INDEX

Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. Contents Executive Summary Introduction to merchant banking Origin of merchant banking Objective of doing this project Need & importance of merchant banking in India Objectives of merchant banker Function of merchant bankers Types of issues What is IPO (initial public offering)? Role of merchant banker in issue management Role of merchant banker as a lead manager Regulatory framework Advantages of listing Problems of merchant bankers Scope of merchant banking services Challenges ahead Some past issues Growth of capital market Some corporate examples: Questionnaire Limitations of the project Conclusion Annexure Page No. 1 3 3 5 7 8 9 10 13 15 17 22 44 45 46 50 52 53 54 56 59 60 62

EXECUTIVE SUMMARY
In this competitive world, where banks and financial institutions are providing traditional services, now is a scenario where they need to retain customers by providing them some extra special services besides traditional services.

With the opening up of the economy, a number of private sector banks have joined the fray & are offering a plethora of products & services. Banking sector has made a tremendous growth in last few years. The main achievement of bank is participation in capital market through merchant banking activities. New issues coming day by day it is necessary for the regulator to create code & conduct for primary issues, secondary market, thus through merchant bankers are being allowed to enter in to capital market through Project management. Issue management Portfolio management service Counseling Bought out deals Venture financing

The main objective of this study is to learn new issue market activities procedures & to know importance of merchant bankers as sponsor of capital issues also to learn what are the duties & responsibilities of the merchant bankers as lead managers, underwriter, bankers to an issue, brokers to an issue, registrars to an issue and share transfer agents, debenture trustee, portfolio managers etc.

In todays world of competition in the banking service & products it is essential to generate more & more income from other fund based /non fund base activities. Also looking at todays scenario in stock market there are many public issues which have been successfully listed with the help of merchant bankers. Today it is difficult to go for public issue without the help of merchant banker. But there is some legal requirements, rules & regulations to be followed by these bankers otherwise there can be chances of default. SEBI has made code & conduct to be followed by all the financial intermediaries including merchant bankers.

INTRODUCTION TO MERCHANT BANKING

The Indian financial system is a vast universe. This universe is

regulated and supervised by two Government agencies under Ministry of Finance viz., RBI, SEBI. The economic reforms, being an integrated process, included deregulation of industry, liberalization on foreign investment, regime, restructuring and liberalization of trade, exchange rate

and tax policies, partial disinvestments of Government holdings in public sector companies and financial sector reforms. Securities market in India has frown exponential as measured in terms of amount raised from market, number of stock exchanges and other intermediaries, the number of listed stocks, market capitalization, trading volumes and price indices.

Origin:The term Merchant Banking has its origin in the trading methods of countries in the late eighteenth and early nineteenth century when tradetaking place was financed by bill of exchange drawn by merchanting houses. As international trade grew and other lesser-known names wanted to import goods from abroad, the established merchants lent their names to the newcomers by agreeing to accept bills of exchange on their behalf. The acceptance houses would charge a commission for this service. The second historical of Merchant Banks was the raising of capital for foreign Government through the issue of stocks and bonds. Therefore, Merchant Banks can be accepting houses or issuing houses or both. The term merchant banking is used differently in different countries and so there is no precise definition for it. In London, merchant banker refers to those who are members of British Merchant Banking and Securities House Association who carry on consultation, leasing, portfolio services, assets management, euro credit loan syndication etc. In America, merchant banking is concerned with mobilizing savings of people and directing the funds to business enterprise.

Dictionary meaning of merchant bank refers to an organization that underwrites corporate securities and advises such clients on issues like corporate mergers, etc. involved in the ownership of commercial ventures. This organization may be a bank, corporate body, firm or proprietary concern. Merchant banking although a nonbanking financial activity resembles banking function. The functions of merchant banking which originated ,& grew in Europe .the word Merchant banking originated among the Dutch Britain. The need for specialized merchant banking services was felt in India with the rapid growth in the number and size of the issue made in the primary market. The merchant banking services were started by foreign banks, namely the National Grindlays Bank in 1972 recommended the setting up of merchant banking institutions by commercial banks and financial institutions. This marked the beginning of specialized merchant banking in India. and was later on developed and professionalized in

OBJECTIVE OF DOING THIS PROJECT

As the student of BANKING AND INSURANCE, the main aim of this project is to know how merchant banks plays role in issues management, Basic objective of doing this project is to enlarge the knowledge relating to:

 How the merchant banking services originated in India? What were the need, importance and functions of the merchant banker? What are the different types of issues through which money is raised and what is the role of merchant banker in these issues? What is the regulatory framework prescribed by Securities and Exchange Board of India? What are the future scope, challenges and problems faced by merchant banker? The main objective of doing this project is to get the knowledge regarding how this all is practically done.

DEFINITION OF MERCHANT BANKER

According to the securities and exchange board of India (Merchant Bankers) Rules, 1992

A merchant banker has been defined as any person 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, advisor or rendering corporate advisory service in relation to such issue management. A set of financial institution that are engaged in providing specialist services, which generally include the acceptance of bills of exchange, corporate finance, portfolio & issue management and other banking services, are known as Merchant bankers . A merchant banker may specialize in one activity, and take up other activities, which may be complementary or support to the specialized activity.

NEED & IMPORTANCE OF MERCHANT BANKING IN INDIA

1) Important reason for the growth of merchant banking has been the

developmental activity throughout the country, exerting excess

demand on the sources of funds for ever expanding industry and trade, thus, leaving a widening gap unabridged between the supply and demand of investible funds. 2) All India financial institutions had experienced resource constraint to meet the ever-increasing demand for funds from the corporate sector enterprises. 3) With the growing demand for funds there was pressure on capital market that enthused the commercial banks, share brokers and financial consultancy firms to enter into the field of merchant banking and share the growing capital market. 4) The need of merchant banking institutions is felt in the wake of huge public savings lying still untapped 5) Merchant banks have been procuring impressive support from capital market for the corporate sector for financing their projects. This is evidenced from the increasing amount raised from the capital market by the corporate enterprises year after year.

OBJECTIVES OF MERCHANT BANKER

Merchant Banker plays a vital role in the economic and financial development of the country. As a result of economic and financial liberalization new companies are formed and number of issues floated to raise resources from the investor community.

Considering the significance of the issue the Government of India instituted SEBI in 1990 to regulate and control various market intermediaries. SEBI issued various rules and regulations for each and every segment of the capital market. To regulate Merchant bankers, with the twin objective viz., investor protection and development of the capital market, SEBI issued rules and regulations for Merchant Bankers. Subsequent amendments also have been made to these regulations to further strengthen this segment of the securities industry. These regulations (Merchant Banking) specified that every company desires to float an issue to the public should engage Merchant Banker (Registered under these regulations with SEBI) as Lead Manager. In this context Merchant Banker gained the importance in the Indian Securities Industry. Having given a serious and careful thought to securities industry reforms, SEBI has taken efforts seriously to boost the splendid endeavor of securities market intermediaries. As a result, Merchant Bankers came into being to look after the promotion and administration of issues. It is well known fact that without adequate professional support of Merchant Bankers the securities industry cannot prosper.

