such as ICICI
Securities, etc., are the ones who have expertise, muscle, and placement power in a
greater measure than relatively new entrants.
451.

The red hot economy is the obvious starting point. India is likely to end the year

with GDP growth in excess of 7 percent. Companies and private equity investors are
sitting on large piles of cash. In 2006 deal activity was largely restricted to the IT and
Telecom sectors.
452.

Thus, while there is a steady flow of deals, there is now a shortage of talent to do

the job.
453.

43

454.
455.
456.

5.1 MERCHANT BANKING: INDIAN SCENARIO

457.

Merchant Banking activity was formally initiated into the Indian capital markets

when Grindlays Bank received the license from Reserve Bank in 1967. Grindlays which
started with management of capital issues, recognized the needs of emerging class of
entrepreneurs for diverse financial services ranging from production planning and system
design to market research. Apart from meeting specially, the needs of small-scale units it
provided management constancy services to large and medium sized companies.
Following Grindlays Bank, Citi Bank set-up its Merchant Banking division in 1970. The
division took up the task of assisting new entrepreneur and existing units in the
evaluation of new projects and raising funds through borrowing and issue of equity.
Management consultant services were also offered. Consequent to the recommendations
of Banking Commission in1972, that Indian bank should start Merchant Banking
Division in 1972. In the initial years the SBIs objective was to render corporate advice
and assistance to small and medium entrepreneurs.
458.
459.

The economic reforms initiated by the Government since July 1991 in the files of

industry, trade and financial sector have paved the way for rapid development of the
economy. Several projects have been conceived since then and almost all the major
groups in the country that have announced their intentions to set-up mega projects in
infrastructure sector envisaging investment of thousands of crores. With several large
projects been set-up and many more on the drawing board, the demand for a complete
range of Merchant Banking services encompassing project advisory services, issue
management and financial advisory services for corporate sector has increased
considerably. This has led to a sharp growth in the Merchant Banking business in the last
2 years.
460.
44

461.
462.

5.2 MERCHANT BANKING: INTERNATIONAL SCENARIO

463.

The Merchant Banking scenario in developed countries like USA and UK are

different from Indian Merchant Banking activities. The Merchant banker is also called as
Investment Bankers. A brief outline of Merchant Banking in USA and UK has shown in
the following paragraphs.
464.

Merchant Banks in UK

465.

In United Kingdom, Merchant Banks came on the scene in the late eighteenth

century and early nineteenth century. Industrial revolution made England into a powerful
trading nation.

Rich merchant houses that made their fortunes in a colonial trade

diversified into banking.

Their principle activity started with the acceptance of

commercial bills pertaining to domestic as well as international trade. The acceptance of


the trade bills and their discounting gave rise to acceptance houses, discount houses, and
issue houses. Merchant Bankers initially included acceptance houses, discount houses
and issue houses. A Merchant Banker was primarily a merchant rather than his customers
entrusted banker but him with funds. Merchant Banks in UK:

Finance foreign trade,

Issue capital,

Manage individual funds,

Undertake foreign security business, and

Foreign loan business.

45

466.

They also used to finance sovereign government through grant of long-term loans.

Since the end of Second World War commercial banks in Western Europe have been
offering multiple services including Merchant Banking services to their individual and
corporate clients. British banks set-up division or subsidiaries to offer their customers
Merchant Banking services.
467.

Merchant Banking in USA

468.

Merchant banks make the primary markets in USA, arrange mergers and

acquisitions, undertake global, custody, proprietary trading and market making, niche
business, fund management and advisory services to governments and firms.
469.

The increased regulation and control of domestic operations gave a fillip to large

US banks to undertake Merchant Banking functions in international capital markets. The


US investments Banks have extended their operations to the international level. They are
largely responsible for the development of the Euro-dollar market in the securities and
globalisation of capital markets. They have a prominent presence in London and other
European financial centers. Merchant Banks have today a strong parent, a strong balance
sheet and a strong international network to play a global role.
470.
471.

6 .SCOPE OF SERVICES

In the present dynamic environment where public money is playing a vital role in

financing a large number of projects, both in the public and private sectors, Merchant
Banking has a significant role in managing the show and meeting the growing demands
for funds by the corporate sector. Merchant Banking includes a whole gamut of activities
which meet the needs of both corporate and individual investors and which range from
identification, evaluation, promoting and financing of projects (both domestic and
overseas) by raising resources in the equity and long-term loans, to organize and
participate in international consortia, to raise foreign currency loans and to offer advisory
services on various matters related to finance, investment, capital management, structure,
46

mergers, amalgamation, takeovers and acquisitions. They also play a useful role in the
portfolio management, money market operations, venture capital, leasing, etc. Merchant
bankers act as a guide for the entrepreneurs who are unaware, or have little knowledge or
experience, of the complexities involved in the above spheres.
472.
473.

In addition to the above, the scope of Merchant Banking services has extended to

providing advisory services to companies to increase or divest their stakes, public sector
undertaking disinvestments, international issues, etc. With the OTCEI being operation
now, Merchant Bankers will have a key role to play in terms of appraising the projects
and offering two-way quotes for market making in case of entrepreneur going for listing
in the above exchange.
474.
475.

