Merchant Banking

INTRODUCTION

Merchant Banking may be defined as an institution which covers a wide range of activities such as

Under righting of shares

Portfolio Management

Project Counseling

Insurance

Both commercial and investment banks may engage in merchant banking activities. The original purpose of merchant banks was to facilitate and/or finance production and trade of commodities and hence the name "merchant. They all render these service for a fee.

ORIGIN
The term merchant banking originated from the London who started financing foreign trade through acceptance of bills Later they helped government of under developed countries to raise long term funds Later these merchants formed an association which is now called Merchant Banking and Securities House Association

Who Is A Merchant Banker?

CRITICAL LINK BETWEEN COMPANY & INVESTORS UNDERWRITES SECURITY AND ADVICES ON MERGERS ACT AS BANK, COMPANY, FIRM OR PROPRIETARY CONCERN UNDERSTAND BUSINESS AND ARRANGE FINANCE

Merchant Banking
In India?

Merchant banking in India

Need for merchant banking was felt with rapid growth in number & size of issues made in primary market. Merchant banking services were started by foreign banks, namely National Grindlays in 1967 & City bank in 1970 . Merchant banking services were offered along with other traditional banking services.

SBI was first Indian bank to set up Merchant banking division in 1972.

Merchant banking services were offered along with other traditional banking services.

DIFFERENCE BETWEEN COMMERCIAL BANKING & MERCHANT BANKING

Merchant Banking
Services?

SERVICES OF MERCHANT BANK

The financial institutions in India could not meet the demand for long-term fund required by the ever expanding industry and trade.

Corporate sectors enterprise meet their demand through issuing share and debenture in capital market.

Services of Merchant Banks

Corporate Counseling

Project Counseling

Loan Syndication

Services of Merchant Banks

Issue Management

Underwriting

Portfolio Management

Services of Merchant Banks

Mergers and takeovers

Off Shore Finance

NonResident Investment

CATEGORY OF MERCHANT BANKER

CATEGORY
1st 2nd

MINIMUM NETWORTH
5 crore 50 lacs

3rd 4th

20 lacs Nil

Guidelines for merchant bankers appointment

Companies are free to appoint one or more agencies as managers to the issue.

SEBI guidelines prescribe that issue should be managed at least by one authorised merchant banker.

In issue over Rs.100 crores, maximum up to four M.B. could be associated as managers.

Cont..

Appointment of a lead manager by a company

S. No Size of the issue Maximum Number Of Lead Manager

1.
2.

Less than Rs.50 crores

Rs.50 crores to Rs.100 crores

2
3

3.
4. 5.

Rs.100 crores to Rs.200 crores

Rs.200 crores to Rs.400 crores Above Rs.400 crores

4
5 5 or more as prescribed by SEBI

Duties & Responsibilities Of LM

To enter into an agreement Certificate of registration with SEBI Work of issue management Clearly defined responsibility Minimum underwriting obligation Due care & diligence Submitting due diligence certificates Submit all particulars to SEBI Suggestions or modifications

Collections of the amount Ensuring refund

Inform depository participants

Qualities Required of Merchant Bankers

(Best merchant bankers)

Ability to analyses

Abundant knowledge Ability to built up relationship

Innovative approach

(left) Rashesh Shah Chairman & CEO, Edelweiss

Integrity

(right) Nimesh Kampani Chairman & MD, JM Financial

MERCHANT BANKERS COMMISSION

Maximum 0.5% Project appraisal fees Lead Manager :

0.5% upto Rs.25 crores 0.2% more in excess of Rs.25 crores

Underwriting fees Brokerage commission 1.5% Other expenses :

Advertising Printing Registrars expenses Stamp duty

Merchant banking
Problems.?

Restriction of merchant banking activities

SEBI guidelines have authorised merchant bankers to undertake issue related activities and made them restrict their activities or think of separating these activities from present one and float new subsidiary and enlarge the scope of its activities. Fees or commission for PSU IPO FPO

Minimum net worth of Rs.1 crore

SEBI guidelines stipulate that a minimum net worth of Rs.1 crore for authorisation of merchant bankers.

Non co-operation of issuing companies

Non co-operation

of the issuing companies in timely allotment of securities and refund of application money is another problem faced by merchant bankers.

Merchant banking
Scope in India?

Scope in India

Scope in India

Scope in India

Conclusion
Inspite of problems popping up, merchant

banking in India has vast scope to develop because of lot of domestic as well as foreign businesses booming here. Indian economy provides an amicable environment for these firms to set up, flourish and expand here.

Thank you...