FUNCTION OF MERCHANT BANKERS

Among the important financial intermediaries are the merchant bankers. The services of Merchant bankers have been identified in India with just issue management. It is quite common to come across reference to merchant banking and financial services as though they are distinct

categories. The services provided by merchant banks depend on their inclination and resources - technical and financial. Merchant banking, being a service-oriented industry, renders the same services in India as merchant banks in UK and other European countries. In the U.S. investment bankers cater to the needs of business enterprises carrying out merchant banking functions. Merchant banks in India carry out the following functions and services: 1. Corporate Counselling 2. Project Counselling 3. Pre-investment studies 4. Capital Restructuring 5. Credit Syndication and Project Finance 6. Issue Management and underwriting 7. Portfolio Management 8. Working Capital Finance 9. Acceptance Credit and Bill Discounting
10. Mergers, Amalgamations and takeovers 11. Venture Capital 12. Lease Financing

TYPES OF ISSUES
1) Public issues - Public issues of securities, debentures or shares are made in the primary market. The funds mobilized through primary market constitute investment. An offer to public is made through issue of prospectus or subscribed directly. Different media newspapers televisions periodicals

are used for publicity. The intermediaries who organize these activities are merchant bankers. In past stock brokers used to organize public issue. Initial issues are issues of shares for the first time either after incorporation or conversion from private limited to public limited company. The initial as well as further issues may be offered for cash subscription or for consideration other than cash such as change of ownership either of physical assets or technical know-how. Public issues can be further classified into Initial Public offerings and follow on public offerings. In a public offering, the issuer makes an offer for new investors to enter its shareholding family. a) Initial Public Offering (IPO) is when an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public. This paves way for listing and trading of the issuers securities.

b) A follow on public offering (FPO) is when an already listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. An offer for sale in such scenario is allowed only if it is made to satisfy listing or continuous listing obligations
Size of the issue, including intended Amount / Rate of fees retention of oversubscription

Less than or equal to one crore A flat charge of ten thousand rupees rupees. (Rs.10,000/-). More than one crore rupees, but less 0.1 per cent. of the issue size. than or equal to five thousand crore rupees. More than five thousand crore rupees, Five crore rupees (Rs.5,00,00,000/-) plus but less than or equal to twenty five 0.025 per cent of the portion of the issue thousand crore rupees. size in excess of five thousand crore rupees (Rs.5000,00,00,000/-). More than twenty five thousand crore A rupees. flat charge of ten crore rupees (Rs.10,00,00,000/-).

2) Exchange issue - An exchange issue is one in which shares of one company are exchanged for another as in case of takeover and mergers. It does not add to funds of the company making the exchange although the merger may result in synergy. Another form of issue that does not result in raising new funds is the bonus issues. Bonus shares are distributed to determine proportion to existing shareholders. 3) Right issues - Right issue is the issue of new shares in which existing shareholders are given pre-emptive rights to subscribe to new issue. They are issued at a premium, which is freely determined by the company making the issue. It is when a listed company which proposes to issue fresh securities to its existing shareholders as on a record date. The rights are normally offered in a particular ratio to the number of securities held prior to the issue. This route is best suited for companies who would like to raise capital without diluting stake of its existing shareholders unless they do not intend to subscribe to their entitlements.

Size

of

the

issue, retention

including Amount / Rate of fees of

intended

oversubscription Less than or equal to two crores A flat charge of ten thousand rupees rupees. less than or equal to five hundreds crores rupees. More than five hundreds crores A flat charge of twenty five lakhs rupees rupees. (Rs.25, 00, 000/-). (Rs.10,000/-). 1More than two crores rupees and 0.05 per cent of the issue size.

4) Preferential issue - It is an issue of shares or of convertible securities by listed companies to a select group of persons under Section 81 of the Companies Act, 1956 which is neither a rights issue nor a public issue. This is a faster way for a company to raise equity capital.

WHAT IS IPO (INITIAL PUBLIC OFFERING)?

The first public offer of securities by a company after its inception is known as Initial Public Offering (IPO).As a financing strategy; its main purpose is to raise funds for the company. REASON FOR GOING PUBLIC: 1) To raise funds for financing capital expenditure needs like

expansion, diversification, etc.

2) 3) 4)

To finance increased working capital requirement. As an exit route for existing investors. For debt financing.

ADVANTAGES: 1) 2) 3) 4) The IPO provides avenues for funding future needs of the It provides liquidity for the existing shares. The reputation and visibility of the company increases. Additional incentive for employees in the form of of the

company.

companys stocks if offered through Employees Stock Option Plans (ESOP). 5) It commands better valuation for company.

PROCESS OF INITIAL PUBLIC OFFERINGS (IPO):

Selection of Merchant Banker Issue of Prospectus

Receipt of Applications and Collection Of Application Money

Collection of Minimum Subscription

Non Collection of Minimum

Under Subscription

Par Subscription

Over Subscription

Refund Of Application Money

Establish underwriters Liability

Rejection of some Applications

Allotment of Shares

ROLE OF MERCHANT BANKER IN ISSUE MANAGEMENT

The public issue of securities is the core of merchant banking function. A one time merchant banking was constructed as the sole function. Merchant bankers were identified as issue houses WHAT IS ISSUE MANAGEMENT? The new issue market/activity was regulated by the controller of capital issues (CCIs) under the provisions of the capital issues (Control) Act, 1947 and the exemption orders and rules made under it. And under act, the protection of that interest of the investors in securities market and promotion of the development and regulation of the market became the responsibility of the SEBI. To tone up the operations of the new issues in the country; it has put in place rigorous measures. These cover both the major intermediaries as well as the activities. The project focus on the lead managers, underwriters, bankers to an issue, registrars and share transfer agents, debentures trustees, and portfolio managers. ISSUES MANAGEMENT

Pre issues management

Post issues management

Issue through prospectus, offer for sale and private placement, They usually render the Marketing and underwriting services: issues. Pricing of

Dealing with stock exchange, Collection of subscriptions,

following

Allotment and dispatch of shares/refund Orders through registrar to the issue.

1) Drafting of prospectus and getting it approves from the stock exchanges. 2) Obtaining consent/acknowledgement from SEBI. 3) Appointing bankers, underwriters, brokers, advertisers, printers etc. 4) Obtaining the consent of all the agencies involved in the public issue. 5) Holding road shows, to sell the issue. These shows are held for the analysts, brokers & institutional investors. The purpose of these shows is to answer queries from these people about the company and the project for which the funds are being raised. 6) Deciding the pattern of advertising. 7) Deciding the branches where application money should be collected. 8) Deciding the dates of opening and closing of the issue. 9) Obtaining the daily report of application money collected at various branches. 10) 11) Obtaining subscription to the issue. After the close of the issue, obtaining consent of stock

exchange for deciding basis of allotment etc. The merchant bankers offer following services during the public issues:
1) Preparing an action plan and budget for the total expenses for the

issue. Preparation of application to SEBI and assistance in obtaining the consent from SEBI. Drafting of the prospectus.
2) Selection of underwriters. Brokers, bankers to the issue advertising

agency for publicity etc.

ROLE OF MERCHANT BANKER AS A LEAD MANAGER

The importance of merchant bankers as sponsors of capital issues is reflected in their major services such as, determining the composition of the capital structure(type of securities to be issued), draft of prospectus(offer documents)and application forms, compliance with procedural formalities, appointments of registrars, listing of securities, arrangement of underwriting/sub- underwriting , placing of issues, and so on. In the view of the overwhelming importance of merchant bankers in the process of capital issues, it is now mandatory that all public issues should be managed by merchant bankers functioning as lead managers. REGISTRATION - Merchant bankers require compulsory registration with the SEBI to carryout their activities. Earlier they fell under four categories.
a) Category 1 Merchant banker could 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, and refund of the securities.
b)

Category 2 merchant bankers could act as advisors, consultants, comanagers, underwriters and portfolio managers;

c) Category 3 merchant bankers could act as underwriters, advisors, and

consultants to an issue. Thus only category 1 merchant bankers could act as lead managers to an issue. To carry on activities as underwriters and portfolio managers, they have to obtain separate certificates of registration from the SEBI.

