MERCHANT BANKINGSubmitted By :Anshul SharmaSonam Mishra

According to SEBI Merchant Bankers rules 1992 & The Notification of the Ministry of Finance the merchant banker is:-

“Any person who is engaged in the business of issue management either by making

arrangements regarding selling , buying or subscribing to securities as manager-consultant ,advisor or rendering corporate advisory services in relation to such issue management.”

Defination

In India, Merchant bankers are a body corporate who carries on any activity of the issue management, which consist of preparing prospectus and other information relating to the issue. Merchant banks in India are not allowed to conduct any business other than that related to securities market. There is no official category in investment banking.

Merchant Banking came into existence in 17th & 18th century in Italy & France.

Merchant banking in the modern era started from London; Merchants started to finance the foreign trade through acceptance of bill.

Started by national Grindlays bank in 1967 and city bank in 1970.

Recognized the requirements of upcoming class of Entrepreneurs for diverse financial services.

Merchant Banking : Origin

Upto 1970, there were only two foreign banks which performed merchant banking operations in the country. SBI was the first Indian commercial bank and ICICI the first financial institution to take up the activities in 1972 and 1973 respectively. As a result of buoyancy in the capital market in 1980’s some commercial banks set – up their subsidiaries to operate exclusively in merchant banking industry. In addition, a number of large stock broking firms and financial consultants also entered into business. Thus, by the end of the end of 1980’s there were 33 merchant bankers belonging to three major segments viz., commercial banks, all India financial institutions, and private firms.

Progress of Merchant Banking In India

Merchant banking industry which remained almost stagnant and stereotyped for over two decades, witnessed an astonishing growth after the process of economic reforms and deregulation of Indian economy in 1991. The number of merchant banks increased to 115 by the end of 1992-93 300 by the end of 1993-94 and 501 by the end of August, 1994. all merchant bankers registered with SEBI under four different categories include 50 commercial banks, 6 all Indian financial institutions – ICICI, IFCI, IDBI, IRBI, Tourism Finance corporation of India, infrastructure Leasing and Financial Services Ltd. and private merchant bankers.

Bank that deals mostly in international finance, long-term loans for companies and stock underwriting.

Merchant banking primarily involves financial advice and services for large corporations and wealthy individuals.

Merchant banks do not provide regular banking services to the general public.

Merchant banks invest their own capital in client companies & provide services for mergers and acquisitions.

About Merchant Banking

A merchant bank is sometimes said to be a wholesale bank, or in the business of wholesale banking.

It’s because merchant banks tend to deal primarily with other merchant banks and other large financial institutions.

As of today there are 135 Merchant bankers who are registered with SEBI, India.

This includes Private, Public & Foreign players.

Main Merchant Banking Companies

Public Sector

•SBI capital markets ltd.•Punjab National Bank•Bank of Maharashtra•State Bank of Bikaner & Jaipur

Private Sector

•ICICI Securities Ltd.•Axis Bank Ltd.•Bajaj Capital Ltd.•Reliance Securities Ltd.•Kotak Mahindra Capital Company Ltd.•Yes Bank

Foreign Players

•Barclays securities (India) Pvt ltd.•Bank of America•DSP Merrill Lynch Ltd.•Goldman Sachs (India) securities Pvt ltd.•Morgan Stanley India Company Pvt ltd.•Citigroup Global Markets India Pvt Ltd.

Issue Management Services – to act as Book Running Lead Manager/Lead Manager for the IPOs/FPOs/Right issues/Debt issues

Project appraisal; Corporate Advisory Services; Underwriting of equity issues; Banker to the Issue/Paying Banker; Refund Banker; Monitoring Agency; Debenture Trustee;

Functions

To carry on the business of merchant banking, assist in the capital formation, manage advice, underwrite, provide standby assistance, securities and all kinds of investments issued, to be issued or guaranteed by any company, corporation, society, firm, trust person, government, municipality, civil body, public authority established in India.

The main object of merchant banker is to create secondary market for bills and discount or re-discount bills and acts as an acceptance house.

Merchant banker’s another objective is to set up and provide services for the venture capital technology funds.

Objectives

They also provide services to the finance housing schemes for the construction of houses and buying of land.

