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Speed and Accuracy of Transactions

HDFC
Overview bank Merchant Services offers latest technology EDC
machines
Features &and payment gateway, supported by world-class
technological
Benefits infrastructure to ensure fast transactions.
Payment
The time taken to process a transaction is in seconds and you can be
Gateway
rest assured of the net amount getting credited to your current
Merchant
account on the next working day.
Product
Offerings
Greater Profitability
Marketing
Accepting andpayments in cash is costly. If you calculate the time spent
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by youSupport
or your employee in accepting cash, counting the same,
making appropriate stacks, time and cost involved in visiting the
nearest bank branch, waiting time at the branch and the cost of
depositing cash (some banks charge for accepting cash), you will
realise that paying a small discount rate on card transactions is a
HDFC Bank Payment Gateway provides a single platform to
much more effective way of saving cost and time.
support multiple payment technologies. The solution supports
Reduced
Secure RiskLayer (SSL), Secure Electronic Transactions,
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risk posed by fraudsters. We have proactive risk management
(SPA).
software that runs checks on the cards swiped on our terminals. We
inform
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customers within the
enables minutes of a suspicious
merchants to stay
transaction being done on our machines to take necessary
abreast of rapidly changing payment technology; it incorporates actions.
a
hosted payment
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credits in your current account with us.
Relationship Officers
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a sophisticated, your requirementsrules-
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concerning the Merchant Services department and will also
your other banking related requirements.
Dedicated
Payment Helpdesk
Gateway is a flexible, scalable solution designed to
We have an,the
accommodate in-house,
rapidly dedicated, customer
evolving Internet service
secure team, which
payment
trouble shoots in case you need any assistance on the machine
operations, rolls, charge backs, reports, etc. In case you need any
assistance on the EDC machines installed at your outlet please call
us up at the following numbers
environment for businesses. It offers a user-friendly facility to
businesses to sell their products in a hassle-free manner to their
target customers and ensure receipt of payments upfront.

Payment Gateway integrates risk-management software.


Provides an integrated, flexible rules-based proactive risk
management system that operates with all secure payment
protocols
Supports branding and CSS for merchants.
Supports online transactions, batch processed transactions as
well as IVR and kiosks.
Transaction data, reports and other relevant information is easily
accessible through browser enabled user interface for
merchants
Supports multiple payment types and can route to various
authorisation systems and traditional card payment engines
Supports multiple platforms.
VBV and Securecode compliant.
Highly reliable Payment Gateway offering 99.99% uptime.
Customised MIS solutions for travel, retail and service (e.g.
telecom) industries.
Easy to integrate and maintain..
24 Hour helpdesk support.

How an internet transaction is initiated and processed


through Payment Gateway ?
The customer fills his shopping cart on a merchant website and
proceeds to check out.
The transaction information is transmitted to the merchant
server.
The web merchant forwards a digital order to the Payment
Gateway server in an encrypted format.
The Payment Gateway authenticates the merchant and provides
payment options and payment details screens directly on the
customer's browser over a secure 128-bit SSL+ connection.
The customer provides his credit card details, which is directly
sent to the Payment Gateway server when he clicks "Pay" .
The credit card details are then switched to the Operator / Bank
for authentication.
The Operator / Bank then transmits the message to the
cardholders' bank for payment authorisation.
The issuing bank authorises the payment, provided the card is
valid and has the requisite credit limit and transmits the
confirmation back to the Payment Gateway through the
Operator / Bank
On receiving the authorisation, Payment Gateway forwards a
digital receipt to the merchant server.
The merchant provides a confirmation of the payment to the
customer's browser.
The entire process integrates seamlessly with the shop and buy
application of the web merchant.
The merchant may then ship the goods and capture the
transaction on the gateway server.

Flexible
Supports multiple merchants on a single platform.
Acceptance for most of the major credit and debit cards.
User interfaces for merchants are browser enabled.
Supports multiple platforms.

Fast
Time to market - integrating merchants via simple universal
payment adapter (Merchant Plug-In).
Scalable to process a few thousand transactions to millions of
transactions / month on a real time basis..
Utilises Java architecture and a relational database — either
Microsoft SQL or Oracle — for scalability and portability.
Integration with existing applications and support for various
shopping cart applications are simpler and faster.