GRANT OF CERTIFICATE -The SEBI grants a certificate of registration if a) Merchant bankers should also be a body corporate other than a nonbanking financial company. b) They are expected to have the necessary infrastructure like office, space, manpower etc. c) Have recognized professional qualification in finance, law or business management and or their registration is in the interest of the investors. CAPITAL ADEQUACY REQUIREMENT- The minimum net worth requirement for each category was: Rs5 crore (category 1), Rs 0.5 crore (category 2), Rs 0.2 crore (category 3) and nil for category. REGISTRATION FEE a) Category 1 Rs 2.5 lakh annually, for the first 2 years and Rs 1 lakh for

the 3rd year

b) Category 2: Rs 1.5 lakh annually, for the first 2 years and Rs 50,000

for the 3rd year.

c) Category 3: Rs 1 lakh annually, for the first 2 years and Rs 25,000 for

the 3rd year.

d) Category 4: Rs 5000, annually, for the first 2 years and Rs 1,000 for

the 3rd year. Since 1999, the registration fee was raised to Rs 5 lakh.

RENEWAL FEE - The original registration of merchant bankers was for three years it should be renewed for further period of three years each. The merchant banker had to apply for renewal of his registration three months before the expiry of the period of registration. The schedule of renewal fees was as follows
Category of merchant bankers V Rs 1,00,000 5,000 50,000 5,000 Rs 20,000 10,000 5,000 2,000 First two years Third year

CODE AND CONDUCT FOR MERCHANT BANKERS - merchant banker should: a) Make all efforts to protect interest of the investors.
b) Maintain high standards of integrity, dignity and fairness in the

conduct of its business. c) Ensure that adequate disclosures are made to the investors in timely manner in accordance with the applicable regulations and guidelines. d) To ensure that the investors are provided with true and adequate information without making any misleading or any misrepresentation and are made aware of the attendant risk before taking any investment decision.

e) To ensure that the copies of the prospectus, offer document, letter of offer or any other related literature is made available to the investors at the time or the offer. f) Not to make any statement, either oral or written, this would misrepresent the services that the merchant banker is capable of performing for any client or has rendered to any client. g) Avoid conflict of interest and make adequate disclosure of its interest. h) Always to render the best possible advice to the clients having regard to their needs. i) Maintain arms length relationship between its merchant banking activity and any other activity. j) Not to make untrue statement or suppress any material fact in any documents, reports or information furnished to the SEBI. k) Maintain appropriate level of knowledge and competence and abide by the provisions of the SEBI Act/regulation/circulars and guidelines. l) Provide adequate freedom and powers of its compliance officer for the effective discharge of his duties. m) Ensure that good corporate policies and corporate governance are in place. n) 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 act, professional misconduct or omissions

RESTRICTION ON BUSINESS - No merchant banker, other than a bank/public financial institution (PFI) is permitted to carry on business other than that in the securities market. MAXIMUM NUMBER OF LEAD MANAGERS - The maximum number of lead managers is related to the size of the issue. For an issue of a size less than Rs50 crore, two lead managers are appointed. for size groups of Rs 50 crore to Rs 100 crore and Rs 100 crore to Rs 200 crore, the maximum lead managers required are 3 and 4 respectively. RESPONSIBILITYES OF LEAD MANAGERS - Every lead manager has to enter into an agreement with the issuing companies, setting out their mutual rights, liabilities and obligations relating to such issues, and in particular to disclosures allotment and refund. It is necessary for a lead manager to accept a minimum underwriting obligation of 5 per cent of the total underwriting commitment or Rs 25 lacks, whichever is lesser.

REGULATORY FRAMEWORK
Operational Guidelines - SEBI has pronounced the following guidelines for compliance by the eligible merchant bankers: 1) Submission of offer document a) The offer documents of issue size up to Rs.20 crores shall be filed by lead merchant bankers with the concerned regional office of the board under the jurisdiction of which the registered office of the issuer company falls. According to the Guidelines, the draft offer document filed with the Board shall be made by public. b) The lead merchant banker shall make available 10 copies of the draft offer document to the board and 25 copies to the stock exchange(s) where the issue is proposed to be listed. Copies of the draft offer document shall be made available to the public by the lead merchant bankers/stock exchange. The lead merchant banker and the stock exchange(s) may charge a reasonable charge for providing a copy of the draft offer document. c) The lead merchant banker shall also submit to the board the draft offer document on a computer floppy in the specified in schedule. Along with the floppy, the lead manager shall submit an undertaking to SEBI certifying that the contents of the floppy are in HTML format, and are identical to the printed version of the prospectus/ letter of offer filed

with the Registrar of Companies/ concerned Stock Exchanges(s), as the case may be. d) The Lead Merchant Banker shall submit two copies of the printed copy of the final offer document dealing offices of the Board within three days of filing offer document with Registrar of Companies/concerned Stock Exchange(s) as the case may be. e) Whenever offer documents (for public/rights issues, takeovers or for any other purposes) are filed with any Department/office of the board, the following details certified as correct shall be given by the lead merchant banker in the forwarding letters; Registration Number Date of Registration/Renewal of registration Date of expiry of registration If applied for renewal, date of application Any communication from the Board prohibiting them acting as a merchant banker Any inquiry/investigation being conducted by the board Period up to which registration/renewal fees has been paid Whether any promoter/director/group and/or associate company of the issuer company is associated with securities-related business and registered with SEBI If any one or more of these persons/entities are registered with SEBI, their respective registration numbers

 Details of any enquiry/investigation conducted by SEBI at any time. Penalty imposed by SEBI (Penalty includes deficiency/warning letter. adjudication proceedings suspension/ cancellation/ prohibitory orders) Outstanding fees payable to SEBI by these entities, if any Offer documents not accompanied by the information as contained above may be rejected. Lead Merchant bankers shall obtain similar information from their intermediaries to ensure that they comply with these guidelines and are eligible to be associated with a letter concerned issue. The intermediaries shall also indicate in their letters that they have obtained such information from other intermediaries. 2) Dispatch of issue material - Lead merchant bankers shall ensure that whatever there is a reservation for NRIs, 10 copies of the prospectus together with 1000 application forms are dispatched in advance of the issue opening date, directly along with a letter addressed in person to Advisor (NRI). Twenty copies of the prospectus and application form shall be dispatch in advance of the issue opening date to the various Investors Associations. 3) Underwriting - While selecting underwriters and finalizing underwriting arrangements, lead merchant bankers shall that the underwriters do not overexpose themselves so that it becomes difficult to fulfill their underwriting commitments. The overall exposure of underwriter(s) belonging to the same group or management in an issue shall be assessed carefully by the lead merchant banker.