They render the services like foreign exchange dealer, money exchange, and authorized dealer and to buy and sell foreign exchange in all lawful ways in compliance with the relevant laws of India.

They will invest in buying and selling of transfers, hypothecate and deal with dispose of shares, stocks, debentures, securities and properties of any other company.

Merchant bankers have the following obligations and responsibilities.

Merchant banker should maintain proper books of accounts, records and submit half yearly/annual financial statements to the SEBI within stipulated period of time.

No merchant banker should associate with another merchant banker who is not registered in SEBI.

Merchant bankers should not enter into any transactions on the basis of unpublished information available to them in the course of their professional assignment.

Every merchant banker must submit himself to the inspection by SEBI when required for and submit all the records.

Obligations and Responsibilites

Every merchant banker must disclose information to the SEBI when it requires any information from them.

All merchant bankers must abide by the code of conduct prescribed for them.

Every merchant banker who acts as lead manager must enter into an agreement with the issuer setting out mutual rights, liabilities, obligations, relating to such issues with particular reference to disclosures allotment, refund etc.

To act as a merchant banker, a person or firm should hold acertificate granted by the regulator- the securities andexchange board of India. SEBI regulations provide for categories of Merchant Bankers; Category I: It Will take up activities associated

with issue management. Category II: Allowed to carry the roles of

advisor, consultant, co-manager, underwriter and portfolio manager;

Category III: Allowed to act as underwriter, advisor, and consultant; and

Category IV: Only allowed to act as advisor or consultant.

Categories

CAPITAL ADEQUACY NORMS :

Category I : Rs. 5 crores Category II : Rs.50 lakhs Category III : Rs.20 lakhs Category IV : Nil

Merchant bankers provide services as follows:  Business planning stage: 1)project feasibility study 2)advice on capital structuring Equity raising: 3)preparation of prospectus and liaison with SEBI 4)pricing decisions 5)marketing in the capacity of lead managers 6)underwriters to the issue 7)post issue management 8)assistance in ADR/GDR Debt raising: 9)management of debenture issue 10)preparation of bankable proposal and syndication of loan Working capital raising: 11)assistance in arranging optimal capital finance Strategic advice: 12)advice on mergers and acquisitions 13)corporate structuring advice 

Services

Merchant banking activities are regulated by

1.Guidelines of SEBI & Ministry of Finance2.Companies Act, 19563.Listing Guidelines of Stock Exchange and4.Securities Contracts (Regulation) Act,1956

Regulations of Merchant Banking:

The merchant banking activity in India is governed by SEBI (Merchant Bankers) Regulations, 1992.

Registration with SEBI is mandatory to carry out the business of merchant banking in India.

An applicant should comply with the following norms: i) The applicant should be a corporate body.

ii) The applicant should have necessary infrastructure like office space, equipment, manpower, etc.

Contd.. iii) The applicant must have at least two employees

with prior experience in merchant banking. iv) Any associate company, group company,

subsidiary or interconnected company of the applicant should not have been a registered merchant banker.

v) The applicant should not have been involved in any securities scam or proved guilt for any offence.

vi) The applicant should have a minimum net worth Rs50 million.

Knowledge: Thorough understanding of technical issues related to business, understanding of legal and statutory requirements, appreciation of business acumen; financial expertise is a key thing a merchant banker must know. Delivery of his services depends on his basic understanding of these issues.

  Capital market familiarity: Merchant banker should be well

versed with stock markets, their movements. He should track imp happenings in the market on ongoing basis

Liasioning ability: Merchant bankers are required to liaison with SEBI, RBI, the stock exchanges, depositories and other government authorities for public issue related duties. It is imperative that a merchant bank maintains excellent rapport with all of them and also close relations even at informal levels. This only can see speedy and favorable clearances by the authorities.

Qualities of merchant bankers

  Innovation: Corporate may approach with unique

requirements. Standard solutions and products may not solve problems sometimes. Merchant bankers should do out of box thinking and be able to do financial engineering. They can device new financial instruments and get approved from the authorities. Innovation is required even to address stringent legal requirements.

Integrity: Merchant banker has valuable and confidential information of its customers. Merchants bankers should take utmost care that the information is not leaked and also not consumed for the purpose other than for which it was disclosed to the merchant banker.

