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WHAT IS MERCHANT

BANKING«?
Meaning
Merchant Banking may be defined as ³an
µinstitution which covers a wide range of
activities such as Underwriting of shares,
Portfolio Management, Project Counseling,
Insurance, Issue Management etc«
Dictionary meaning
³An organization that underwrites corporate
securities and advises clients on issues like
corporate mergers, etc. involves in the ownership
of commercial ventures.´
þ 
h þrigin of merchant banking in India National
Grindlays bank in India initiated merchant
banking services in1969
h The Citibank followed it in 1970.
h The state bank of India was the first Indian
commercial bank to set up a separate merchant
banking division in 1973.
h ICICI followed it in 1974. both these Indian
merchant bankers emerged as leader in
merchant banking having done significant
business during the period 1974-85 in
comparison to foreign banks.
Ä Merchant banking began practice during the Middle Ages
in Italy and was introduced by grain merchants, making them
the original banks.
Ä In today¶s world, merchant banking involves many
activities to include, portfolio management, mergers and
acquisitions counseling, and acceptance credit, etc. Today¶s
merchant banks do not have the same characteristics of their
predecessors.
Ä Modern merchant banks offer a wide range of activities,
including portfolio management, credit-syndication,
acceptance credit, counsel on mergers and acquisitions,
insurance, etc
Ä -oan syndication.(CREDIT)
Ä Portfolio management.
Ä Project Counseling.
Ä Project finance
Ä Issue management (Pre &Post Issue)
Ä Mergers Amalgamations and takeovers.
Ä þff Shore Finance
Ä Arrange for Rehabilitation of sick projects.
h It regulates the rising of fund in primary market.
h It assures the issuer a market for rising resource
at low cost, effectively and easily.
h Easily it ensures a high degree of protection to
the interest of the investors.
h It provides for the merchant banker a dynamic
and competitive market with high standard of
professional competence , integrity and solvency.
h It ensures fair efficient and flexible primary
market to all involved in the process of primary
issue.
h Applicant should be a body corporate
h Applicant should not carry on any business other than those
connected with security markets.
h Should have the necessary infrastructure
h Should have at least 2 employees with experience in merchant
banking
h Any associate or subsidiary company should not have been a
registered merchant banker.
h The applicant should not be involved in any securities scam
or proved guilty for any offence.
h Should have a min net worth of 5crores.
h Commercial banks (SBI, Canara Bank.BþB)
h All india financial institutions
h Private consultancy firms
h Technical consultancy organizations.
 
þ   

SEBI¶s authorization is a must to act as merchant bankers.


Authorization criteria include
Professional qualification in Finance, -aw 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.
ÎEvery merchant banker should maintain copies of balance sheet,
Profit and loss Account, statement of financial position
ÎHalf-yearly unaudited result should be submitted to SEBI
ÎMerchant bankers are prohibited from buying securities based on the
unpublished price sensitive information of their clients
ÎSEBI has been vested with the power to suspend or cancel the
authorization in case of violation of the guidelines
ÎEvery merchant banker shall appoint a µCompliance þfficerµ to
monitor compliance of the Act
ÎSEBI has the right to send inspecting authority to inspect books of
accounts, records etc« of merchant bankers
ÎInspections will be conducted by SEBI to ensure that provisions of the
regulations are properly complied

ÎAn initial authorization fee, an annual fee and renewal fee may be
collected by SEBI

ÎA lead manager holding a certificate under category I shall accept a


minimum underwriting obligation of 5% of size of issue or Rs.25 lakhs
whichever is less

 þ  

  

Î Commercial banks
Î Foreign banks like National Grindlays Bank,
Citibank, HSBC bank etc..
Î Development banks like ICICI, IFCI, IDBI etc..
Î SFC, SIDCs
Î Private firms like JM Financial and Investment
service , DSP Financial Consultants, Ceat
Financial Services, Kotak Mahindra, VMC
Project Technologies, Morgan Stanley, Jardie
Fleming, Kleinwort Benson etc«
þ
þ   !"#
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Merchant Banking, Stock Debit and Equity
Brokin... þrganisation....


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   ! Merchant Banking
"   Division Asso...
Finance Solutions
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Merchant Exporters Merchant Exporters

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Merchants Bankingdivn
Merchant Exporter
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Merchant Exporters
Merchants Banking
 þ 
  

ÎSEBI stipulates high capital adequacy norms for


authorization which prevents young specialized professionals
into merchant banking business
ÎNon co-operation of the issuing companies in timely
allotment of securities and refund of application of money
etc.. is another problem
ÎYet merchant banking is vast but should develop adequate
expertise to provide a full range of merchant banking
services

 þ  

h Category 1- sum of Rs. 2.5 lakh to be paid annually for
the first two year commencing from the date of initial
registration and thereafter a sum of Rs. 1 lakh to keep the
registration in force.
h Category 2- A sum of Rs. 1.5 lakh to be paid annually
thereafter a sum of Rs. 50000 to keep the registration in
force.
h Category 3- A sum of Rs. 1 lakh to be paid annually for 2
years there after a sum of 25000 to keep the registration
in force.
h Category 4- A sum of Rs. 5000 to be paid annually for 2
years & Rs. 1000 to keep the registration in force
h FþRMATIþN þF THE CþMPANY
h -þAN SYNDICATIþN
h MAKING þF PUB-IC ISSUE AND ISSUE
MANAGEMENT
h CAPITA- STRUCTURE AND
RESTRUCTURING
h PREPARATIþN þF PRþJECT REPþRT AND
ITS APPRAISA-.
h MERGERS AND ACQUISITIþNS
h TECHNICA- ASSISTANCE
h MARKET SURVEY AND RESEARCH
h RAISING FþREIGN CURRENCY -þANS
h TAX P-ANNING
h FINANCIA- REENGINEEERING
h PRþDUCT MIX AND QUA-ITY CþNTRþ-
h Merchant banker should have a knowledge about his
field.
h Maintain high standard of profession.
h Ability to analyze different aspects.
h Use of innovative approaches in developing capital
market instruments.
h Ability to build up client relationship$
h In channelizing the financial surpluses.
h To coordinate the activities of various intermediaries.
h To ensure the compliance with rules and regulations
governing the securities market.
h Facilitate people interested in stock market.
Õ   
   
 


1. It is a banking intermediary. Ä It is a non banking financial


intermediary.

2. Main function is accepting the Ä Provides various function


deposits and lending of funds. such as underwriting, portfolio
management, mergers take-
over's etc.

3. Situated everywhere in all the Ä They have very few branches


states. in selected cities.