4) Compliance obligations -The merchant banker shall ensure compliance with the following post-issue obligations:
a) Association of resource personnel - In case of oversubscription in

public issues, a Board nominated public representative shall be associated in the process of finalization of the basis of allotment. The lead merchant banker shall intimate to the person so nominated the date, time, venue etc regarding the process of finalization of the basis of allotment.
b) Redressal of investor grievances - The merchant bankers shall

assign high priority to investor grievances, and take all preventive steps to minimize the number of complaints. The lead merchants banker shall set up a proper grievance monitoring and redressal system in coordination with the issuers and the registrars to issue. They shall take all necessary measures to resolve the grievance quickly. They shall actively associate with post-issue refund and allotment activities, and regularly monitor investor grievance arising thereform.
c) Submission of post issue monitoring reports - The concerned lead

merchant banker shall submit, its duplicate, the Post Issue Monitoring Reports within 3 working days from the due dates, either

by registered post or deliver them at the respective regional offices/head office. Where the offer documents have been dealt with by any of the regional offices of the board, a copy of the report shall be sent to the Boards Head office, Mumbai. The Lead Merchant Banker(s) shall inform the Board on important development about the particular issues being lead managed by them during the period intervening the reports.
d) Issue of NO objection certificate (NOC) - In accordance with

Listing Agreement of the Stock Exchanges, the issuer companies shall deposit 1% of the amount of securities offered to the public and/or to the holders of the existing securities of the company, as the case may be, with the regional Stock Exchange. The securities can be released by the concerned Stock Exchange only after obtaining an NOC from the board. An application for NOC shall be submitted by the issuer company to the Board in the format specified in the guidelines.
e) Registration of merchant bankers - Application for renewal of

certificate of registration shall be made by the merchant bankers according to regulation 9 of SEBI (Merchant Bankers) Rules and Regulations, 1992. While filing the renewal application for the certificate of registration as merchant banker, it shall provide a statement highlighting the changes that have taken place in the information that was submitted to the Board for the earlier registration, and a declaration stating that no other changes besides those mentioned in the above statement have taken place.

Merchant Bankers, while forwarding the renewal application in form A of the SEBI (Merchant Bankers) Rules and Regulations, 1992, shall also forward the additional information as specified in Schedule. Registered Merchant Bankers shall inform the Board of their having become a member of AMBI, with the relevant details.

f) Reporting requirements - Penalty points may be imposed on the

merchant banker for violation of any of the provision for operational guidelines. The report referred shall be submitted twice a year, on March 31 and September 30, and it should reach the Board within three months from the close of the period to which it relates.
g) Imposition of penalty points - Penalty points may be imposed on the

merchant banker for violation of any of the provision for operational guidelines. The merchant banker, on whom penalty points of four or more has been imposed, may be restrained from filing any offer document or associating or managing any issues for a particular period. The Board may initiate action under the SEBI (Merchant Bankers) Regulation against the merchant bankers, irrespective of whether any Penalty point is imposed or not. Imposition of penalty point is not a precondition for initiation of proceeding against the merchant banker under the SEBI Regulations.

Pre-Issue Obligations
1. Obligations a) The lead merchant banker shall exercise due diligence b) The merchant banker shall be satisfied about all the aspects of offering, veracity and adequacy of disclosure in the offer documents c) The liability of the merchant banker shall continue even after the completion of the issue process
d) The lead merchant banker shall pay the requisite fee in accordance

with Regulation of SEBI (Merchant Bankers) Rules and Regulations, 1992 along with the draft offer document filed with the Board. 2. Documents to be submitted The following documents are to be submitted along with the Offer Document by the Lead Manager: a) Memorandum of Understanding (MOU) - No company shall issue securities through a public or rights issue unless a Memorandum of Understanding has been entered into between a lead merchant banker and the issuer company specifying their mutual rights liabilities and obligations relating to the issue. The MOU shall contain such clauses as are specified in Schedule I and other such clauses as considered necessary by the lead merchant banker and the issuer company. The MOU shall not contain any clause whereby the liabilities and obligations of the lead merchant banker and Issuer Company under Companies Act, 1956 and SEBI (Merchant Bankers) Rules and Regulations, 1992 are diminished in any way. The lead merchant banker responsible for drafting the offer the offer documents shall ensure that

a copy of the MOU is submitted to the Board along with the draft offer documents. In case a public or rights issue is managed by more than one Merchant banker, the rights obligations and responsibilities of each merchant banker shall be demarcated as specified in schedule In case of under-subscription of an issue, the lead merchant Banker, responsible for underwriting arrangements, shall invoke underwriting pay the amount of development. The same shall be incorporated in the inter-se allocation of responsibilities (Schedule II) accompanying the due diligence certificates submitted by the lead merchant banker to the Board. b) Due diligence certificate - The lead merchant banker shall furnish to the Board a due diligence certificate along with the draft prospectus. Besides, the lead merchant banker shall also certify that all amendments, suggestions or observations made by the Board have been incorporated in the offer document. They have to furnish a fresh due diligence certificate at the time of filing the prospectus with the Registrar of companies in the format specified, furnish a fresh certificate, immediately before the opening of the issue has opened but before it close for subscription. c) Certificate signed by professionals - The lead merchant banker shall furnish the following certificates duly signed by the company secretaries or Chartered Accountants along with the draft offer documents. That all refund orders of the previous issues were dispatched within the prescribed time and in the prescribed manner.

 That all security certificates were dispatched to the allottees within the

prescribed time and in the prescribed manner. Those securities were listed on the stock exchanges, as specified in offer documents. d) Undertaking - The issuer shall submit an undertaking to the Board to the effect that transactions in securities by the promoter, the promoter group and the immediate relatives of the promoters during the period between the date of filing the offer documents with the Registrar of Companies or Stock Exchanges as the case may be and the date of closure of the issue, shall be reported to the stock exchanges concerned within 24 hours of the transaction. e) List of premium Group - The issuer shall submit to the Board a list of persons who constitute the Promoters Group and their individual shareholdings. 3. Appointment of intermediaries
a) Appointment of merchant bankers - A merchant banker who is

associated with the issuer company, as a promoter or a director, shall not lead-manage the issue of the company. The lead merchant banker holding the securities of the issue company may lead-manage the issue if the securities of the issue company, are listed, or proposed to be appointed, as specified in the offer document.
b) Appointment of co-manager -The lead merchant banker shall ensure

that the number of co-managers to an issue does not exceed the number of lead merchant banker to the said issue, and that there is only one advisor to the issue.

c) Appointment of other intermediaries -The lead merchant shall

ensure that the other intermediaries being appointed are duly registered with the Board, wherever applicable. Before advising the issuer on the appointment of other intermediaries, the lead merchant banker shall independently assess the capability and the capacity of the various intermediaries to carry out the assignment. The lead merchant banker shall ensure that the issuer companies enter into a Memorandum of Understanding with the intermediary(ies) concerned, whenever required. The lead merchant banker shall ensure that Bankers to the issue are appointed in all the mandatory collection centres as specified. The lead merchant banker shall not act as a Registrar to an issue in which it is also handling the post issue responsibilities.

The Lead Merchant Bankers shall that the Registrars to Issue registered with the Board are appointed, in all public issues and right issues. In cases where the issuer company is a registered Registrar to an issue, the issuer shall appoint an independent outside Registrar to process its issue. The lead merchant banker shall ensure that the Registrars to an issue which is associated with the issuer company as a promoter or a director shall not act as Registrar for the issue company. Where the number of application in a public issue is expected to be large, the issuer company, in consultation with the lead merchant banker, may associate one or more Registrars registered with the Board for the limited purpose of collecting the application forms at different centers and forward the same to the designated

Registrar to the Issue, as mentioned in the offer document. The designated Registrar to the Issue shall be solely responsible for all the activities assigned to them for the issue management.
4.

