Dr.

SHAKUNTALA MISRA NATIONAL REHABILITATION

UNIVERSITY, LUCKNOW

Investment banking

ON

“Investment Banking in India”

UNDER THE GUIDANCE OF PROF. SHAIL SHAKYA

SUBMITTED TO SUBMITTED BY

Prof . Shail Shakya Shobhit Tripathi

Assistant Professor 9TH Semester

Faculty of Law Faculty of Law

D.S.M.N.R.U. D.S.M.N.R.U

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 ACKNOWLEDGEMENT

I would like to thanks Prof. Shail Shakya Sir for providing me an opportunity to gain some of
the basic information related to “Investment Banking in India” through this assignment.

Here, I would also like to thank my friends and well wishers who helped me out at every
problem which I faced during the completion of this assignment.

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 Table of Content

Introduction
Definition
Objective
Registration of Investment Banking
Grant of Certificate
Registration charges
Condition of Registration
Code of Conduct
Offering and Services of Investment Banking

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 INTRODCTION

Investment banks play a significant role in the financial services sector. However, Investment
banking, as advisory financial services, emerged rather late. Formal Investment banking
service in India originated with the setting up of the Investment banking division by the Grind
lays Bank in 1969 for undertaking management of public issue and financial consultancy,
followed by other foreign banks.

Pursuant to the recommendations of the Banking Commission (1972), State Bank of India
started Investment banking service in 1973. The ICICI Ltd was the first development finance
institution to initiate such service in 1974. The period following the mid-seventies witnessed a
boom in the growth of Investment banking organizations in the country which were sponsored
by banks, financial institutions, NBFCs Brokers and so on. This led to diversification into the
scope of these activities such as loan syndication, portfolio management, corporate counseling,
project counseling, debenture trusteeship, mergers, Amalgamations & takeovers and so on.

Investment banking is a particular form of banking which finances capital requirements of an

enterprises. Investment banking assists as it performs IPOs, private placement and bond
offerings, acts as broker and carries through mergers and acquisitions.

But the scope of such services was neither defined nor was a set of rules and regulations
governing them in place. The formation of SEBI in 1992 was a landmark in the evolution of
Investment banking as a professional service in the country. Investment banking organizations
have to be mandatorily registered with SEBI. While Investment bankers are currently providing
a variety of services, registration with SEBI is required for (i) Capital issues related activities :
both pre-issued and post-issue, (ii) mergers and acquisitions, and (iii) Portfolio Management.

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DEFINITION
A Investment banker is any who is engaged in the business of issue management either by
making arrangements regarding selling, buying or subscribing to securities or acting as
manager/consultant / advisors or rendering corporate advisory service in relation to such issue
management.

OBJECTIVE

The main objective of the project is to :

1. Study the overall view of the Indian Investment Banks.

2. Study the Regulatory Requirement for Registration of Investment Banks.
3. Know the Revenue (Brokerage / Commission) Generation Pattern of the Investment
Banks.
4. Know the Pre-Issue & Post Issue Management of IPO & Process.

REGISTRATION OF INVESTMENT BANK

Compulsory Registration:
Investment bankers require compulsory registration with the SEBI to carry out their activities.
They fall under four Registration categories
Category I – Investment bankers can carry on any activity related to issue management, that
is , the preparation of prospectus and other information relating to the issue, determining the
financial structure, tie up of financiers, final allotment of securities, refund of the subscription
and also act as advisors, consultants, managers, underwriters or portfolio Managers.
Category II – Investment bankers can act as advisors, consultants , co-managers, underwriters
and portfolio Mangers.
Category III – Investment bankers can act as underwriters, advisors and consultants to an
issue.
Category IV – Investment bankers can act only as adviser or consultant to an issue.
Thus, only category I Investment bankers could act as lead managers to an issue. With effect
from December 9, 1997, however, only Category I Investment bankers are registered by the
SEBI. To carry on activities as portfolio managers, they have to obtain separate certificate of
registration from the SEBI.