Merchant Bankers act as a critical link between the corporate who are intend to

raise funds and the investors who are interested to invest in securities Industry. Besides
issue management, the Merchant Bankers are also undertake the activities like
underwriting connected with the public issue management business, Managing/advising
on International offerings of Debt/Equity i.e., GDR, ADR, Bonds and other instruments,
Private placement securities, Primary or Satellite dealership of government securities,
Corporate Advisory services related to securities market (e.g., Takeovers, acquisitions,
disengagement), Stock-Broking, Advisory Services for projects, Syndication of rupee
term loans and International Financial Advisory Services. The services can be represented
as follows:

476.
47

477.
478.

479.

7.1 SERVICES RENDERED BY MERCHANT BANKERS


480.

481.

Among the important financial intermediaries are the merchant bankers. The

services of Merchant bankers have been identified in India with just issue management. It
is quite common to come across reference to merchant banking and financial services as
though they are distinct categories. The services provided by merchant banks depend on
their inclination and resources - technical and financial. Merchant bankers (Category 1)
are mandated by SEBI to manage public issues (as lead managers) and open offers in
take-overs. These two activities have major implications for the integrity of the market.
They affect investors' interest and, therefore, transparency has to be ensured. These are
also areas where compliance can be monitored and enforced.
482.

Merchant banks are rendering diverse services and functions, which are as

follows:

483.
ISSUE MANAGEMENT:
484.
485.

The public issue of securities is the core of merchant banking function. At one

time it was constructed as the sole function. Merchant bankers were identified as issue
houses.

It was later perceived that they provide other financial services.

When

companies seek to raise resources for implementation of a new project or finance


expansion or modernization or diversification of an existing unit or fund long term
working capital requirement, they retain the services of a merchant banker. To a large
extent the type of issue would vary with the purpose for which funds are raised.
Merchant bankers when retained as managers to issue will have to assist the company in
all the stages connected with public issue.

48

486.

The merchant bankers help corporate to raise money from the markets through the

issue of shares, debentures, bonds etc. They are designated as managers to the issue.
Their main business is to attract public money to capital issues.
487.
488.

They usually render the following services:

Drafting of prospectus and getting it approves from the stock exchanges.


Obtaining consent/acknowledgement from SEBI.
Appointing bankers, underwriters, brokers, advertisers, printers etc.
Obtaining the consent of all the agencies involved in the public issue.
Holding road shows, to sell the issue. These shows are held for the analysts, brokers &
institutional investors. The purpose of these shows is to answer queries from these people

about the company and the project for which the funds are being raised.
Deciding the pattern of advertising.
Deciding the branches where application money should be collected.
Deciding the dates of opening and closing of the issue.
Obtaining the daily report of application money collected at various branches.
Obtaining subscription to the issue.
After the close of the issue, obtaining consent of stock exchange for deciding basis of
allotment etc.
489.

CORPORATE ADVISORY SERVICES RELATING TO THE ISSUE


490.

In India, the pricing of issues is now freely decided by the company, with valuable

inputs from the merchant bankers, who have to sell the issue at the decided price. The
pricing of the issue especially in a public issue is very important. The pricing has to be
such, that the investors will be attracted to invest in the issue at that price, at the same
time the company should get the premium that it is looking for. After all, the premium
can play a very role in deciding the companys capital structure, as larger the premium
lesser will be the requirement for borrowed funds.
491.

The promoter also needs to decide whether to go in for a fresh issue or to go for a

rights issue. However this will depend mainly on the quantum of funds that the company

49

needs to raise. The success of the issue is dependent on the selection of the right type of
security. In this matter, the expert advice of merchant bankers is of immense importance.
492.

In the issue management the merchant bankers have to coordinate the various

agencies to the issue. The success of the issue depends on the cooperation of all the
agencies involved.
493.

The merchant bankers offer following services during the public issues:

Preparing an action plan and budget for the total expenses for the issue.
Preparation of application to SEBI and assistance in obtaining the consent from SEBI.
Drafting of the prospectus.
Selection of underwriters, Brokers etc.
Selection of bankers to the issue.
Selection of advertising agency for publicity.
Obtaining approval of the institutional underwriters and stock exchanges for publication of
the prospectus.
494.
495.

Companies are free to appoint one or more agencies as Managers to an issue.

SEBI guidelines insist that all issues should be managed by at least one authorized
merchant banker, functioning either as the sole or lead manager to the issue. Ordinarily,
not more than two merchant bankers should be associated as lead managers, advisors and
consultants to a public issue. In issues of over Rs. 100 crores, the number could be up to
a maximum of four.
496.

The responsibilities of merchant bankers in management of public issues are

many. Some of these are:


497.

We have seen that many unscrupulous promoters have raised money from the

market. This has hurt the investors a lot and has also made investors nervous about stock
market investments. This in turn affects the functioning of stock markets both the
primary and the secondary markets. It is therefore necessary that merchant bankers are
satisfied with the viability of the project, which they can then sell to the investors with

50

confidence. It is therefore important for the reputation of merchant bankers, to only


associate themselves with good issues.
498.

The merchant banker should act as the custodians of the investors money and this

puts a lot of responsibility on them. To discharge this function the merchant bankers have
to exercise due diligence independent by verifying the contents of the prospectus and the
reasonableness of the views expressed therein.
499.

It is the responsibility of the merchant bankers to get the securities listed on all the

stock exchanges mentioned in the prospectus. With the introduction of Demat accounts
the complaints about allotment have surely gone down. It is the responsibility of the
merchant bankers to ensure timely refunds and allotment of securities to the investors.
500.

The merchant bankers have to certify that they verified everything and that they

believe it to be true. This assures the investing public about the safety of their
investment. The precautions by the merchant bankers would ensure that all the fake
companies, whose intention is to defraud the investors, dont have access to the market.