Underwriting The lead merchant banker shall satisfy themselves about the ability of

the underwriters to discharge their underwriting obligations. In this respect, the lead merchant banker shall incorporate a statement in the offer document to the effect that in the opinion of the lead merchant banker, the underwriters assets are adequate to meet their underwriting obligations. They would have to obtain underwriters written consent before including their names as underwriters in the final offer document. In respect of every underwritten issue, the lead merchant banker(s) shall undertake a minimum underwriting obligation of 5% of the total underwriting commitment, or RS. 25Lacs, whichever is less. The outstanding underwriting commitments of a merchant banker shall not exceed 20 times the net worth at any point of time. In respect of an underwritten issue, the lead merchant banker shall ensure that the relevant details of underwriters issue, the lead merchant banker shall ensure that the relevant details of underwriters are included in the offer document.
5. Offer documents to be made public -The draft offer documents filed

with the Board shall be made public for a period of 21 days from the date of filing the offer document with the Board. The lead merchant banker shall simultaneously file copies of the draft offer document with the stock exchanges where the securities offered through the

issue are proposed to be listed, and make copies of the offer document available to the public. Lead merchant banker or stock exchanges may charge an appropriate sum for a copy of offer documents.
6. Dispatch of issue material -The lead merchant banker shall ensure

that public issue offer documents and other related materials are dispatched to the various stock exchanges, brokers, underwriters, bankers to the issue, investors associations, etc in advance. In the case of rights issues, the lead merchant banker shall ensure that the letters of offer are dispatched to all shareholders at least one week before the date of opening of the issue.
7. No complaints certificate After a period of 21 days from the date

the draft offer documents is made public, the lead merchant banker shall file a statement with the Board giving a list of complaints received by it a statement by it whether it is proposed to amend the draft offer document or not, and highlight those amendments.

8. Mandatory collection centers The minimum number of collection

centers for an issue of capital shall be the four metropolitan centers situated at Mumbai, Delhi, and Chennai, and in addition, all such centers where stock exchanges are located in the region in which the registered office of the company is situated. The issuer company shall be free to appoint as many collection centers as it may deem fit in addition to the above minimum requirements.

9. Authorised collection agents -The issuer company can also appoint

authorized collection agents in consultation with lead merchant banker, subject to necessary disclosures including the names and address of such agents made in the offer document. The modalities of selection and appointment of collection agents can be made at the discretion of the lead merchant banker. They shall ensure that the collection agents so selected are properly equipped for the purpose, both in terms of infrastructure and manpower requirements.

The collection agents may collect applications that are accompanied by payment through cheques, draft and stock invests. The Authorised collection agent shall not collect the application money in cash. The collected application shall be deposited in the special share application account with the designated scheduled bank either on the same date or latest by the next working day. The application forms, along with duly reconciled schedules, shall be forwarded by the collection agent to the registrars to the Issue after realisation of cheques, and after weeding out the invalid applications, within period of 2 weeks from the date of closure of the public issue. The application forms, along with duly reconciled schedules, shall be forwarded by the collection agent to the registrars to the issue after realisation of cheques, and after weeding out the invalid application, within period of 2 weeks from the date of closure of the public issue.

The application accompanied by stock-invests shall be sent by the collection agent directly to the Registrars to the issue along with the schedules, within one week from the date of closure of the issue. The offer documents and application forms shall specifically indicates that the acknowledgement of receipt of application money, given by the collection agents, shall be invalid and binding on the issuer company and any other person connected with the issue.

The investors from places other than where the mandatory collection agents are located, can forward their applications along with the stock invests to the Registrars to the issue directly by registered post with acknowledgement due. The Registrars shall deal with the applications received through registered post to the issue in the normal course.

10. Advertisement for rights post issues -The lead merchant banker

shall ensure that in the case of rights issue, an advertisement giving the date of completion of dispatch of offer letters, shall be released in a least one English National Daily with wide circulation, one Hindi National Paper, and a Regional language daily circulated at the place where registered office of the issuer company is situated, at least 7 days before the date of opening of the issue.

The advertisement shall indicate centers other than registered office of the company where the shareholders or other eligible persons may obtain duplicate copies of the composite application forms in case the original application forms are not received even within a reasonable time after the opening of the rights issue. If the shareholder have neither received the original composite application forms nor are they in a position to obtain the duplicate forms, they may make application to subscribe to the rights on plain paper. The advertisement shall also contain a format to enable the shareholders to make the application on a plain paper containing the necessary particulars like name, address, ratio of rights issue, issue price, number of shares held, ledger folio numbers, number of shares entitled and applied for, additional shares if any, amount to be paid along with the application, particular of cheques, etc. The advertisement shall further mention that application by the shareholder can be directly sent through registered post, along with the application money, to the companys designated official address as given in the advertisement. The advertisement may also invite the attention of the shareholder application made other than on the standard form shall not be entitled to renounce their rights and shall not utilize the standard form for any purpose including renunciation, even if it is received subsequently, If the shareholder makes an application on plain paper and also in standard form, both the applications may be rejected.
11. Appointment of compliance officer-An issuer company shall

appoint a compliance officer who shall directly with the Board

regarding compliance with various laws, rules, regulations and other directives issued by the Board, besides matter related to investors complaints. The name of the compliance officer so appointed shall be intimated to the board.

12.Abridged prospectusThe lead merchant banker shall ensure the following:

a) Every application form distributed by the issuer company, or anyone

else, is accompanied by a copy of the abridged prospectus.

b) The application form may be stapled to form part of the abridged

prospectus. Alternatively, it may be a perforated part of the abridged prospectus. c) The abridged prospectus shall not contain matters which are extraneous to the contents of the prospectus. d) The abridged prospectus shall be printed at least in point 7 size, with proper spacing. e) Enough space shall be provided in the application form to enable the investors to fill in various details like name, address, etc.
13. Agreement with depositories -The lead manager shall ensure that the

issuer company has entered into agreements with all the depositors for dematerialization of form through any of the depositories. 14. Books of Account/Record/Documents - A banker to an issue is

required to maintain books of accounts/records for a minimum period of

three years, in respect of applications received, the names of investors, he time within which applications received were forwarded to the issuing company/registrar to an issue and dates and amounts of refund money to investors.

Post-Issue Obligation
1. Post - issue monitoring reports - Irrespective of the level of

subscription, the post-issue lead merchant banker shall ensure the submission of the post-issue monitoring reports. These reports shall be submitted within 3 working days from the due dates. Following are the reports to be submitted with regard to Public Issues:

3-day post-issue monitoring report - The due date for this report 78-day post-issue monitoring report - The due date for this

shall be the 3rd day from the date of closure of subscription of the issue.

report shall be the 78th day from the date of closure of subscription of the issue. Following are the reports to be submitted with regard to Rights Issues:

3-day post-issue monitoring report - The due date for this shall be 50-day post-issue monitoring report -The due date for this report

the 3rd from the date of closure of subscription of the issue.

shall be the 50th day from the date of closure of subscription of the issue.
2. Redressal of investor grievances -The post-issue lead merchant banker

shall actively associate with post-issue activities namely, allotment, refund, allotment, refund and dispatch and shall regularly monitor redressal of investor grievances arising thereform.

3. Coordination with intermediaries The Post-Issue lead merchant

banker shall maintain close coordination with the Registrar to the issue, and arrange to depute its officers to the offices of the various intermediaries at regular intervals after the closure of the issue in order to monitor the flow of applications from the collecting bank branches, processing of the applications including those accompanied by stockinvest and other matters until the basis of allotment is finalized, dispatch security certificates an refund orders completed and securities listed. Any act of omission or commission on the part of any of the intermediaries noticed during such visits shall be duly reported to the board.

4. Stock-invest -The lead merchant banker shall ensure compliance with

the instruction issued by RBI or handling of stock invests any person including Registrars.