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Net worth requirement for Registration is as follow:

Category I : Rs. 5,00,00,000

Category II : Rs. 50, 00, 000

Category III :Rs. 20, 00, 000

Category IV : Nil

GRANT OF CERTIFICATE
The SEBI grants a certificate of registration on consideration of all matters that are relevant to
the activities related to the Investment banker:
(a) Investment bankers should also be a body corporate other than a non-banking financial
company. However, a Investment banker who has been granted registration by the RBI to act
as Primary Dealer may carry on such activity subject to the condition that it would not accept
/ hold public deposit,
(b) they are expected to have the necessary infrastructure like adequate office space , equipment
and manpower to effectively discharge their activities
(c) they should have employed at least two persons with experience to conduct Investment
banking business
(d) any person directly or indirectly connected with the applicant,
(e) they fulfill the capital adequacy requirement of a minimum net worth of Rs. 5 Crore
(f) partners, directors and principal offices should not be involved in any litigation connected
with the securities market, which has an adverse effect on their business
(g) have recognized professional qualification in finance , law or business management and or
their registration is in the interest of the investors and
(h) the applicant is a fit and proper person the provisions of the SEBI criteria for Fit and proper
person regulations discussed below would be applicable to the applicants.

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REGISTRATION CHARGES
An Investment banker has to pay to the SEBI
1. Application fee of Rs.25,000;
2. Registration , Rs. 10 Lakhs and
Renewal fee of Rs. 5 lakhs every three years from the fourth year from the date of initial
registration.

CONDITIONS OF REGISTRATION
The Registration / renewal of certificate of the Investment banker would be subject to the
following conditions:
1. Prior approval of the SEBI would be necessary to continue to act as a Investment banker
after change of its status/constitution. Change of status / Constitution means any change in
status / constitution of whatsoever nature including
(a) amalgamation/demerger /consolidation / any other kind of corporate restructuring
(b) change in its managing /whole –time directors and
(c) Any change in control over the body corporate. Change in control means
(i) if its shares are listed, change of control in terms of stipulations of the SEBI takeover
Regulations (ii) change in its controlling interest in any other case. Controlling interest means
direct / indirect interest to the extent of at least 51 percent of voting rights.
2. Enter into a legally binding contract with the issuer specifying their mutual duties and
responsibilities
3. Pay the registration / renewal fee in the prescribed manner.
4. Take adequate steps for redressal of investors grievances within one month of the complaint
and keep the SEBI informed about the number , nature and other particular of such complaints
together with the manner of their redressal.
5. Abide by the relevant regulations under the SEBI Act.

CODE OF CUNDUCT
1. Make all efforts to protect the interest of investors.
2. Maintain high standards of integrity, dignity and fairness in the conduct of its business.
3. Fulfill its obligations in a prompt, ethical and professional manner.
4. At all times exercise due diligence, ensure proper care and exercise independent
professional judgments

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 5. Endeavour to ensure that (a) inquiries from investors are adequately dealt with; (b)
grievances of investors are redressed in a timely and appropriate manner ;(c) where a
complaint is not remedied promptly, the investor is advised of any further steps which
may be available to him under the regulatory system.
6. Ensure that adequate disclosures are made to the investors in a timely manner in
accordance with the applicable regulations and guidelines so as to enable them to make
a balanced and informed decision.
7. Endeavour to ensure that the investors are provide with true and adequate information
without making any misleading or exaggerated claims or any misrepresentation and are
made aware of the attendant risk before taking any investment decision.
8. Endeavour to ensure that copies of the prospectus, offer document, letter of offer or any
other related literature is made available to the investors at the time of issue or the offer.
9. Not discriminate amongst its clients, save and except on ethical and commercial
considerations.
10. Not make any statement, either oral or written, which would misrepresent the services
that the Investment banker is capable of performing for any client or has rendered to
any client.
11. Avoid conflict of interest and make adequate disclosure of its interest.
12. Put in place a mechanism to resolve any conflict of interest situation that may arise in
the conduct of its business or where any conflict of interest arises, should take
reasonable steps to resolve the same in an equitable manner.
13. Make appropriate disclosure to the client of its possible source or potential areas of
conflict of duties and interest while acting as Investment banker which would impair
its ability to render fair, objective and unbiased services.
14. Always endeavor to render the best possible advice to the clients having regards to their
needs.
15. Not divulge to anybody either or in writing, directly or indirectly , any confidential
information about its clients which has come to its knowledge, without taking prior
permission of its clients, except where such disclosures are required to be made in
compliance with any law for the time being in force
16. Ensure that any change in registration status / any penal action taken by the SEBI or
any material change in the Investment bankers’ financial status, which may adversely
affect the interests of clients / investors, is promptly informed to the clients and any