UNDERWRITING
501.

Underwriting is like insurance against the failure of an issue. It is a guarantee to

the issuing the company, that the money that it requires for its project will definitely be
raised. It means that even if the issue is not fully subscribed to by the public, the
underwriters will make up the short fall.Underwriting involves the underwriter agreeing
to subscribe directly, or to procure subscription for the unsubscribe portion of the issue,
which is not taken up. For the risk that the underwriter takes, he is paid commission.
New companies entering the markets for the first time, always face number of problems
in raising funds from the market. One of the biggest problems of course that the company
is not well known to the investors and many of them will be unwilling to invest their
money in such ventures. Many a times even existing companies may find it difficult to
raise money, due to some reasons. Issuing companies therefore approach different
underwriters with a request to underwrite the issue.

51

502.

Underwriters on their part need to satisfy themselves about the viability of the

project and also about the integrity of the promoters of the company. It must be noted
that when an issue is under subscribed, the underwriters will pick the shares and only if
the project is good enough, then in future they can sell the shares in the market and get
not only their money back, but can also make a decent profit as well.
503.

It is obligatory for the merchant bankers to accept a minimum 5% underwriting in

the issue subject to a ceiling. By taking underwriting in an issue managed by them, they
show their full commitment to the issue that they are managing.

MERGERS AND ACQUISITIONS


504.

Mergers and acquisitions (M&A) and corporate restructuring are a big part of the

corporate finance world. Every day, Wall Street investment bankers arrange M&A
transactions, which bring separate companies together to form larger ones. When they're not
creating big companies from smaller ones, corporate finance deals do the reverse and break
up companies through spin-offs, carve-outs or tracking stocks.
505.
506.
507.

Role of Merchant Banker

508.

Mergers & Acquisitions is an area where Merchant Bankers act as intermediaries

in negotiating on one with corporate interested in hiving of divisions/companies which are


not with in the purview of the long-term business strategy of the group/company, and on the
other hand for Corporate interested in non organic growth by acquiring companies/units for
reason strategic or non strategic in nature. Mergers can be beneficial for both the entities, as
due to competition the companies unable to survive or prosper on their own may like to
merge and face competition and achieve growth targets. Takeovers may be hostile or friendly
in nature, hostile takeovers are without the consent of the company and company being
takeover may work out an anti takeover strategy to counter the threat. Merchant Bankers
provide following services in M&A: Identification of potential takeover targets.
Financial & Technical appraisal of the merger/takeover proposal.
52

Negotiation with the parties for arriving at the suitable price or exchange ratio.
Assistance in obtaining necessary approval & addressing procedural & legal issues.
509.

PROJECT COUNSELLING
510.

Project counseling is very important and lucrative merchant banking services

which only very few merchant bankers having advantages of knowledge, skills and
experience over others are able to render satisfactorily. The corporate seek advice in respect
of identification of profitable investment opportunities in the related business areas (like
forward/backward integration) or as part of diversification process. The merchant bankers
carry out detailed studies on product demand patterns, cost structures, etc., to enable the
corporate in preparation of feasibility study may involve arrangement of a foreign
collaboration, advice on technical parameters and also legal issues.

Scope of services

511.

Project counseling services are needed by industrial entrepreneurs in India in the

following areas: Preparation of project report


Deciding upon the financing pattern to finance the cost of the project.
Aspects of project appraisal with financial institutions/banks.
512.

Project report
513.

Project report consists of technical process, location, management profile, means

of financing, reports on market surveys and market explorations. Merchant bankers advise
the clients on project preparation. Merchant bankers, on behalf of their clients, engage
technical consultants specialized in the specific area, and marketing experts to prepare
technical feasibility report and market survey reports. Merchant bankers maintain the list of
such experts approves by financial institutions and assign the work to these experts.
514.
Project report purpose
53

515.

Project report about the proposed activity is prepared to obtain government

approvals particularly in the following areas:

Grant of industrial license to undertake specified industrial activity.


Foreign investment and technology tie-up.
Grant import license for importing raw material, plant, machinery and equipments.
Grant of foreign exchange allocation for import of capital goods or raw materials, etc.
Grant of subsidies and other concessions from the government at center or state levels
or from government sponsored agencies, etc.

516.
LOAN SYNDICATION
517.

It refers to assistance rendered by merchant banks to get mainly term loans for

projects. Such loans may be obtained from a single development finance institution or a
syndicate or consortium as in the case of large term loans. Merchant banks can also help
corporate clients to raise syndicated loans from commercial banks.
518.

Scope of service
519.

Once the client company has decided about the project proposed to be undertaken,

the next step is looking for the sources wherefrom funds could be procured to implement the
project. The responsibility of locating the sources of finance, approaching these sources by
putting in requisite prescribed applications and complying with all the formalities involved in
the sanction and disbursal of loan rests with the merchant bankers who provide the service of
loan/credit syndication.
520.

Loan syndication in the case of domestic borrowing is undertaken with the

institutional lenders and the banks. Amongst institutional lenders the following institutions
are the main suppliers of the long and medium term funds with which the merchant bankers
contact, liaison and arrange loans working for and on behalf of their clients.
1. All India financial institutions
i.

Industrial Finance Corporation of India (IFCI)

ii.

Industrial Development Bank of India (IDBI)


54

iii.

Industrial Credit & Investment Corporation of India Ltd (ICICI)

2. State level financial bodies


i.

State Financial Corporations (SFCs)

ii.

State Industrial Development Corporations (SIDCs)

iii.

