MERCHANT BANKING

SERVICES OF MERCHANT BANKERS

Project Counseling :
It includes preparation of project reports, deciding upon the
financing pattern, appraising the project relating to its technical,
commercial and financial viability.
It includes filling up of application forms for obtaining funds from
financial institutions.
Loan Syndication :
Assistance is rendered to raise loans for projects after determining
promoters contribution.
These loans can be obtained from a single institution or a
consortium.

Issue Management :
Management of issues involves marketing of securities i.e.
equity shares, preference shares and debentures to public.
Pre-issue activities:
Preparation of prospectus, filing it with SEBI and ROC
Conduct meetings with company representatives, Registrars,
Bankers to Issue and advertising agencies to decide upon date of
opening of issue, closing issue, launching publicity campaign
etc.,
Help companies in fixing prices for their issues
Post-issue activities:
Collection of application forms, screening of applications,
deciding allotment procedure, mailing of allotment letters, issue
of securities and refund orders

Underwriting of Public Issues :

Merchant Bankers can underwrite public issues
Raising of funds becomes easier for issues backed by well known
underwriters.
Managers, Consultants or Advisers to the Issue :
Companies are free to appoint one or more agencies as managers
to the issue.
SEBI guidelines prescribe that issue should be managed at least
by one authorized merchant banker.
Not more than two M.B. should be appointed as lead managers to
a public issue.
In issue over Rs.100 cr, maximum up to four M.B. could be

Portfolio Management:
Portfolio refers to investment in different kinds of securities such
as shares, debenture issued by different companies.
It is a combination of assets but a carefully blended asset
combination.

NRI Investment :
NRIs have to follow lot of rules for investing in India.
Merchant bankers help them in choosing securities and offer expert
advice fulfilling government regulations thus mobilizing more
resources for corporate sector.
Advisory Services Relating to Mergers and Takeovers :
Merger is a combination of two or more companies into a singe
company where one survives and other loses its existence
Takeover is the purchase by one company acquiring controlling
interest in the share capital of another company
Merchant banker acts as middlemen between offeror and offeree,
negotiates mode of payment and gets necessary approvals

Off Shore Finance :

Merchant bankers help their clients in :
Long term foreign currency loan
Joint venture abroad
Financing exports and imports
Foreign collaboration arrangement

Merchant Banking Regulations :

Registration Certificate from SEBI is a must. Four types:
Category I merchant bankers : Can act as Issue managers
Category II merchant bankers : Can act only as co-managers
Category III merchant bankers : Can act as co-managers but
cannot undertake portfolio management
Category IV merchant bankers :Can merely act as consultant or
advisor to issue of capital
Capital Adequacy Norms :
Category I : Rs. 5 cr
Category II : Rs.50 lacs
Category III : Rs.20 lacs
Category IV : Nil

GUIDELINES FOR MERCHANT BANKERS :

SEBIs authorization is a must to act as merchant bankers.
Authorization criteria include
Professional qualification in finance, law or business management
Infrastructure like office space, equipment and man power
Capital adequacy
Past track of record, experience, general reputation and fairness in
all transactions
Every merchant banker should maintain copies of B/S, P/L A/c
Half-yearly unaudited result should be submitted to SEBI
Merchant bankers are prohibited from buying securities based on
unpublished price sensitive information of their clients

SEBI has been vested with the power to suspend or cancel the
authorisation in case of violation of the guidelines
Every merchant banker shall appoint a Compliance Officer to
monitor compliance of the Act
SEBI has the right to send inspecting authority to inspect books of
accounts, records etc of merchant bankers
Inspections will be conducted by SEBI to ensure that provisions of
the regulations are properly complied
An initial authorization fee, an annual fee and renewal fee may be
collected by SEBI
A lead manager holding a certificate under category I shall accept
a minimum underwriting obligation of 5% of size of issue or Rs.25
lacs whichever is less

CODE OF CONDUCT :
Should make all efforts to protect the interest of investors
Should maintain high standards of integrity, dignity and fairness in
conduct of business
Should fulfill all obligations in a professional and ethical manner
Should not discriminate among the clients
Should ensure that prospectus, letter of offer etc.. is available to
investors at the time of issue
Should render best possible advice to its clients
Any penal action taken by SEBI should be informed to its clients

Should inform SEBI about any legal proceedings initiated

against it
Shall develop its own internal code of conduct for
governing its internal operations
Should ensure that any person it employs should have the
capacity to be a merchant banker
It is responsible for the act of its employees and agents
Should not create false market