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 business remaining outstanding is transferred to another registered intermediary in
accordance with any instructions of the affected clients.
17. Not indulge in any unfair competition, such as weaning away the clients on assurance
of higher premium or advantageous offer price or which is likely to harm the interests
of other Investment bankers or investors or is likely to place such other Investment
bankers in a disadvantageous position which competing for or executing any
assignment.
18. Maintain arm’s length relationship between its Investment banking activity and any
other activity.
19. Have internal control procedures and financial and operational capabilities which can
be reasonably expected to protect its operations, its clients, investors and other
registered entities from financial loss arising from theft, fraud, and other dishonest acts,
professional misconduct or omissions.
20. Not make untrue statement or suppress any material fact in any documents, reports or
information furnished to the SEBI.
21. Maintain an appropriate level of knowledge and competence and abide by the
provisions of the SEBI Act / regulations / circulars and guidelines, which may be
applicable and relevant to the activities carried on by it.
22. Ensure that the SEBI is promptly informed about any action, legal proceedings, etc,
initiated against it in respect of material breach or non-compliance by it, of any law ,
rules, regulations , directions of the SEBI or of any other regulatory body.
23. (a) Not render, directly or indirectly, any investment advice about any security in any
publicly accessible media, whether real-time or non real-time , unless a disclosure of
his interest including a long or short position, in the security has been made, while
rendering such advice; (b) In the event of an employee of the Investment banker
rendering such advice, the Investment banker should ensure that such employee should
also disclose the interests, if any, of himself , his dependent family members and the
employer Investment banker, including their long or short position in the security ,
while rendering such advice.
24. Demarcate the responsibilities of the various intermediaries appointed by it clearly so
as to avoid any conflict or confusion in their job description.
25. Provide adequate freedom and powers of its compliance officer for the effective
discharge of his duties.

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 26. Develop its own internal code of conduct its internal operations and laying down its
standards of appropriate conduct for its employee and officers in carrying out their
duties. Such a code may extend to the maintenance of professional excellence and
standards, integrity, confidentiality, objectivity, avoidance or resolution of conflict of
interest, disclosure of shareholding and interest etc.
27. Ensure that good corporate policies and corporate governance are in place.
28. Ensure that any person it employees or appoints to conduct business is fit and proper
and otherwise qualified to act in the capacity so employed or appointed.
29. Ensure that it has adequate resources to supervise diligently and does supervise
diligently persons employed or appointed by it in the conduct of its business, in respect
of dealings in securities market.
30. That the senior management, particularly decision makers have access to all relevant
information about the business on a timely basis.
31. Not be a party to or instrument for (a) creation of false market ;(b) price rigging or
manipulation or; (c) passing of unpublished price sensitive information in respect of
securities which are listed and proposed to be listed in any stock exchange to any person
or intermediary in the securities market.

