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4. Financial structuring:-
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6. Loan syndication:-
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• The applicant should not carry on business other than those connected
with the securities market.
• The applicant must have at least two employees with prior experience in
merchant banking.
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• The applicant should not have been involved in any securities scam or
proved guilt for any offence.
INTRODUCTION
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Some of the definitions are discussed below to locate the practical meaning
of the term “merchant banking”. Dictionary meaning of merchant banking
hints at merchant banks as an organization that underwrites securities that
underwrites securities for corporations.
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Definition
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risk in financing the king, monarchs and the state government engaged in
the continental wars. The motivation behind their banking activity was profit
maximization and to achieve this aim they invested their funds were they
expected higher return despite high degree of risk. For this reason,
merchant bankers used to charge rate of return for financing, the highly
risky venture. In turn, they had to suffer, very often, with heavy losses,
closed down for reasons of denial of, repayments, denouncements of
obligations by debtors, credits losses and confiscations of their properties
by the kings they financed. For example, Ricardo of Lucca, the Italian
merchant banker, had opened an office in England to serve the English
Government of Edward-I of England and had to succumb to closure when
kings confiscate its properties on its refusal to finance the war in
1924.similarly, the Medici bank of Florence was liquidate in 1494, Fugger
banker had to suffer in 1650 when Habsburg Emperors Maximillan and
Charles- V deflated in payments. There are numerous instances likewise
where, and then the existing merchant banker had to collapse, leave the
activity or started another activity or started the same activity after
strengthening the financing background. Thus, merchant banking, with all
the odds, survived and continued during thirteen and sixteen centuries.
The main trading center for world trade and during the above period
had remained in Amsterdam where the Dutch trader relied, on the finance
of trade, upon the expertise of merchant banker, then known as
“commission agent”. The important service they rendered including
handling of the costal trade and for their masters goods on commission
basis, financing the owners or suppliers of the goods and the shipping
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The founders of the several of the present day merchant banks who
started the business having the 18th century and early 19th century were the
merchants who traded overseas and earned reputation with their name.
These prominent merchants were requested to lend their name to the
lesser known traders by accepting a bills they guaranteed that the holder of
bill will receive the full value on the date of payment. This acceptance
business has grown with the expansion of the trade through the European
nations and continuous today the banks most activity engaged in it are the
number of the acceptance house committee of London.
The merchant banker traded for centuries and retained their names
and activities in different nations by expanding their activities. For example,
in Amsterdam, john & co. were bankers in 18th century and at the same
time engaged in trading of all commodities they could sell at a profit. In
Frankfurt, Meyer mashes Rothschild traded coffee, sugar, tobacco, along
with the British manufactures.
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debentures. Growing demand for funds put pressure on capital market that
enthused commercial banks, share brokers and financial consultancy firms
to enter into the field of merchant banking and share the growing capital
market. As a result all the commercial banks in nationalized and public
sector as well as in private sector including foreign banks in India have
opened their merchant banking windows and competing in this field.
Need for merchant banking is felt in the wake of huge public saving
lying untapped. Merchant banker can play highly significant role in
mobilizing funds of savers to invisible channels assuring promising returns
on investment and thus can assist in meeting the widening demand for
invisible funds for economic activity. With growth of merchant banking
profession corporate enterprises in both private sectors would be able to
raise required amount of funds annually from the capital market to meet the
growing requirement for funds for establishing new enterprises, undertaking
expansion, modernization and diversification of the existing enterprises.
This reinforces the need for a vigorous role to be played by merchant
banking.
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such requirement to be complied with for raising funds from the capital
market under different enactment viz. companies act, income tax act,
foreign exchange regulation act, securities contracts corporate laws and
regulations. Merchant bank advice the investors of the incentives available
in the form of tax relief, other statutory relaxation, good return on
investment and capital appreciation in such investment to motivate them to
invest their savings securities of the corporate sector. Thus merchant banks
help industries and trade to rise and the investors to invest their saved
money in sound and healthy concern with confidence, safety and
expectation for higher yields. Finance is the backbone of business
activities. Merchant banker make available finance for business
enterprises acting as intermediaries between them raising demand for
funds and the supplies of funds besides rendering various other services.