Smart
Provides an integrated, flexible rules-based risk-management
system that operates with all secure payment protocols.
Transactions are screened by up to three negative files – BINs;
hot cards reported lost or stolen; and warm cards that have
exceeded usage or other temporary parameters.
Supports multiple payment types and can route to various
authorisation systems and traditional card payment engines.
Provides extensive online query capabilities that support
evaluation of transaction activity.
Allow cardholders to create personal assurance messages
which can later be exchanged with their financial institutions
during the purchase transaction
Supports CVV2 and CVC2 for fraud control .

Reliable
Supports online, batch and manually entered transactions.
Provides merchants with Internet access to transaction data,
reports, and other relevant information.
Provide both cardholders and financial institutions with the
knowledge that purchases have been securely authenticated.
Maintain a complete digital history of orders, including
confirmation numbers, payment and shipment details and
relevant captured Web pages.
Secured user interfaces for system management and
operations.
State-of-the-art security technology and processes .
Comprehensive user guides and support information.
24x7 helpdesk support - Local.
Merchant Product Offerings
HDFC Bank Merchant Services is the national leader in electronic
payment solutions. We give a competitive edge to businesses and
financial institutions, by offering a complete portfolio of systems,
services and innovative products to meet the ever-changing market
dynamics.

Card Acceptance:

On the EDC terminals provided by HDFC Bank, all cards issued


under the following brands can be accepted by your outlets
Visa (Credit)
MasterCard (Credit)
Visa Electron (Debit)
Maestro (Debit)
As part of our terminal sharing arrangement with American Express,
you can also accept American Express Cards on our terminals.
However you need to have a Merchant relationship with American
Express directly and communicate with American Express to have
this activated on the HDFC Bank Terminal.

Technology infrastructure:
HDFC Bank would install the state of the art latest generation EDC
terminals on which you can accept all signature-based cards. The
entire service is backed by superior technology infrastructure in terms
of the network, systems and processes.

Payment Options:
Payment can be made by credit to current account with the bank or
manager's cheque

Personalised service:
We offer personalised service to our Merchants. One merchant
relationship officer is designated for taking care of the relationship
with our merchants. This officer will be the one point contact in the
bank for all issues relating to your merchant account.
For more details, write in to us at
hdfcbank.meservices@hdfcbank.com and we will get back to you.

Working Capital Finance


At HDFC bank understanding a customer's requirement and fulfilling
it with innovative product solutions is a way of life. We understand
that businesses need working capital to run day to day operations
and to fund your business expansion. We have products which can
be structured to suit your business loan requirements.
We are a bank with substantial appetite for recognised credits.We
can offer you working capital finance by way of cash credit or loans
suitably structured to your needs and your risk profile in consortium or
as a sole banker.

For more details, write in to us at


hdfcbank.meservices@hdfcbank.com and we will get back to you.

Merchant Banking

Merchant banking may be defined as, “an institution which covers a


wide range of activities such as management of customer services,
portfolio management, credit syndication, acceptance credit,
counselling, insurance, etc.”
Merchant Banks are popularly known as “issuing and
accepting houses”. They offer a package of financial services. Unlike
in the past, their activities are now primarily non-fund based. One of
the basic requirements of merchant banks is highly professional staff
with skills and worldwide contacts. The basic function of merchant
banks is marketing corporate and other securities, that is
guaranteeing sales and distribution of securities.
All the aspects- origination, underwriting and distribution of
the sale of industrial securities are handled by them. They are experts
and good judges of the type, timing and terms of issues and make
them acceptable to investors under prevailing preferences and
market conditions, and at the same time afford the borrowing
company, flexibility and freedom that it needs to meet possible future
contingencies. They guarantee the success of issues by underwriting
them. They also provide all the services related to receiving
applications, allotment, collecting money, sending share certificates
and so on.
The merchant banker normally does not assume all the
risk himself while underwriting the issue. Merchant banks offer
services also to investors. The range of activities offered by merchant
banks is much wider than sponsoring public issues of industrial
securities. They offer project finance, syndication of credit, corporate
advisory services, mutual fund investments, investment management
etc.

Services of Merchant Banks

• Project Counselling:

Project counselling 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. Merchant 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 merchant
banker arranges a meeting with company representatives and
advertising agents to finalise arrangements relating to date of
opening and closing of issue, registration of prospectus, launching
publicity campaign and fixing date of board meeting to approve and
sign prospectus and pass the necessary resolutions. Pricing of issues
is done by the companies in consultant with the merchant bankers.
• 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/Merchant 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. Merchant
bankers are the middlemen in setting negotiation between the two
companies.

