REGULATIONS OF

MERCHANT BANKER
 REGULATIONS OF MERCHANT BANKING

 The merchant banking activity in India is governed by SEBI

(Merchant Bankers)Regulations, 1992..

 An applicant should comply with the following norms:

 i) The applicant should be a corporate body.
 ii) The applicant should not carry on any business other than
those connected with the securities market.
 iii) The applicant should have necessary infrastructure like
office space, equipment, manpower, etc.
CONT….

 iv) The applicant must have at least two employees with prior
experience in merchant banking.
 vi) The applicant should not have been involved in any
securities scam or proved guilt for any offence.
 vii) The applicant should have a minimum net worth Rs. 5
Crores
 CATEGORIES OF MERCHANT BANKER

CATEGORY : 1
It consists of merchant bankers who carry on the business of issue
management which consists of preparation of issue management
which consists of preparations of prospectus, determining the financial
structure , tie-up of the financiers.

 CATEGORY : 2
 It consists of those authorized to act in the capacity of co-manager.
 The Minimum net worth required is Rs. 50 Lakhs
 CONT….

CATEGORY : 3
 It consists of those authorized to act as underwriter, advisor or
consultant or portfolio manager to an issue.
 The Minimum net worth required is Rs. 20 Lakhs.

CATEGORY : 4
 it consists of Merchant banker who act as advisor or consultant
to an issue.
 There is no Minimum net worth required.
 CAPITAL ADEQUACY
 Capital Adequacy Requirement According to the regulations, the
capital adequacy requirement shall not be less than the net worth of
the person making the application for grant of registration. For this
purpose, the net worth shall be as follows:

 Category Minimum Amount

 Category I Rs.5, 00, 00,000
 Category II Rs.50, 00,000
 Category III Rs.20, 00,000
 Category IV Nil
 SEBI GUIDELINES FOR MERCHANT
BANKERS
 SEBI’s authorization is a must to act as merchant bankers,
includes:
 Every merchant banker should maintain copies of balance sheet,
Profit and loss account, statement of financial position
 Half-yearly unaudited result should be submitted to SEBI
 SEBI has been vested with the power to suspend or cancel the
authorization in case of violation of the guidelines
 Every merchant banker shall appoint a ‘Compliance Officer’ to
monitor compliance of the Act
 CONT……

 SEBI has the right to send inspecting authority to inspect books

of accounts, records etc… of merchant bankers
 Inspections will be conducted by SEBI to ensure that provisions
of the regulations are properly complied
 An initial authorization fee, an annual fee and renewal fee may
be collected by SEBI
 A lead manager holding a certificate under category I shall
accept a minimum underwriting obligation of 5% of size of issue
or Rs.25 lakhs whichever is less