5. Underwriters -If the issue is proposed to be closed at the earliest closing

date, the lead merchant banker shall ensure that the issue is fully subscribed before announcing closure of the issue. In case there is no definite information about subscription figures, the issue shall be kept open for the required number of days to take care of the underwriters interest and to avoid any dispute, at a later date, by the underwriters in respect of their liability. In case there is a development on underwriters, the lead merchant banker shall ensure that the underwriters honor their commitments within 60 days from the date of closure of the issue. In case of under-subscribed issues, the lead merchant banker shall furnish information in respect of underwriters who have failed to meet their underwriting development to the board.
6. Banker to an issue -The post-issue lead merchant banker shall

ensure that the money received pursuant to the issue and kept in a separate bank (i.e. Bankers to an issue), in accordance with the provisions of section 73(3) of the companies Act 1956, is released by the said bank only after the listing permissions under the specific Section has been obtained form all the stock Exchanges where the offer document is proposed for the securities to be listed.

7. Post-issue advertisements The post-issue lead merchant

banker shall ensure that in all issues, the advertisement giving details relating to oversubscription, basis of allotment, number, value and percentage of applications received, along with stock

invest, number, value and percentage of successful allottees who have applied through stock-invest, date of completion of dispatch of refund orders, date of dispatch of certificates and date of filing listing applications, is released within 10 days from the date of completion of the various activities, in at least one English National Daily with wide circulation, one Hindi National Paper and a Regional language daily circulated at the place where the registered office of the issuer company is situated. The post-issue lead merchant banker shall ensure that the issuer

company/advisors/brokers or any other agencies connected with the issue do not publish any advertisement starting that the issue has been oversubscribed, or indicating the investors response to the issue, during the period when the public issue is still open to the public. Advertisement stating, The subscription to the issue has been closed may be issued after the actual closure of the issue.
8. Basis of allotment

-In a public issue of securities, the

Executive Director/Managing Director of the Regional Stock Exchange, along with the lead merchant banker and the Registrars to the Issue, shall ensure that the basis of allotment is finalized in a fair and proper manner.

9. Reservation for small individual applicants

-The above

proportionate allotments of securities in an issue that is

oversubscribed shall be subject to reservation for small individual application as described below: a) A minimum of 50% of the net offer of securities to the public shall initially be made available for allotments to individual applications who have applied for allotment equal to, or less than, 10 marketable lots of shares or debentures or securities offered, as the case may be. If the category of individual applicants applying for up to 10 marketable lots were entitled to 70% of the public offer in accordance with proportionate formula, the category should get 70%. If the category is entitled to get only 30% then there should be reservation of a minimum of 50% of the net public offer.

b) The balance net offer of securities to the public shall be made available for allotment to individual applicants who have applied for allotment of more than 10 marketable lots of shares, or debentures or the securities offered, and other investors including corporate bodies/institutions irrespective of the number of shares, debentures, etc applied for.

c) The unsubscribed portion of the net offer to any of the categories specified above shall/may be made available for allotment to applicants in the other category, if so required. The draw of lots, where required, to finalize the basis of allotment, shall be done in the presence of a public representative from the Governing Board

of the Regional Stock Exchange. The basis of allotment shall be signed by the Executive Director/Managing Director of the stock exchange and the public nominee (where applicable), in addition to the lead merchant banker and the Registrar to the Issue being responsible for post issue activities. The stock exchange shall invite the public representative, on a rotation basis, from the various public representatives on its governing board.
10. Other responsibilities-

a) The lead merchant banker shall ensure payment of interest to the applicants for delayed dispatch of allotment letters, refund orders, etc as prescribed in the offer document.

b) The post-issue lead merchant banker shall ensure that the dispatch of refund orders/allotment letters/ share certificates is done by way of registered post/certificate of posting, as may be applicable.

c) In case of all issues, advertisement, details relating to oversubscription, basis of allotment, number, value and percentage of orders, date of dispatch of certificates and date of completion of dispatch of certificates and date of filing of listing application shall be made. Such advertisement shall be released within 10 days from the date of completion of the various activities.

d) Post-issue lead merchant banker shall continue to be responsible for

post issue activities until the subscribes have received the

shares/debentures certificates, or refund of application money. The listing agreement is entered into by Issuer Company with the stock exchange and listing/trading permission is obtained.

11. Certificate regarding realization of stock-invests The post-

issue lead merchant banker shall submit, within two weeks from the date of allotment, a certificate to the Board certifying that the stock-invests on the basis of which allotment was finalized, have been realized.

ADVANTAGES OF LISTING
1) Listing means the admission of the securities of a public limited

company for trading on a stock exchange. The main objective of listing are to provide liquidity and free negotiability to securities, ensure proper supervision and control of dealings therein, and protect the interests of shareholders and of the general investing public.

2) Advantage top shareholders and company with regard to tax matters.

Higher status, expansion of activities and helps to grow by making future financing easier. 3) Companies also appoint the market makers on all stock exchanges where the securities are listed from time to time various rules and regulations are issued are stock exchange and company have to compiled with all this requirements. They mainly relate to the memorandum and articles of association, prospectus, norms about publicity, minimum public offer, and basis of allotment and execution of listing agreement.

PROBLEMS OF MERCHANT BANKERS

1) SEBI guidelines have authorised merchant bankers to undertake issue related activities only with an exception of portfolio management These guidelines have made the merchant bankers either to restrict

their activities or think of separating these activities from the present one and float new subsidiary and enlarge the scope of its activities.
2) SEBI guidelines stipulate a minimum net worth of Rs.1 crore for

authorisation of merchant bankers. Small but professional and specialised merchant bankers who do not have a net worth of Rs.1 crore may have to close down their 'business. The entry is denied to
y

oung, specialised professionals into merchant banking business.

3) Non co-operation of the issuing companies in timely allotment. of securities and refund of application money is another problem of merchant bankers. The guidelines have put the responsibility on the merchant bankers. They have to seek the co-operation of the issuing company to shoulder the responsibility.

SCOPE OF MERCHANT BANKING SERVICES

In the present dynamic environment where public money is playing a vital role in financing a large number of projects, both in the public and private sectors, Merchant Banking has a significant role in managing the show and meeting the growing demands for funds by the corporate sector.

Merchant Banking includes a whole gamut of activities which meet the needs of both corporate and individual investors. Merchant bankers act as a guide for the entrepreneurs who are unaware, or have little knowledge or experience, of the complexities involved in the above spheres. In addition to the above, the scope of Merchant Banking services has extended to providing advisory services to companies to increase or divest their stakes, public sector undertaking disinvestments, international issues, etc. With the OTCEI being operation now, Merchant Bankers will have a key role to play in terms of appraising the projects and offering two-way quotes for market making in case of entrepreneur going for listing in the above exchange. In the present day capital market scenario, the merchant banks play the role of an encouraging and supporting force to the entrepreneurs, corporate sectors and the investors. There is -vast scope for merchant bankers to enlarge their operations both in domestic and international market.