State Industrial & Investment Corporations (SIICs)

3. All India level investment institutions


i.

Life Insurance Corporation of India (LIC)

ii.

Unit Trust of India (UTI)

iii.

General Insurance Corporation of India (GIC) & its subsidiary companies.

4. Commercial banks: Commercial banks join in consortium loan being provided by the
above institutions.
5. Mutual Funds & Venture Capital Funds: these funds generally invest in equity but
mutual funds contribute to the issues of Debentures/Bonds on private placement basis
as well as subscribe to public issues.
521.

RESTRUCTURING SERVICES
522.

Merchant bankers assist the management of the client company to successfully

restructure various activities, which include mergers and acquisitions, divestitures,


management buyouts, joint venture among others.
523.

To help companies achieve the objectives of these restructuring strategies, the

merchant banker participates in different activities at various stages which include


understanding the objectives behind the strategy (objectives could be either to obtain
financial, marketing, or production benefits), and help in searching for the right partner in the
strategic decision and financial valuation of the proposal.
524.
525.
526.

CAPITAL ASSISTANCE
55

527.

In providing financial assistance, merchant banks offer a full understanding of all

facets of the capital markets. This includes all types of debt and equity financing available
from both the domestic and international markets.
528.

It should be understood that interest rates are not the only definition of capital

costs. Restrictions on availability, prepayment terms, and operating effectiveness can often
outweigh what might appear to be inexpensive capital with low interest rates. Too often,
capital includes costs, which force an entrepreneur or a business to undertake undesirable
actions. In the short-run, some actions might be necessary, but often in the long run are
detrimental. The traditional merchant banker understands these capital limitations and can
structure a transaction, which is beneficial to all sides of the table -- not just the capital
source.
529.

He also knows how to substitute one type of capital for another, sometimes

utilizing internal sources from asset repositioning or cash creation from improvements in
working capital. He understands fully the risk versus return elements necessary to complete
the capital procurement process.

CORPORATE ADVISORY SERVICES


530.

Merchant bankers offer customised solutions to solve the financial problems of

their clients. Advice is sought in areas of financial structuring (as shown in the Modern
Manufacturing case above). Merchant bankers study the working capital practices that exist
within the company and suggest alternative policies. They also advise the company on
rehabilitation and turnaround strategies, which would help companies to recover from their
current position.
531.

FACTORING SERVICE
532.

Factoring involves the outright sale of account receivable. By such sale a client (the

exporter or manufacturer) transfers his/her ownership of the accounts to a factor (an organization,
56

firm). The factor buys all the clients outstanding invoices and takes over all the subsequent
dealings with the buyer/importer/customer. It is short-term debt financing. Here three parties are
involved
1. The factoring organization /firms
2. The manufacturer/exporter/seller
3. The importer/customer/buyer
533.

534.

Role Of Merchant Banker In Factoring

535.

The merchant banker may act as factor organization with a view to earning a great

amount of commission. The factor provides the following services:


536.

(a) Financing

537.

(b) Advisory services if necessary

538.

(c) Collection of bills/Account Receivable against sales proceeds.

539.

(d) Maintenance of sales ledger

540.

(e) Provide further if necessary

541.

(f) Covering losses if there are any

542.
543.
ASSET SECURITIZATION
544.

It is a process through which some inactive assets (mortgage assets) are converted

into cash/active assets. It is long-term debt financing. Here assets are converted into longterm bonds. The whole process is done by the Special Purpose Vehicle (SPV). In this
approach, the merchant banker for issuance of security bonds against the assets with a
matching of time and terms between mortgage property and security bonds. Here the
selection of asset is generally considered on the basis of the following:
545.

(I) Quality of assets

546.

(ii) Certainty of repayment

547.

(iii) Good ranking from the credit rating agency.

548.
57

549.

The process of asset securitization takes place in the following firms:

Originating Institutions/Firm
Special Purpose Vehicle (SPV)
Merchant Banker (MB)
550.

FOREX SERVICES
551.

This aspect of banking is becoming increasingly important as the forex flow in the

country is increasing and the international markets are funding the operations of the
corporate in India. The success of any business is measured by the fund management; this
makes treasury management as a very critical finance function. Management of treasury
profit center requires a wide variety of knowledge in the area of global money markets and
financial instruments such as deposit certificates, treasury bills, forecasting, source
evaluation and cost of domestic and foreign currency funds. Treasury and risk management
ensures cost effectiveness in planning strategies in this era of deregulation.
552.

Role of merchant banker in Forex function

553.

The currency values, interest rates, share index and commodities affect the

financial derivatives like futures, swaps and other tools of risk management. Corporates
therefore employ well-trained professionals to manage treasury and forex functions so that
they can ensure competent management. Thus, this service is provided to Corporates through
merchant bankers. Merchant bankers assess various markets to advice Corporates or other
banks that needs currency. Merchant bankers constantly update about the policies of the
regulatory bodies, monitors the current prices, makes predictions based on the analysis of
trends etc

HIRE PURCHASE SERVICE


554.

It involves a system under which term loans for purchases of goods and services

are advanced to be liquidated in stages through a contractual obligation. The goods whose
purchases are thus financed may be consumer goods or producer goods or they may be
simply services such as air travel. Hire-purchase credit may be provided by the seller himself
58

or by any financialinstitution. However, unlike in other countries, the emphasis in India is on


the provision of instalment credit for productive goods and services rather than for purely
consumer goods.
555.

Role of Merchant Banker

556.
557.