OFFERING & SERVICES OF INVESTMENT BANKS

Project Counseling:
Project counseling includes preparation of project reports, deciding upon the financing
pattern to finance the cost of the project and appraising the project report with the financial
institutions or banks. It also includes filling up of application forms with relevant information
for obtaining funds from financial institutions and obtaining government approval.
Issue Management:
Management of issue involves marketing of corporate securities viz. equity shares, preference
shares and debentures or bonds by offering them to public. Investment banks act as an
intermediary whose main job is to transfer capital from those who own it to those who need
it. After taking action as per SEBI guidelines, the Investment banker arranges a meeting with
company representatives and advertising agents to finalize arrangements relating to date of
opening and closing of issue, registration of prospectus, launching publicity campaign and
fixing date of board meeting to approve and sign prospectus and pass the necessary

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resolutions. Pricing of issues is done by the companies in consultant with the Investment
bankers.

Underwriting of Public Issue:

Underwriting is a guarantee given by the underwriter that in the event of under subscription,
the amount underwritten would be subscribed by him. Banks/Investment banking subsidiaries
cannot underwrite more than 15% of any issue.

Managers, Consultants or Advisers to the Issue:

The managers to the issue assist in the drafting of prospectus, application forms and completion
of formalities under the Companies Act, appointment of Registrar for dealing with share
applications and transfer and listing of shares of the company on the stock exchange.
Companies can appoint one or more agencies as managers to the issue.

Portfolio Management:
Portfolio refers to investment in different kinds of securities such as shares, debentures or bonds
issued by different companies and government securities. Portfolio management refers to
maintaining proper combinations of securities in a manner that they give maximum return with
minimum risk.

Advisory Service Relating to Mergers and Takeovers:

A merger is a combination of two companies into a single company where one survives and
other loses its corporate existence. A takeover is the purchase by one company acquiring
controlling interest in the share capital of another existing company. Investment bankers are
the middlemen in setting negotiation between the two companies.

Off Shore Finance:

The Investment bankers help their clients in the following areas involving foreign currency.
(a) Long term foreign currency loans
(b) Joint Ventures abroad
(c) Financing exports and imports
(d) Foreign collaboration arrangements

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Non-resident Investment:
The services of Investment banker includes investment advisory services to NRI in terms of
identification of investment opportunities, selection of securities, investment management, and
operational services like purchase and sale of securities.

Loan Syndication:
Loan syndication refers to assistance rendered by Investment bankers to get mainly term loans
for projects. Such loans may be obtained from a single development finance institution or a
syndicate or consortium. Investment bankers help corporate clients to raise syndicated loans
from banks or financial institutions.

Corporate Counseling:
Corporate counseling covers the entire field of Investment banking activities viz. project
counseling, capital restructuring, public issue management, loan syndication, working capital,
fixed deposit, lease financing acceptance credit, etc.

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 CONCLUSION

From the above study it has been concluded that In India Investment Banks are under regulation
of SEBI, As per SEBI Guidelines on Merchant Banking , Whenever any corporate go for IPO
or M& A They have to appoint Merchant Banker for Managing the affairs

The future of Merchant Bank in India is very Bright , if you consider present Market Situation
where Sensex & Nifty Index is 16000 & 5000 Respectively. So many corporate have declared
and filed IPO & M&A With SEBI. Merchant Bankers act as a Lead Manager and as a lead
manager they underwrite the Issue.

The major revenue for merchant banks is received from the IPO, M&A, Advisory Services; it
is purely fee based business. As we know in US Last year big investment bankers collapsed,
the reason being Sub Prime Crisis. In US investment banks lend money on mortgage so sudden
economical change reduced the demand for Real Estate and the prices of the property fallen
down. So ultimately the fund which was financed for Housing has also been shrinking.

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 BIBILIOGRAPHY

1. Manchiraju, H.R., "Merchant banking – Principles and Practice, New

Age International (p) Limited Publishers, New Delhi.

2. SEBI: Merchant Banking Regulations, 1992.

3. www.investopedia.com

4. www.wikipedia.com

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