1. Growth of New Issues Market: The growth of new issue market is unprecedented since 1990-91 The amount of annual average of capital issues by non-government public companies was only about 90 crores in the 70s, the same rose to over Rs.1,000 crs in the 80s' and further to Rs.12,700 crores in the first four years of 1990's. This figure could be well beyond Rs.40,000 crores by the end of 1994-95. The number of capital issues has also

increased from 363 in 1990-91 to 900 in 1993-94. The trend is expected to continue in future. 2. Entry of Foreign Investors: An outstanding development in the history of Indian capital market was its opening up in 1992 by allowing foreign institutional investors to invest in primary and secondary market and also permitting Indian companies to directly tap foreign capital through euro issues. Within two years to March 1994, the total inflow of foreign capital through these routes reached to about $5 billion. It is estimated that this figure may go up to $ 35-40 billion by the turn of this century. Further, foreign direct investments as also investment by NRIs have risen considerably due to number of incentives offered to them. 3. Changing Policy of Financial Institutions: With the changing emphasis in the lending policies of financial institutions from security orientation to project orientation, corporate enterprises would require the expert services of merchant bankers for project appraisal, financial management etc. The policy of decentralisation and encouragement of small and medium industries will further increase the demand for technical and financial services which can be provided by merchant bankers. 4. Development of Debt Market: The concept of debt market has set to work through National Stock Exchange and the Over the Counter Exchange of India. Experts feel that of the estimated capital issues of Rs.40, 000 crores in 1994-95, a good portion may be raised through debt instruments. The development of debt market will offer tremendous opportunity to Merchant

Bankers. 5. Innovations in Financial Instruments: The Indian capital market has witnessed innovations in the introduction of financial instruments such as non-convertible debentures with detachable warrants, cumulative convertible preference shares, zero coupon bonds, deep discount bonds, triple option bonds, secured premium notes, floating rate bonds, auction rated debentures etc. This has further extended the role of Merchant Bankers as market makers for these instruments. 6. Corporate Restructuring: As a result of liberalisation and globalisation the competition in the corporate sector is becoming intense. To survive in the competition, companies are reviewing their strategies, structure and functioning. This had led to corporate restructuring including mergers, acquisitions, splits, disinvestments and financial restructuring. This offers good opportunity to Merchant bankers to extend the area of their operations. 7. Disinvestment: The government raised Rs.2000 crores through disinvestment of equity shares of selected public sector undertakings in 1993-94. The government proposes to shift the present method of periodic sale of public sector shares to round the year off loading of shares directly on the stock exchange from the year 1995-96. The government will sell the shares of identified public sector at any time during the year when they get a good price above minimum stipulated level. This is likely to provide good business to Merchant Bankers in future.

Ranking of Merchant Banking in India:

Note: OE: Overall Excellence; FSS: Financial Soundness ; QPS: Quality Product/Service; QM: Quality Management; INN: Innovativeness.

Merchant Banker ICICI Securities IDBI SBI Caps DPS IFCI Bank of Baroda Jardine Fleming JM Finance ENAM PNB Caps

OE 4.0 4.2

FSS 4.0 3.2

QPS 4.2 4.5 4.6. 6.0 6.0 6.7 5.9 5.5 6.4 6.7

QM 3.8 4.0 6.7 6.0 6.0 6.6 5.0 5.9 6.3 6.8

INN 4.3 4.8 5.2 5.3 6.3 6.8 5.5 5.4 6.2 6.8

4.4. 3.9 6.1 6.1 6.7 5.8 6.0 6.3 6.8 5.7 5.7 6.5 6.2 6.5 6.8 6.8

CHALLENGES AHEAD
1) Merchant bankers have to tap the opportunities lying ahead with the

developing pace of the economy. These opportunities arise in the form of challenges before the merchant bankers to test their skills, expertise and efforts to attune their activities with the programme of

economic development of the country, adopt new instruments and innovative means of financing to meet the growing financial requirements of the corporate clients. 2) Merchant bankers will have to conduct management of capital issues in a different fashion than what is being done at present. If small industries are to be provided the full benefit of their services of corporate counseling, project counseling and loan syndication than besides distributions of their securities to the public and arranging long-term institutional or banking finance for them, it would be necessary for merchant banks to make out-right purchase of capital issues in and to retain the purchased equity of the company till the implementation of the project, commencement of production and profitable working of the company when the issue may be treated as good for marketing to the general public, may be on premium, so as to make capital gains on that. 3) If the planned objective of economic decentralization and rapid development of rural economy is to be achieved merchant bankers will have to make expert efforts in the interest of the national economy by mobilizing the savings from the rural sector and creating avenues for its investment in rural areas in industry, trade and commerce in different shapes and different magnitudes 4) Merchant bankers have to find out ways and means for rehabilitating the sick industries and also devise the manner by which the running industry might be saved from going sick.

5) In the international field, where the public and private enterprises are entering to raise foreign currency resources, Indian counterparts have to depend upon the assistance of foreign merchant bankers. Indian merchant bankers, therefore, will have to sharpen their skills and attain the requisite expertise in the field of international merchant banking. 6) To tap the latest technology available internationally and procure the transfer of the technology to India, merchant bankers should frequently make-exploring tours to foreign countries, organize meetings and conferences with the Chamber of Commerce and Industry and other commercial, industrial and financial organizations so as to enthuse the foreigners to take interest in investment activity in India. 7) Merchant Bankers have reason to believe they will be handicapped without the marketing support. But the worst sufferer would be the investor, especially the small investor it is this class, which forms the backbone of the capital market. As a result of the ban, the small investor would be deprived of the opportunity to study the corporate profile of the Issuer. In the absence of adequate information, they will have to depend on manipulated facts and information fed by unreliable sources.

SOME PAST ISSUES

NAME ISSUE

BOOK LEAD MANAGER

DATE OF ISSUE

NO. G

OF ISSUE SIZE (LAKH SHARES) 100

FLOOR PRICE

ISSUE PRICE

OF THE RUNNING

BIDDIN CENTER S 20

Biocon Ltd

Kotak Mahindra 11/03/04 capital ltd,DSP co. to Mrrril 18/03/04

Rs. 270 To Rs. 315

Oil &Natural Gas on Ltd.

Lynch ltd. Kotak Mahindra 05/03/04 Capital Ltd.,DSP Lynch Pvt. 27/02/04 & to Ltd, JM Morgan Stanley Ltd. HSBC Securities Co. to 13/03/04

62

1425.933

Rs.680 To Rs.750

Rs.750 Rs.712.50 for

& retail

Corporati Merrill

investors

Gas Authority of Ltd. Patni Compute rs Systems Ltd.

36

845.6516

Rs.185

Rs195 185.25 retail investors Rs.230

& for

India Capital Markets 05/03/04 (India) Ltd DSP Merrill 27/01/04 Lynch Ltd.,Kotak Mahindra Capital Ltd. to 05/02/04 27 187.24 Rs.200 To Rs.230

GROWTH OF CAPITAL MARKET

2004-05

SOME CORPORATE EXAMPLES:

Initial public offerings (IPO) OF UNION BANK OF INDIA August 2002 - Union Bank of India, one of Indias largest public sector banks in the country which has achieved excellence in every sphere of banking and has emerged as a strong bank, hit the capital markets in August-2002 with an IPO of 18, 00,00,000 equity shares of Rs. 10 each for cash at premium of Rs. 6 per share (at an issue price of Rs. 16 per share ). Opened to public on Aug 20, 2002 and closed on Aug 28, 2002. For its IPO, the bank engaged a host of lead managers which included ICICI Securities, DSP Merrill Lynch, JP Morgan Stanley Private Ltd., SBI Capital Markets Ltd., etc. A majority of procedures was planned to be utilized to meet the growing demand for credit, and for funding its ambitious Information Technology programme. The issue was oversubscribed by five times, with the bank collecting an amount of Rs. 1,432 crores from the primary market. Initial public offerings (IPO) OF BIOCON INDIA BIOCON INDIA is the Indias first biotech IPO. The companys offer was for Rs. 10 million. The price band was between Rs. 270 and Rs. 315 per equity share of face value Rs. 5. The company received bids for more than 330 million shares. Issue was oversubscribed by 33 times. The issue opened on March 11, 2004 and closed on March 18, 2004. The shares were subscribed within 5 minutes of its opening. The lead managers were DSP Merrill Lynch, Kotak Mahindra Capital and HSBC Securities.