Merchant Banker undertakes the activity of financing for hire-purchase activities.

The merchant banker looks more to the credit-worthiness and business morality of the buyer
than the value of security
558.

LEASE FINANCE COMPANIES


559.

Lease finance companies provide finance to acquire the use of assets for a

stipulated period of time without owning them. The user of the asset is known as the lessee,
and the owner of the asset is known as the Lessor. Leasing is medium-term arrangement for
finance.
560.

Role of Merchant Banker

561.
562.

Merchant Bankers helps in assessing the credit risk of industrial borrowers. The

merchant bankers provide help in evaluating lease proposals. He analyse the merits and
demerits of lease finance with reference to a given proposal and leave it to their clients to
decide on the appropriate source and type of finance, thus enlarging their range of choices
and the variety of services available to them.
563.

VENTURE CAPITAL
564.

Venture capital is money provided by professionals who invest alongside

management in young, rapidly growing companies that have the potential to develop into
significant economic contributors. Venture capital is an important source of equity for
start-up companies. Professionally managed venture capital firms generally are private
partnerships or closely-held corporations funded by private and public pension funds,
59

endowment funds, foundations, corporations, wealthy individuals, foreign investors, and the
venture capitalists themselves.
565.
566.
567.
568.

Role of Merchant Banker

569.
Merchant Bankers assist ventures proposals of technocrats, with high technology,
which are new, and high risk. To seek assistance from venture capital funds or
companies.
They also provide technical, financial & managerial services & help the company to
set up a track record.
The assistance should mainly be for equity support, through loan support to
supplement this may be extended.

570.
571.
572.

6.2 RECENT TRENDS

573.

Merger & Acquisition transaction -- Merchant banks' services not taxable

574.

The Finance Ministry has excluded services provided by merchant banks and

other agencies in a merger and acquisition (M&A) transaction from the scope of
taxable services provided by a `management consultant.'
575.

The rationale accorded is that the role of such agencies is limited to

compliance of any statute or regulation -- such as takeover regulations of the


Securities and Exchange Board of India (SEBI) -- and not governed by any
contractual relationship with the advisee company.
576.

Merchant banks do not provide any consultancy on an M&A transaction, but

merely verify and submit a report to the authorities concerned, according to the Central
Board for Excise and Customs (CBEC).

60

577.

Barring the services of merchant banks, any service rendered in relation to an

M&A transaction will be covered under the scope of taxable service provided by the
management consultant and will be liable to service tax, the Board has ruled. Industry
representatives held that services provided in respect of M&A cannot be construed as a
management consultancy service, but were in the nature of financial advisory service.
578.

They further opined that acquisition or divesting of shareholdings was a purely

financial transaction and distinct from the advice or service provided prior to taking a
decision to divest, merge or acquire an organisation.
579.

RAPID RISE IN VALUATION IMPEDES M&As

580.

The surging stock market is creating an unusual problem: Mergers & Acquisitions

(M&A) deals are becoming tougher to close as the two parties to a deal keep looking over
their shoulders to figure out how the market is pricing their shares. The key to any deal is
valuation. And when the market booms, agreed valuations for proposed M&A are thrown
into disarray.
581.

In this scenario, M&A rankings will change depending on who has been able to

close deals faster.

In the first nine months of 2005, (ended September), Kotak

Mahindra/Goldman Sachs topped the heap by executing 13 deals valued at $2.53 billion
(about 11,000 crore). This bank was ranked No. 4 last year in the process, the investment
bank has increased its share by 420 basis points from 13.1% for last year to 17.3% now.
Morgan Stanley retained its No 2 position, having sewn up 11 deals worth $2.23 billion
so far. Its market share is up 50 basis points to 15.2%. Stock prices have gone up because
of profitability. Indian companies are also looking at overseas opportunities. M&A are
also getting hit because more & more companies are opting for the global depository
receipts/foreign currency convertible bonds issue to sate their capital needs. The analyst
sees pharmaceuticals, information technology & engineering specifically auto ancillaries
as the areas where an increasing amount of M&As will take place in India.

61

582.

Rapid valuation changes do cause some delays, but in the end, the deals go

through if there are benefits to both parties. Infrastructure related business, airlines and
the auto component sectors as being prime for acquisitions.
583.

590.
591.

584.
585.
586.
587.
588.
589.
6.4 PLAYERS IN MERCHANT BANKING
592.

593.
1. ENAM
594.
595.

ENAM was founded in1984 to provide knowledge-driven financial services at the

time when Indian economy investors faced a bewildering array of options. ENAM is the
one of the largest underwriters in India. ENAM offers promising & exciting companies
the opportunity of assessing the public market equity finances. ENAMs long-term
association with capital markets & primary markets has provided it with deep insights of
the functioning of Indian financial institutions.
596.

The merchant banking services provided by ENAM are: -

Equity debt/syndication: Raising capital through a private placement of a companys


securities is an effective & timely offering to a public offering. ENAM represents the clients
in the private placement of debt and equity with institutional & high net worth investors.

62

Corporate Restructuring: - ENAM provides client with strategic and practical solutions to
financial challenges. Their restructuring services includes Mergers & Acquisitions,
Takeovers, Debt restructuring, Buyers services etc.

ENAM also provide the seed stage services, value creation services and IPOs advisory
services which are represented below:
597.
598.

599.
600.
601.
602.
2. ICICI SECURITIES
603.

604.
605.