The following are some of the reasons why specialist merchant bank
have a crucial role to play in India.
industries.
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Failing to pay
registration
fees
Cancellation
of certificate
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Code of conduct:-
1) Render the best possible advice to the clients regarding clients the
needs and requirements, and his own professional skill; and
2) Ensure that all professional dealing are affected in prompt, efficient
and cost effective manner
He should not:-
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1) Divulge to other clients, press or any other party any other party
confidential information about his client, which has come to his knowledge;
and
3) Adequate steps are taken for the fair allotment of securities and
refund of application money without delay; and
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Finally, he has to avoid by the provisions of the SEBI Act, its rules
and regulations which may be applicable and relevant to the activities
carried on by the merchant banker.
Restriction on Business:-
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to Rs.200 crore, the maximum permissible lead managers are three and
four respectively. A company can appoint five and five or more (as
approved by the SEBI) lead managers in case of issues between Rs.200
corer and above Rs.400 crore respectively.
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b) All legal requirements connected with the issue have been fully
complied with, and
Submission of Documents:-
The lead managers(s) to an issue has (have) to. Submit at least two
weeks before the date of filing with the registrar of companies/regional
stock exchange or both particulars of the issue, draft prospectus/letter of
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Disclosures to SEBI:-
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a) Suspension of registration or
b) Cancellation of registration
Suspension of Registration:-
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Cancellation of Registration:-
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General defaults for the purpose of penalty points, the following activities
are classified under general defaults and attract one penalty point.
1) Non-receipt of draft prospectus/letter of offer from the lead manager by
SEBI, before filing with the registrar of companies/stock exchange
2) Non-receipt of interest allocation of responsibilities of lead managers in
an issue by SEBI prior to the opening of issue.
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Minor Defaults:-
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Major Defaults:-
Serious Defaults:-
conduct.
2) Non-cooperation with SEBI in furnishing desired Information,
documents, evidence as may be called for.
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Defaults in Prospectus:-
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a) Institutional Base:-
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b) Banker Base:-
c) Broker Base:-
d) Private Base:-
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1. Project Counseling
2. Loan Syndication
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PROJECT COUNSELLING
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facts and figures to evaluate the alternative avenues open for capital
investments from the point of view of growth and profit prospects. Some of
the critical issues that a study of this genre deals will include an in-depth
investigation of environment and regulatory factors, location of raw
material, supplies, demand projections and financial requirements. Such a
study would assess the financial and economic viability of a given project
and help the clients to identify and short list those projects that are built
upon his inherent strength son as to accentuate corporate profitability and
growth in long run.
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LOAN SYNDICATION
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The capital issue are managed are category-1 merchant banker and
constitutes the most important aspects of their services. The public issue of
corporate securities involves marketing of capital issues of new and
existing companies, additional issues of existing companies including rights
issue and dilution of shares by letter of offer,. The public issues are
managed by the involvement of various agencies i.e. underwriters, brokers,
bankers, advertising agency, printers, auditors, legal advisers, registrar to
the issue and merchant bankers providing specialized services to make the
issue of the success. However merchant banker is the agency at the apex
level than that plan, coordinate and control the entire issue activity and
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of associations.
(2) Taking action as per SEBI guide lines
(3) Finalizing the appointments of the following agencies:
• Co-manager/Advisers to the issue
• Underwriters to the issue
• Brokers to the issue
• Bankers to the issue and refund Banker
• Advertising agency
• Printers and Registrar to the issue
(4) Advise the company to appoint auditors, legal advisers and broad
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The Merchant Bankers for managing public issue can negotiate a fee
subject to a ceiling. This fee is to be shared by all lead managers,
advisers etc.
0.5% of the amount of public issues up to Rs.25 crores 0.2% of the
amount exceeding Rs.25crores, if more than one Merchant bankers are
managing the issue.
MUTUAL FUNDS
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Growth Fund (foreign mutual fund), etc. Mutual Funds are basically a trust
which mobilize savings from the people and invest them in a mix of
corporate and government securities. Money collected by the investors is
invested in various issues of primary and secondary markets in order to
gain profits on such investments.
