MERCHANT AND

INVESTMENT BANKING
PRESENTED BY
AASHI GARG (24004)
ABHIPSA PRADHAN (24006)
AISHWARYA RAO (24013)
ALISHA DAS (24015)

ANKIT SHARDA (24022)

 TOPICS FOR TODAY
 What is Merchant Banking?
 Evolution of Merchant Banking?
 Difference b/w commercial banking and investment banking?
 What is Universal Bank?
 Role & Functions of Merchant banking?
 MERCHANT BANKING
It is an institution which covers a wide range of activities such as
underwriting of shares, portfolio management, project
counselling, insurance etc. They all render these services for a fee.
(Both commercial & investment bank may engage in merchant
banking activities.
The original purpose of merchant bank was to facilitate/finance
production & trade of commodities & hence the name
“merchant”)
 MERCHANT BANKING
DEFINITION:- “Any person who is engaged in the business
of issue management either by making arrangements
regarding selling, buying or subscribing to the securities as
manager; consultant adviser; or one rendering corporate
advisory services in relation to such activities in the
management.”
- According to Ministry of Finance
 WHO IS A MERCHANT
BANKER ?
 A merchant banker is one who is a critical link between a company
raising fund and the investors.
 Merchant banker is one who underwrites corporate securities and
advices on issues like corporate mergers.
 (Merchant Banker may be in the form of a bank, a company, firm or
even a proprietary concern.
 Merchant Banker understands the requirements of the business concern
& arranges finance with the help of financial institutions, banks, stock
exchanges & money market.)
 EVOLUTION OF MERCHANT
BANKING
 Merchant Banking started in Britain in the 13th century when a few private firms engaged
themselves in foreign trade and finance. (Based on the British model Dutch & Scottish traders
started MB.)
 Merchant Banking originated in Italy then came to France in the 17th and 18th centuries. .(In France,
a merchant banker was a merchant who added the banking business to his various activities &
utilized his accumulated profits better.)
 Merchant Banks flourished in the UK in the late 18th and early 19th centuries as England became a
rich nation. (Profits from colonial trade were diverted into merchant banking activities & the chief
activity was accepting commercial bills for domestic & international trade.)
 In 1972, merchant banking was started in South Africa.
 (In USA MB was developed by the European Market)
 MERCHANT BANKING IN INDIA
Need for merchant Banking was felt with rapid growth in number & size of issues made in primary issue.
 Merchant Banking services started by foreign banks, namely National Grindlays in 1967 followed by
Citi Bank in 1970.(These 2 banks were providing services for syndication of loans & raising of equity
apart from other advisory services.)
 In 1972, Banking Commission Report asserted the need for merchant banking services in India to be
provided by public sector banks. (Based on the Glass Steagall Act of 1933 passed by the US, the
commission recommended a separate structure for merchant banking so as to separate them from
commercial banks & financial institutions.) Following the recommendations of the Banking Commission
report)-
 SBI set up its merchant banking division in 1972.
 This was followed by Bank of India, Syndicate Bank, Punjab National Bank and Canara Bank.
 1973 – ICICI was the first financial institution to set up its merchant banking services.
 1992- IFCI and IDBI set up their merchant banking services.
INVESTMENT BANKING
VS.
COMMERCIAL BANKING
 Parameters Investment Banking
Field of Operations Expedites the purchase and sales of
bonds, stocks, and other investments and
aid companies in making initial public
offerings (IPOs) when they first go public
and sell shares. Advice for Mergers and
Acquisitions and Underwriting services
Accepting Deposits These banks don’t lend or accept
deposits. They mainly give advisory
services which don’t need funding
Target Market Narrow Target market which includes
high net worth individuals, large
corporate houses, government, etc.
Regulation Regulated by SEBI
Commercial Banking
Maintaining checking and savings
accounts for businesses and individuals
Accepting deposits
Lending money as the loan for a variety
of purpose such as business, buying new
car or house, or personal expenses.
Accepts deposit called Fixed deposits
that mature in a stipulated period of time
by paying interest on that as this is must
for credit creation
Wide Target Market including customers
such as regular people, small and
medium business enterprises, large
corporate houses, trusts, government, etc
Regulated by RBI
 Parameters Investment Banking Commercial Banking