ICICI Securities Limited is a leader across the spectrum of Merchant Banking. We

are experienced in every aspect of the business from domestic and international capital
markets advisory, to M&A advisory, Private Equity syndication, Restructuring and
infrastructure advisory. Our investment banking team, based across key cities in India and
New York, London, and Singapore consists of professionals with expertise across a range
of industries.
606.

ICICI SECURITIES provide following services:

607.

63

Mergers and Acquisitions: - ICICI Securities Limited is amongst the first Indian investment
Banks to form a dedicated M&A practice and continues to be a leader by providing
innovative and unique solutions to achieve varied objectives of the client. They offer a full
range of advisory services, which include joint ventures, mergers, acquisitions, and
divestitures.
Equity Capital Markets: - ICICI Securities Limited is at the forefront of capital markets
advisory having been involved in most major book building and fixed price offerings over
the last decade. It is amongst the leading underwriters of Indian equity and equity-linked
offerings.
Infrastructure Advisory: - ICICI Securities Limited has a dedicated infrastructure vertical
focused on assisting clients in identifying and capitalising on the opportunities thrown up by
the all pervasive boom in the Indian infrastructure sector.
Dealing with Bulls and Bears: - ICICI Securities Limited assists global institutional
investors to make the right decisions through insightful research coverage and a client
focused Sales and Dealing team. The equity group leverages research and distribution reach
to domestic and foreign institutional investors in case of public offerings.
608.
Thus the quality of analysis and client servicing standards, are a testimony to the
quality of ICICI SECURITIES team.
609.

3. KOTAK SECURITIES LIMITED


610.
611.

612.

Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock

broking and distribution arm of the Kotak Mahindra Group. The company was set up in
1994. Kotak Securities is a corporate member of both The Bombay Stock Exchange and
The National Stock Exchange of India Limited. Its operations include stock broking and
distribution of various financial products - including private and secondary placement of
debt and equity and mutual funds. Currently, Kotak Securities is one of the largest
broking houses in India with wide geographical reach.
613.
The company has four main areas of business:

64

Kotak Institutional Equities: - Kotak Institutional Equities, among the top institutional
brokers in India. It mainly covers secondary market broking and the marketing of equity

offerings, including IPOs, to domestic and foreign institutional investors.


Structured Finance (Project Finance & Advisory Business): -KMCC has developed
expertise in various vertical segments in the infrastructure sector including power, oil, gas,
ports, automobiles, steel & metals and hotels, by offering structured finance solutions. Some
of the transactions executed by this team include:
Advisor to Ford on financial closure for its Car project in India.
Advisor to one of the largest LNG projects on the Western coast of India.
Financial advisors and loan syndications to British Gas and GAIL.
614.
Mergers & Acquisitions: -In the area of Mergers & Acquisitions, we provide our clients
expertise and a comprehensive set of services that help them achieve their strategic and

financial objectives. Our spectrum of services include:


Divestments
Spin-Offs / Restructuring & Joint Ventures / Strategic Alliances
615.
616.
617.
618.
619.
620.
621.
622.
623.
4. CITIGROUP
624.
625.
626.

627.

Citigroup Corporate and Investment

Banking achieve

the extraordinary for our clients around the world. No financial institution is more
committed to advancing the goals of its clientsour diverse and talented staff in more
than 100 countries advises companies, governments and institutions on the best ways to
realize their strategic objectives. We create solutions for and provide the broadest
possible capital and market access to thousands of issuer and investor clients. And no
institution better executes the increasingly complex payment and cash management
solutions required in today's global economy. The features Citigroup are as follows: 628.

65

Over the years, Citigroup has established a track record of outstanding business milestones
such as Cash Management, pioneered by Citigroup in 1986 and utilized by over 900
Corporates with through-puts totaling around $ 35 billion (8% of India's GDP).
It is India's largest foreign bank in the FX (foreign exchange) market with a 14 per cent
market share.
As the leading custodian, Citibank has over $22 billion of custody assets under management.
629.

5. DSP MERRILL LYNCH LTD.


630.
631.
632.

DSP Merrill Lynch Limited (DSPML), among India's

leading investment banking and brokerage company, is a culmination of a

long

standing relationship between DSP Financial Consultants Ltd., and Merrill Lynch & Co.,
the leading international capital raising, financial management and advisory company.
DSPML is a full service investment bank and broking company with leadership position
in M&A, Capital
633.

Raising, Securities Research, Equity & Debt Brokering, and Investment Advisory

services. Euro money Magazine has ranked DSPML as the "Best Domestic Securities
firm in India" for the last four consecutive years. This Transaction heralds DSPML as a
key player in the private equity market. The service features of DSPML are as follows: DSPML has consistently been rated as one of India's leaders in origination, distribution, and
trading of equity and debt securities.
DSPML has consistently brought reputable issues to the capital markets.
A diverse client base made up of India's most prestigious private and public sector
corporations and multinational corporations have rendered DSPML a commanding presence
in the Indian capital market.
Through direct market's group, DSPML offers investors access to every major initial or
subsequent public offering.
66

DSP Merrill Lynch is the leading underwriter of Indian equity and equity-linked offerings
across domestic and international markets. By leveraging their extensive knowledge of local
markets and global resources, they have delivered innovative and customized solutions to
their clients.
634.
635.
636.
6. UPFC(Uttar Pradesh Financial Corporation)
637.

Scheme for merchant banking & financial services


638.

Decades ago UPFC has taken a humble step for the industrial development

of U.P. by providing term loan assistance to small & medium scale units. Since then it has
acquired a matured professional approach in Industrial Financing, several small-scale
units nurtured by UPFC has groomed into big enterprises.
639.