• Off Shore Finance:

The merchant 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

• Non-resident Investment:

The services of merchant 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 merchant bankers


to get mainly term loans for projects. Such loans may be obtained
from a single development finance institution or a syndicate or
consortium. Merchant bankers help corporate clients to raise
syndicated loans from banks or financial institutions.

• Corporate Counselling:

Corporate counselling covers the entire field of merchant banking


activities viz. project counselling, capital restructuring, public issue
management, loan syndication, working capital, fixed deposit, lease
financing acceptance credit, etc.

Role of merchant banker in a primary market issue management.

Merchant banker is the intermediary appointed by companies in the


primary market issue. It has to look at the entire issue management
and work as the Manager to the Public Issue.

Principal steps in a Public issue are as follows :


Vetting of Prospects : The prospectus is a document to communicate
information about the company and the proposed security issue to
the investing public. The draft prospectus containing the disclosures
has to be vetted by SEBI before a public issue is made.
Appointment of Underwriters : An underwriter agrees to subscribe to
a given number of shares in the event the public do not subscribe to
them. The underwriter, in essence, stands guarantee for public
subscription in consideration for the underwriting commission.

Appointment of bankers : The bankers to the issue collect money on


behalf of the company from the applicants.

Appointment of Registrars : The registrars to issue perform a series


of tasks from the time the subscription is closed to the time the
allotment is made.

Appointment of Brokers and Principal Brokers : The brokers to the


issue facilitate its subscription.

Filing of the Prospectus with the Registrar of Companies

Printing and despatch of prospectus and application form : After the


prospects is filed with the Registrar of Companies, the company
should print the prospectus and the application form. Filing of Initial
Listing Application : Within ten days of filing the prospectus, the initial
listing concerned stock exchanges application must be made to the,
along with the initial listing fees.

Promotion of the Issue : The promotional campaign typically


commences with the filing of the prospectus with the Registrar of
Companies and ends with the release of the statutory announcement
of the issue.

Statutory Announcement : The statutoty announcement of the issue


must be made after seeking the approval of the lead stock exchange.
This must be published at least ten days before the opening of the
subscription list.

Collection of Applications : The statutory announcement (as well as


the prospectus) specifies when the subscription would open when it
would close, and the banks where the applications can be made.

Processing of Applications : The application forms received by the


bankers are transmitted to the registrars to the issue for processing.

Establishing the Liability Underwriters : If the issue is


undersubscribed, the liability of the underwriters has to be
established.

Allotment of Shares : If the issue is under-subscribed or just fully


subscribed, the company may allot shares applied for by the
applicants after securing the formal approval of the concerned
stock exchanges(s)

Listing of the Issue : The detailed listing application should be


submitted to the concerned stock exchanges along with the listing
agreement and the listing fee. Costs of Public Issue The cost of
public issue is normally between 8 and 12 per cent depending on the
size of the issue and the level of marketing effort. The important
expenses incurred for a public issue are Underwriting Expenses,
Brokerage, Fees to the Managers to the Issue Fees for Registrars to
the Issue, Printing Expenses, Postage Expenses, Advertising and
Publicity Expenses, Listing fees, Stamp duty. In addition to the above
procedural matter, the most important issue relates to the pricing of
the issue. The merchant banker has to see that the issue is priced
properly.

Pricing of Public Issues

The salient features of SEBI guidelines with respect to pricing of


public issues are as follows.

1. A new company set up by entrepreneurs without a track record will


be permitted to issue capital to public only at par.

2. A new company set up by existing companies with a five year track


record of consistent profitability will be free to price its issue provided
the participation of the promoting companies is not less than 50 per
cent of the equity of the new company and the issue price is made
applicable to all new investors uniformly.

3. An existing private/closely held company with a three year track


record of consistent profitability shall be permitted to freely price the
issue.

4. An existing listed company can raise fresh capital by freely pricing

MERCHANT BANKING

Merchant Bankers act as a link between corporate bodies who intend


on raising funds and investors who are interested in investing in
securities. It helps corporates establish new companies, expand,
diversify, merge, commission projects etc. Apart from that, merchant
banking was the necessity of banks themselves which were in need
of non-fund based income so as to improve their profitability margins
by all means in the changed economic scenario.

Merchant Banking is known by different names in different places. In


the USA, it is known as “Investment Banking”. In the UK it is known
as “accepting and clearing houses”.