SECONDARY DATA

OBJECTIVE; Objective of this survey was to find whether issue management helped the investors in getting the benefits of the funds being handled by the expert portfolio manager and his services and thereby gaining higher returns from the funds invested. RESEARCH DESIGN: The method used for the survey was QUESTIONAIRE personal visit were made to a bank, and experts to get a more practical knowledge on this topic. RESERCH METHODOLOGY: This survey was aimed at finding out whether the investors are really benefited out of the issue management service. It also includes whether the investors and firms are really affected of these intermediaries. This question helps in finding out what is the role and effect of merchant banking activity in the issue management.

QUESTIONNAIRE

FREQUENTLY AKSED QUESTIONS 1) Do you find any change in the primary issue market as compare to the 1990s? A: Yes, there has been tremendous change in the primary issue market. Consequent upon the policy of liberalization adopted by the government in 1991 and the subsequent abolition of capital issues control 1992, the primary market got a tremendous boost. You can assume the growth from the size only ,in 1990-91 only around 300,in 1994-95 it was rose to 1500, however, the capital market was sluggish and there was prolonged bearish trend in the market due to securities scam. 2) Which is the popular method do you find for an IPO in Indian market? Can you give names of such issue? A: Now a days most of the companies enter in the securities market through 100% book building process. Where you can find Book Running Lead Manager (BRLM) and Co-Book Running Lead Manager (CBRLM) Examples you can have HUGHES SOFTWARE SYSTEM, HCL TECHNOLOGIES LTD, PETRONET LNG, ICICI BANK etc.

3) What type of difficulties do you face as a lead manager to any particular issue?

A: I personally find one is that there is wide gap of about 45 days between the date of final pricing and the date on which the issue opens, then issue is required to be marketed to the large number of retail investors, which involve big expense and if not marketed properly there are chances of under subscription. Also while allotting the shares to the public we face much difficulty due to insufficient information in the application form. 4) Does become a good lead manager affects the investors attitude towards any public issue? A: Yes, it affects the mind and attitude of the investor, I am not saying that having a support of good merchant banker gives guarantee to success but at the time of advertising of the public issue we publish the name of lead manager, that gives the basic idea about the genuineness of the issue.
5) Does the regulatory environment in India is efficient to control

and promote the merchant bankers? A: Yes, Consequent upon the policy of liberalization adopted by the government in 1991, and the subsequent abolition of capital issues control 1992, the primary market got a tremendous boost. After establishment of SEBI the market became more flexible and investors confidence have increased in current days, also SEBI is also promoting the primary and secondary market through various policies.

6) As being a portfolio manager where do you invest the clients money?

A: As our main object of portfolio is to reduce risk by diversification and maximize gains, we mostly invest clients money in a good rated company and we often invest their money sector wise also which is in boom in current market condition.
7) According to you, which sector does you think is booming to

invest the clients money? A: I think the IT sector and banking sector is the best option to invest the clients money. 8) So, as a merchant banker, where do you see IPO market after 10 years? What would you advice our investors? A: As I said before since 1991 our IPO market is under tremendous growth and in coming years there are chances of coming thousands of issues. And most of the companies will get success in the capital market if the market remains in this condition.

LIMITATIONS OF THE PROJECT

As far as my project is concerned, it was a great experience to meet various people in the finance field. People from various banks, financial institutions to whom I met, helped in giving me practical knowledge of this topic issue management. However, there were certain limitations. The main limitation was I was not able to collect information about the topic from all the merchant bankers. Some of them were senior manager, business development manager. If the information collected from them is not 100% correct then it may affect tabulated primary data. Also there was shortage of data available with the bank. These were some of major limitations I found while collecting secondary data.

CONCLUSION

After analyzing the primary data, It can be conclude that at present capital market is the best option available to those people who want to take risk and want high returns, also various services offered by the merchant banks will gain a lot of importance in future since it helps an individual investor, other intermediaries and FIIS, who have a large funds, by the way of management of funds by expert portfolio managers. Portfolio management is an important and effective tool for managing funds. So, as the time passes and when the people will understand the benefits and importance of portfolio management, its popularly will definitely increase. The current scenario Indian Inc is at the top of the achievement cycle. This is really healthy sign for Indian economy. Taking lessons from the past events of the dotcom bust and vanishing companies, the investors should scrutinize the IPO before investing. Investment in IPOs does not itself mean a profit rather it may bring loss to the investors as happened during an IPO boom between 1992-95 where the investors lost in over 80% of the 3911 issues. Number of IPOs has also delivered negative returns in the recent past. It seems that some companies are flooding the issues without any genuine reason. They simply want to encash the opportunities to raise funds. In this regard, SEBI is considering the idea of IPO grading so that the investors do not get confused by a series of public issues hitting the market.

In spite of all these efforts investors should think for quality IPOs. After all it is investors money that is at stake. The merchant banker plays a vital role in channelising the financial surplus of the society into productive investment avenues. Hence before selecting a merchant banker, one must decide what the services for which he is being approached are. Selecting the right intermediary who has the necessary skills to meet the requirements of the client will ensure success. It can be said that this project helped me to understand every details about Merchant Banking and in future how its going to get emerged in the Indian economy. Hence, Merchant Banking can be considered as essential financial body in Indian financial system. Market development is predicated on a sound, fair and transparent regulatory framework. To sustain the growth of the market and crystallize the growing awareness and interest into a committed, discerning and growing awareness and interest into a essential to remove the trading malpractice and structural inadequacies prevailing in the market, and provide the investors an organized, well regulated market place in future.

ANNEXURE

Format of Due Diligence Certificate to be given by the Debenture Trustee Before. Opening of the Issue To Securities and Exchange Board of India Dear Sirs, Sub.: Issue of by Ltd. We, the under noted debenture trustee(s) to the abovementioned forthcoming issue state as follows: (1) We have examined various documents pertaining to the security to be created for the said issue and other such relevant documents. (2) On the basis of such examination and of the discussions with the company, its directors and other officers, other agencies and of independent verification of the various relevant documents, we confirm that: (a) The company has made adequate provisions for and/or has taken steps to provide for adequate security for the debentures to be issued. (b) The company has obtained all the permissions necessary for creating security on the said property(ies). (c) The company has made all the relevant disclosures about the security and also its continued obligations towards the debenture holders. (d) All disclosures made in the draft prospect us letter of offer with respect to the security are true, fair and adequate to enable the investors to make a well-informed decision as to the investment in the proposed issue. (3) We have satisfied ourselves about the ability of the company to service the debentures. Place: Debenture Trustee to the Issue with the Seal Format for Due Diligence Certificate at the

Time of Filing of the Offer Document with the ROC To, The Securities and Exchange Board of India Mumbai/Chennai /New Delhi/KoIkata Issue Management: Pre-Issue and Post-Issue Obligations __ Dear Sires) Sub: Public issue of shares of etc. (Details of the issue)

This is to certify that the offer document filed with the Registrar of Companies on was suitably updated under intimation to the SEBI and that the said offer document contains all the material disclosures in respect of the issuer company as on the said date. We confirm that the registrations of all the intermediaries named in the offer document are valid as on date and that none of these intermediaries has been debarred from functioning by any regulatory authority. We confirm that written consent has been obtained from shareholders for inclusion of their securities as part of promoters' contribution, subject to lock-in. We further confirm that the securities proposed to form part of promoters' contribution and subject to lock-in have not been disposed off/sold/transferred by the promoters during the period starting from the date of filing the draft prospectus with the SEBI, till date.

BIBLIOGRAPHY BOOKS: Financial Management By M.Y.Khan Indian Banking (Theory) By Natrajan and S. P. Parmeshwaran

WEBSITES: www.mangement paradise.com www.google .com www.rbi.org.in www.sebi.gov.in