In order to meet the challenges of liberalized policy of the Government &

Changed economic Scenario, UPFC has started Merchant Banking & other financial
Services to serve its valued clients. UPFC, a category-I Merchant Banker with unmatched
expertise in project appraisal and term lending offers a whole gamut of Merchant
Banking Services.
1. Issue management: UPFC provides expert services to manage public issues of the
companies successfully; it has already managed Public Issues as a lead Manager with great
success.
2. Underwriting: In order to provide a protective umbrella to the public issues of its clients,
UPFC also underwrites the issue.
67

3. Subscription to equity share: UPFC subscribes to the equity shares reserved under FI
quota, to enable the company to market the public issue effectively.
4.

Advisory services: UPFC, with its long experience, advises its clients for various advisory
services such as capital Structuring, loan syndication etc.

5. Project certification: UPFC also certifies the projects going to capital markets for raising
funds. This is a specialized activity of the Corporation.
6. Other financial services: As a part of its commitment to provide professionalized financial
services to its clients, UPFC also offers Bill Discounting, Equipment Leasing & Hire
Purchase Services, Short- term loan, Brand Equity loan, etc to meet diversified requirements
of it's clients

640.

7. JM Morgan Stanley

641.

Investment

Banking

focuses

on

capital

raising,

mergers,

acquisitions,

restructuring and financial advisory and private equity for Indian corporates in the
international and domestic capital markets. Through innovation and value-added services,
the firm has contributed immensely to the overall development of the capital market and
mergers and acquisitions in India. It have the merchant banking and underwriting licenses
from the Indian securities market regulator, the Securities and Exchange Board of India.
Some of the recent transactions of JM Morgan Stanley
US$ 20MM fund raising for Nipuna Services (a BPO subsidiary of Satyam Computer
Services)
Rs. 3,219 MM preferential allotment of equity shares/ warrants in Bajaj Auto Finance
Limited to financial investors and the promoter, Bajaj Auto Limited.
642.
The services of JM Morgan Stanley are:

68

JM Morgan Stanley has a dedicated group that regularly interacts with over 40

financial investors in India as well as overseas.


JM Morgan Stanley offers research-based investment advisory and equity broking
services to corporates, high net-worth individuals and retail investors across a wide range of

financial products.
They are known for lead managing some of the most complex and innovative and
large equity and debt offerings in India and abroad by the Indian issuers. A robust deal-flow
across sectors has allowed them to build significant traction with the financial investors. This
helps in raising private equity capital for the companies.

643.

6.4 MERCHANT BANKING-FUTURE DEVELOPMENT

644.

Time and again the Merchant banking Industry in India witnessed, experienced

and underwent significant changes. The very purpose for which these firms are
commences their services should be taken care of and they should mould their policy
decision and activities to move in tune with the main objectives of Investors protection
and to create healthy environment in capital markets. No doubt, Merchant Banking firms
are subject to a host of control measures, regulations and rules framed and guided by
SEBI. To some extent, frequent changes and /or amendments to policies and control
measures, though needed for smooth working of the securities Industry, proves to be
detrimental to the very existence of the Merchant Banking system in the country. The
SEBIs Act 1992 confers power upon SEBI to supervise and control the affairs of the
Merchant Banking firms in India.
645.

The various studies which had been undertaken in India for evaluating the

performance of Merchant Banking firms and the implications of these on securities


industry. No single study has been emerged so far pertaining to the evaluation of
Merchant Banking firms and in-depth study on their activities as well as operational and
financial performance in the light of changing regulatory environment.
646.

In recent past, the small investor has turned his back on the primary capital

market. Issue after issue as failed to capture his imagination, rekindle his enthusiasm,
69

and reinforce his faith. He has lost all hopes of appreciation of his investment. And this
when all these years millions have though capital market, ate capital market and dreamt
capital market. It needed an extraordinary effort and skill the drive the small investor
away! High premiums, false premiums and gray market operations. The professed
protector of his interests first laid down the dictum of proportionate allotment, then of
minimum subscription, all working against his interests. This would make an observant
student of the stock market infer that there is some game plan afoot to dethrone the small
investor from his prominent; he was believed to be the king.
647.

With the coming to SEBI, an organisation that was ostensibly brought into

existence to guard the interest of the small investor, hopes ran high that the small investor
would now have a safe playing field. But these hopes were soon belied. Far from
guarding the interests of the investing public, SEBI embarked on a course of action,
which has positively hurt them. The latest fiat of EBI bans corporate advertising after the
receipt of acknowledgement card by a company wanting to go public. SEBIs this action
has caused the closure of an information window. Now 50 million potential investors are
deprived of official and authentic information given by the Issuer.

It is hard to

understand reasons for this drastic and totally uncalled for action. While there has been
no official explanation for this fiat, there is reason to believe that it may be based on a
wrong perception of the role for corporate advertising.
648.

All this has been done perhaps because the corporate and intermediaries is to

follow the practices of Western capital markets here, oblivious of the fact that our capital
markets are altogether different in structure, in systems and in the number of
participantsFreedom of commercial expression could be exploited by some to serve their
own ends, just a s freedom of speech and expression could be abused but this has not led
our Government to put arbitrary restrictions on our freedom.
649.

Merchant Bankers have reason to believe they will be handicapped without the

marketing support. But the worst sufferer would be the investor, especially the small
investor it is this class, which forms the backbone of the capital market. As a result of the
70

ban, the small investor would be deprived of the opportunity to study the corporate
profile of the Issuer. In the absence of adequate information, they will have to depend on
manipulated facts and information fed by unreliable sources.
650.