Definitions of Merchant Banking


A Merchant Bank is a bank or financial institution that handles all the
tasks related to incorporation of a company as well as marketing
corporate and other securities.
Merchant Banking is an institution engaged in the business of issue
management either by making arrangement regarding selling, buying
or subscribing to securities or acting as manager, consultant,
advisors or rending corporate advisory services in relation to issue
management.
As per SEBI, Merchant Bank mostly provide advisory services, issue
management, portfolio management and underwriting services, which
require less capital but generate more income (non-interest income).
As per the Ministry of Finance; any person who is engaged in the
business of issue management either by making arrangement
regarding selling, buying or subscribing to the securities as manager,
consultant, adviser or rendering corporate advisory service in relation
to such issue management.

Classification of Merchant Banks:


(1) Public Sector Merchant Banks:
Commercial Banks (public)
National Financial Institutions
State Financial Institutions
(2) Private Sector Merchant Banks:
Foreign Banks
Indian Private Banks
Leasing Banks
Finance and investment companies

Functions/ Services offered by Merchant Bankers:


Project Appraisal
This service helps corporates analyze the soundness of a project,
which may be setting up a new unit/expansion/modernization etc. It is
a process of examining the technical, commercial, financial and
economic viability of a project to ensure that it generates sufficient
returns on the resources invested in it. The study of viability involves
detached verification of project’s ability to stand the tests of technical,
financial and commercial feasibilities and management’s capabilities
to successfully implement and run the project. A service project report
will be prepared for the company, including finalization of capital
structure. Project appraisal includes:
- Financial appraisal (liquidity analysis, capital structure analysis,
profitability analysis etc
- Technical appraisal (factors of production, technology, civil works,
site location etc)
- Economic appraisal (also known as cost-benefit analysis, social
cost, impact on employment, impact of the economy)

Syndication of Loan
Merchant Bankers arrange short, medium and long term loans for
their clients. They analyze the pattern of clients cash flows, based on
which the terms of borrowing can be defined. It then prepares a
detailed loan memorandum which is circulated to various banks and
financial institutions and they are invited to participate in the
syndicate. The merchant banks then negotiate the terms of lending
based on which the final allotment is done. It also arranges for raising
foreign exchange loans and external commercial borrowings for
import of capital.

Issue Management
This is the primary function of merchant bankers. It refers to the
management of securities offering of corporates to the general public
and existing shareholders on rights basis. Merchant bankers act as
lead managers and assists companies in arriving at quantum and
nature of issue and obtaining consent/clearance from various
statutory authorities, preparing draft prospectus, obtaining approval
from appropriate authorities etc. it also assists companies in tying up
with underwriters for the issue, appoint other intermediaries like
brokers, bankers, advertising agents, registrar to the issue and co-
ordinates the activities of these agencies and institutions from the
successful flotation of the issue. It also helps in listing the securities in
stock exchange, finalizing basis of allotment, arranging for refund,
handling investor complaints etc.

Merchant banks help companies raise funds by selling shares to the


public by issuing prospectus, Shares may be issued at par, premium
or discount. SEBI guidelines for pricing of public issues are as
follows:
- New Co. set up by entrepreneurs without a track record = can issue
shares only at par
- New Co. set up by an existing co with a 5-year track record of
consistent profitability = is free to price its issue provided promoting
company takes atleast 50% of the equity and the issue price is
offered to all new investors uniformly.
- An existing private/closely held co with 3-year track record of
consistent profitability is allowed to freely price the issue.
- Existing listed co. can freely price further issue.
Process of public issues:
- Vetting of prospectus (by SEBI)
- Appointment of underwriters, bankers, registrars and brokers
- Filing and prospectus with registrar of companies
- Printing and dispatch of prospectus and application forms
- Filing of initial listing application (within 10 days of filing prospectus
with ROC: initial listing application be made to concerned stock
exchange)
- Promotion of issue
- Statutory announcement (opening and closing dates,
announcement to be made atleast 10 days before opening
subscription list)
- Collection of application
- Processing of allocation (by registrar to the issue)
- Establishing liability of underwriters (if issue is undersubscribed)
- Allotment of shares (after formal approval by concerned stock
exchange)
- Listing of issue (with concerned stock exchange)

Underwriting of issues
In order to ensure full subscription or the stipulated minimum
subscription of 90% of the issue, companies enter into an agreement
with financial institutions, banks, brokers and bankers to underwrite
the issue amount. Merchant bankers can underwrite issues and
assist companies in tying up with other underwriters

Corporate Counseling
Rendering assistance to corporate clients on various aspects of
business operations in the areas of financial planning, performance
budgeting, restructuring capital, and other aspects of financial
management and monitoring systems and operations.