Income Margin Business, i.e. big fees from Volume business i.e. small fees from
limited consumers many customers
Types 1. Full-service Investment Banks provide 1. Public Sector Banks
all services namely underwriting, 2. Private Sector Banks
M&A advisory, sales & trading, 3. Foreign Banks
investment management, etc.
2. Boutique Investment Banks specialize
in specific services

Risk Tolerance Higher risk, mainly due to two factors : Lower risk :
1. Nature of business 1. Stronger govt regulations
2. Weaker regulatory requirement 2. As there’s responsibility towards
customers

Banks JPMorgan Chase (JPM), Goldman Sachs State Bank of India, ICICI Bank, HDFC
(GS), Morgan Stanley (MS), Citigroup Bank, Axis Bank, Bank of Baroda, etc.
(C), and Bank of America (BAC).
 UNIVERSAL BANKING
 Provide wide variety of financial services
 It is a combination of commercial and investment services
 It also called full-service financial firms
 1998-concept of universal banking come in India
 2000-ICICI become first universal bank in India
 Other functions –merchant banking, mutual funds, credit cards,
housing finance, auto loan ,insurance etc.
 Universal banks – ICICI, HDFC, HSBC, bank of America etc.
 UNIVERSAL BANK SERVICES
1. Retail Banking:- Focus on public and SME’s.
Deal with small amounts per customer
Services – Savings a/c, Personal loans, Current a/c, Debit cards etc

2. Wholesale Banking:- Borrowing and lending money on a large scale

Deal with massive amounts
Customers – Government, Giant companies and other financial institutions

3. Investment Banking:- Focus on major investors and companies

Activities:-Asset management, M&A, raising capital, securities trading, and
securities underwriting.
 ADVANTAGES OF
UNIVERSAL BANKING
 Investors Trust
 Economics of Scale
 Resource Utilization
 Profitable Diversification
 Easy Marketing
 DISADVANTAGES OF
UNIVERSAL BANKING
 Different Rules and Regulations
 Effect of failure on Banking System
 Monopoly
 Conflict of Interests
 ROLES AND FUNCTIONS OF
MERCHANT BANKING
MERGER, ACQUISITION AND TAKEOVER
 Preparation and circulation of information memoranda
 Deal structuring and negotiations
 Valuation and due diligence
DISINVESTMENT
 Direct or indirect sale by the Central Government or any State Government or
by a government company, of shares or voting rights in, or control over, a target
company , which is public sector undertaking
 The guidelines issued by Department of Public Enterprises have to be kept in
mind while providing advisory services.
BUY-BACK OF SECURITIES
Procedure for buy‐back of securities has been prescribed in the SEBI (Buy‐Back
of Securities) Regulations, 1998
Appointment of merchant banker is the first step before starting the process of
public announcement for buyback
 ROLES AND FUNCTIONS OF
MERCHANT BANKING
 Issue Management
 Portfolio Management
 Bill Discounting and Acceptance Credit
 Lease Finance
 Public Deposits
 Revival of sick units
ROLES AND FUNCTIONS
OF MERCHANT BANKING
Delisting of equity shares
- SEBI regulations 2009,apply to delisting of shares.
- Merchant Banker to be appointed by promoter
- Merchant Banker instructs bank to issue DD or bankers cheque to
credit the escrow account.
- Offer price w.r.t delisting determined by promoter and merchant
banker
- Public Announcement
Issue and Listing of Debt Securities
- Merchant Banker ensures comments are suitably addressed
- Diligence Certificate to SEBI as per regulations
- Determination of price of Debt Securities
- Filling up of Issuer form of securities

Share Based Employee Benefits

- Company appoints a Merchant Banker for the implementation
- Merchant Banker handles it till the stage of obtaining to approval from the
stock exchanges.
ROLES AND FUNCTIONS OF
MERCHANT BANKING
 Corporate Counseling
 Project Counseling
 Capital Restructuring Services
 Loan Syndication
 Arrangement of working capital
 Venture Capital
THANK YOU