At present, all the markets viz. the debt market, the equity market, the
money market, real estates, derivatives, and the market dealing with the
other assets have now reached a stage where a minimal information affect
the markets. Besides this, the economy has opened up and global events
influence their performance.
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In the present scenario mutual funds are some of the most efficient
financial instruments as it offers above services like managing investments
at a very low cost.
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3) Diversification :-
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6) Flexibility:
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9) Easy liquidity:
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Just like equities, mutual funds are also regulated by the SEBI.
This is to safeguard the interests of investor.
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Portfolio manager
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the first two year and Rs. 1 lakh for the third year. The renewal fee was Rs
75,000 per annum. After November 1999, the registration fee and renewal
fee after every three years in Rs. 5 lakh respectively. The portfolio manager
is also to give an undertaking to take adequate steps for the redresses of
grievance of clients within one month of the receipt of complaint, keep SEBI
informed about the number, nature, and other particular of complaints and
abide by its rules and regulations.
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d) Capital adequacy of not less than net worth of Rs. 50 lakh in term of
capital plus free reserves.
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Code of Conduct:-
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He should not make any statement or become privy to any act, practice or
unfair competition, which i! Likely to be harmful to the interest of other
portfolio managers or is likely to place them in a advantageous position in
relation to the portfolio manager himself, while competing for or executing
any assignment.
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a) Ensure that the investors are provided with true and adequate
information without making any misguiding or exaggerated claims and
are made aware of attendant risks before any investment decision is
taken by them;
b) Render the best possible advice to the client having regards to the
client’s needs and the environment and his own professional skills;
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ii. Areas of investment and restrictions, if any, imposed by the client with
regards to investment in a particular company or industry;
v. Amount to be invested;
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General Responsibilities;-
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Disclosure to SEBI :
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Underwriters
Registration
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1) Code of conduct :
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b) General responsibilities :
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MERGERS /AMALGAMATION:
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companies act, 1956, it does not defined this term. The income tax act ,
1961, stipulates to pre-requisite for amalgamation through which the
amalgamated company seeks to avail the benefit of set of / carry forward
of losses and unabsorbed depreciation of the amalgamating company
against its future profits u/s 72A ,namely,
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Scheme of merger/amalgamation:
• Description of the transfer and the transfer company and the business
of transferor.
• Their authorized, issue and subscribed/ paid-up capital
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1) Leadership:-
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2) Aggressive action:-
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4) Contacts:-
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associates involved
in the management
Emerging formal
organization,
founders, or
2 Early growth Individual investment
professional
manager in
management
Formal organization Firms investment
3 Accelerating growth with professional, with banks backing in
manager or founder terms of loan
Complex
Corporate finance
organization with
4 Sustaining growth from bank plus equity
professional
funds from public
manager
Multilayer complex Matching finance
5 maturity management available from all
organization possible sources
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institutions and hence there is a huge gap which needs to be filled. This
gap can be met through capital markets or a range of finance products and
hence a good scope exists for the various services offered by a merchant
banker. The establishment of SEBI and the abolition of the office of
Controller of Capital Issues (CCI) in 1992 heralded in area of free market
pricing of equity shares. Merchant bankers in particular have been
assigned a greater responsibility in the fixation of issue price & premium, if
any. In the CCI regime merchant bankers had restricted role to play in that
regard. The role was confined mainly to getting clearance from the CCI & to
ensuring the success of capital issue through marketing efforts. There were
also no disclosure norms. Merchant bankers were seldom held accountable
for the correctness of the information disclosed in the prospectus & letter of
offer but with issuance of comprehensive guidelines for free market pricing,
code of conduct for merchant bankers, etc. by SEBI role of merchant
bankers has considerably increased.
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Level of Competition
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ENVIRONMENTAL FACTORS
-Open for change-
Merchant Banking Services
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Conclusion
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- Mandar
REFERENCES:
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http://www.google.co.in/
http://moneycontrol.com
http://www.scribd.com
www.AllBusiness.com
http://www.reuters.com/finance/stocks/ratio
file://bankr/Finance%20and%20Investment%20Banking
file:///F:/sbi%20bankr/CapitalMarket.com