Besides, there are larger issuers arising out of SEBIs action. From the point of

view of liberalisation of the economy, SEBI has taken a retrograde step. A market
economy flourished through bigger markets, higher sales and lesser profits. To achieve
this performance, a company needs an aggressive marketing plan and advertising effort is
the main thrust to such a plan. No marketing plan can be worthwhile unless it is backed
by an effective advertising plan. The ban imposed by SEBI nips the marketing plan in
the bud.
651.

The Indian primary capital market is basically a retail market. It consists of

innumerable investors who take own individual investment decisions. Whatever, the
system, it is this market that will bring in the funds. If these markets destabilised, the
investors will look for alternative avenues to invest their funds. SEBI in its one of the
first documents on SEBI and Investor Protection, Development and Regulation of
Securities Market clearly specifies significance of regulating capital market and its
future plans for fulfilling the twin objectives viz., Development of capital market and
investor protection are explained in introductory paragraphs. It speak out that, The
decade of the 1980 witnessed a phenomenal growth and development of the securities
market, demonstrated its potential not only to mobilize the savings of the horseshold
sector but also to allocate it with some degree of efficiency for industrial development.
The dilution of the holdings of the multinational companies at affordable prices in the
latter part of the 1970s had generated considerable interest, which was, carries well into
the next decade. Several companies came in the early part of the 1980s and successfully
raised large resources from the market especially through debt instruments, which further
sustained investor interest. There were several changes in Government policy, which
significantly influenced industry and aided the market. India was then entering the phase
of liberalization and decontrol which was to accelerate and gather momentum in the
71

1980s. By the end of the decade, the securities market in India came to be firmly
integrated with the financial system of the country. With the corporate sector increasingly
relying on the securities market for meeting their long-term requirement of funds, the
securities market their long-term requirement of funds; the securities market competed on
equal terms with the Development Financial Institutions, which were the traditional
purveyors of long-term capital. The emergence of the securities markets into the main
stream of the financial system of the country was thus one of the major economic
processes of the 1980s an inevitable outcome of the maturing process of the financial
system. They brought about notable changes in the capital structure of the companies
across industries, gave birth to new intermediaries and institutions in the securities
market and created a new awareness and interest in investment opportunities in the
securities market among investor. In spite market, its quality lagged far behind and there
was absence of adequate professionalism and fair competition among the various players
in the market.

Besides, the regulatory framework then prevailing was fragmented

difficult, if not effective.

7. QUESTIONAIRE
652.

STATE BANK OF INDIA

KOTAK MAHINDRA BANK

1) Details of the person Interviewed


653.
654.

Name:- Tushar
Age : 30

655.

Experience:- 3 years

Name:- Yash Goyal


Age : 30
Experience:- 1

years
2) Which activities does your Company/Bank undertakes?

72

656.

Import/Export, Remittances, Issue

Home loan, Personal loan,

over

of Bank guarantees and letter

of credit

drafts, etc. But not into credit card


657.

658.

3) What are the service provided?

On presentation of Documents in

settlement of

Overdraft facilities,
case of physical Import/Export.

Cash. Bank to bank sercices


Required proof in case of remittances.
659.
660.
661.

4) According to you what is the need for Merchant Banking?

Facilities to the banks like funds,

support from government

Infrastructure,etc so that more and

to aware the banks and compani

more banks can have this facility

es about the schemes available

in there bank and provide more


services related to the same
662.
663.
664.

5) What is Importance of Merchant Banking?

Due to this people will enjoy those

This helps the mergers

services which are not provided by


commercial banks
665.
666.

6) Names of the company with which you crack deals

Shiv shakti plastic, Inglobe and

Vijayan Group of Hotels,

Shree
73

667.

shreeram Industries,etc

nath hunday and other small

companies
668.
669.
670.
671.
672.
673.
674.
675.
676.
677.
678.
679.

8. CONCLUSION
680.
681.

Although merchant banking activity was ushered in two decades ago, it was only

in 1992 after the formation of Securities and Exchange Board of India that it is defined
and a set of rules and regulations in place. Today a merchant banker is who has the
ability to merchandise that is, create or expand a need and fulfill capital requirements.

74

682.

I have given an overview about the financial markets and the role of merchant

bankers in the growth of these markets. My project covers how the merchant banks
works, rules & regulations laid by SEBI & its impact on the merchant banking activities.
Their importance in the economy is expected to grow even further in the coming years
with an increasing proportion of household savings getting invested in corporate & other
securities. Hence, my project covers the challenges and advantages, which India will get
and is getting by merchant banking activities. I have covered several services provided by
Merchant Bankers & the role of Merchant bankers in providing those services to the
business world.
683.

Finally, the top players, which exist in merchant banking, are also covered; their

services are also been focused. To get the practical knowledge about merchant banking
activities I have interviewed visited State bank of India, ICICI bank LTD.
684.
685.
686.

687.
688.
689.
690.
691.
692.
693.
694.
695.
696.
9. BIBLIOGRAPHY
697.
698.

WEBSITES
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www.google.co.in
www.yahoo.com
www.wikipedia.com
www.economictimes.com
www.jmmorgansranley.com
www.dspml.com
www.sebi.com
https://www.sbi.co.in
http://www.sbicaps.com
http://www.icicibank.com/
www.icicisecurities.com
699.
700.

701.
702.

703.
704.

76