Bankers to the issue


Collection of subscription money/application money for an issue from
the investors, acknowledgement, proper accounting of the money
received, sending reports/certificates, informing collection details are
the services provided in the banker to the issue role.

Investment Counseling
This activity involved assisting firms, companies, trusts, funds and
associations in the choice of shares and stocks for investment
depending upon the needs and the risk-return trade-off, as well as
taxation and time considerations.

Portfolio Management Services


A portfolio is a collection of different kinds of investments. Merchant
bankers provide portfolio management services.
Registrar and Transfer Agent
Transfer agency work involves carrying out transfer work in respect of
securities after complying with stipulated formalities/procedures.
Preparation and printing of dividend warrants and dispatching them to
share holders is also covered here. Other services include attending
to complaints of applicants/investors, coding and verification of
applications, allotment, processing and dispatching allotment letters,
providing various documents and certificates etc.

(10)Mergers, amalgamations and Acquisitions


Some companies desire to restructure themselves in order to
effectively meet competition. Merchant bankers provide all requisite
guidance and services for restructuring, to prepare due diligence,
necessary clearance from statutory bodies like SEBI, ROC etc as per
the statutory stipulations, for the process of mergers, acquisitions and
amalgamations.

(11)Venture Capital
Merchant Bankers help co obtaining venture capital for financing their
new and innovative strategies. (add points from FSM chapter on
“venture capital”)

(12)Leasing Finance
(elaborate by using points from the FSM chapter on “Leasing”)

(13) Non-resident investment


Merchant bankers provide investment advisory services to attract NRI
investment in primary and secondary markets, undertake buying and
selling securities on their behalf, secure clearances from RBI under
FEMA for repatriation of interest and dividends etc.

(14) Joint ventures


Merchant Bankers help corporates with joint ventures in India and
abroad.

Registration of Merchant Bankers/Pre-requisites for Merchant


Bankers:
Registration with SEBI is mandatory to carry out the business of
merchant banking in India. An applicant should comply with the
following norms:
Applicant should be a body corporate
Applicant should have minimum net worth of Rs. 5 crore.
Applicant must have atleast 2 employees with prior experience of
merchant banking.
Applicant should have necessary infrastructure like office space,
equipment, manpower etc
Applicant should not carry on any business other than those
connected with the securities market and must have necessary
experience in the same.
Applicant should not have been involved in any securities scam,
proved guilty for any offense or been accused of moral turpitude.
Any associate co, group co, subsidiary or inter-connected co of
applicant should not have been a registered merchant banker.

Scope for Merchant Banking in India:

Growth of New Issues Market


The growth of new issue market is unprecedented since 1990-1991.
Merchant banking can help with the further sophistication and
penetration of the new issues market.

Entry of Foreign Investors


Foreign institutional investors were allowed to invest in the primary
and secondary market in 1992 and also, Indian companies were
allowed to directly tap foreign capital through euro issues. Further,
foreign direct investment by NRIs has risen considerably due to
number of incentives offered to them. They need the services of
merchant bankers to advise them for their investment in India. The
increasing number of joint ventures abroad by Indian companies also
requires expert services of merchant bankers.

Changing Policy of Financial Institutions


The policy of decentralization, increase in demand for technical and
financial services and encouragement of small and medium
industries, requires the services of merchant bankers.

Development of Debt Market


The development of debt market will offer tremendous opportunity to
Merchant Bankers.

Innovations in Financial Instruments


The Indian capital market has witnessed innovations in the
introduction of financial instruments. This has further extended the
role of merchant bankers as market makers for these instruments.

Corporate Restructuring
Due to liberalization and globalization, competition in the corporate
sector is becoming intense. To survive and thrive, companies need
new strategies, structures and methods of functioning. This has led to
corporate restructuring including mergers, acquisitions, etc. These
developments offer a good opportunity to merchant bankers to extend
their area of operations.

Disinvestment
The government of India has raised Rs. 2000 crores through
disinvestment of equity shares of selected pubic sector undertakings
in 93-94. Merchant Bankers can help in the disinvestment process.