Their uniqueness is extending services under single window concept covering the following areas:

Merchant Banking Commercial Banking Investments Bankers to Issue - Escrow Bankers Underwriting Loan Syndication

As leading Merchant Bankers in India, they have associated with issues ranging from Rs.1crore to Rs.1500 crores, involving various types of industries, banks, statutory Bodies etc. and have an edge in handling Private Placement issues – both retail & HNIs.

Merchant Banking Services1.Canara Bank

Equity Issue (Public/Rights) Management Debt Issue Management Private Placements Project Appraisals Monitoring Agency Assignments IPO Funding Security Trustee Services Agriculture Consultancy Services Corporate Advisory Services Mergers and Acquisitions Buy Back Assignments Share Valuations Syndication

SPECTRUM OF SERVICES:-

Project Appraisal Capital structuring Preparation of offer document Tie Ups (placement) Formalities with SEBI / Stock Exchange / ROC etc., Underwriting Promotion /Marketing of Issues Collecting Banker / Banker to an issue Post Issue Management Refund Bankers Handling of Dividend Warrant/Interest Warrant

Payments Debenture Trusteeship

ISSUE MANAGEMENT SERVICES:-

A wide range of later stage opportunities are considered.Targeted companies include the following characteristics:1. Having weathered the start-up process and established a core

business model that is sustainable;2. Proven management team;3. If not already profitable, visibility to profitability within a 12-

month period;4. Having established business partnerships that give it a major

position in a market space;5. Significant barriers to entry; and6. Technology or business that is scalable with global applications.They look for opportunities for synergistic consolidationand/or companies that are on the verge of extraordinarygrowth.

Investment Criteria

SBI’s Merchant Banking Group is strongly positioned to offer perfect financial solutions to your business. They specialize in the arrangement of various forms of Foreign Currency Credits for Corporate.

They provide the resources, convenience and services to meet your needs by arranging Foreign Currency credits through:

• Commercial loans • Syndicated loans• Lines of Credit from Foreign Banks and Financial Institutions• FCNR loans• Loans from Export Credit Agencies• Financing of Imports.

They are internationally the most Preferred Bank by Export Credit Agencies for Guarantees in case of the Indian Clients or Projects

2. State bank of india

SBI being an Indian entity has no India exposure ceiling. Their Primary focus is On Indian Clients. SBI’s seasoned Team of professionals provides you with Insightful credit Information and helps you Maximize the Value from the transaction.

PRODUCTS AND SERVICES 1] Arranging External Commercial Borrowings (ECB)

2] Arranging and participating in international loan syndication3] Loans backed by Export Credit Agencies4] Foreign currency loans under the FCNR (B) scheme5] Import Finance for Indian corporate.

India’s one of the Leading Nationalized Bank established in 1895, serving over 3.5crore customers through 4520 branches and 439 extension counters is the largest amongst Nationalized Banks. The Bank has recently been ranked 21st among top 500 companies and 9th among top 50 brands by the Economic Times. All the Branches of the Bank have been computerized. The Bank has a concept of "Any Time, Any Where Banking" through the introduction of Centralized Banking Solution (CBS) and over 2511 offices have already been brought under its ambit.

The Bank is registered with SEBI as Category – I Merchant Banker for providing all the major Merchant Banking services.

3. Punjab National Bank

Our gamut of Merchant Banking services includes:  Issue Management Services – to act as Book

Running Lead Manager/Lead Manager for the IPOs /FPOs/Right issues/Debt issues

Project appraisal Corporate Advisory Services Underwriting of equity issues Banker to the Issue/Paying Banker Refund Banker Monitoring Agency Debenture Trustee Marketing of the issue through a strong network of

QIBs/HNIEs/Corporates and Retail investor. The Bank itself is one of the major investor in the market having a treasury of 45000 crores.

Their Software for handling the Refund Banker is one of the best systems in the industry. Its unique features provides online payment of the instrument by our 2470 branches in 733 centers, online status of paid instruments, 100% reconciliation at any point of time etc.

The Bank has an exclusive and specialized Capital Market Service Branch at New Delhi for providing Merchant Banking Services to the Corporate

Employees : 94,204 Employee Growth : 37.2 Percent ICICI Bank is India`s 2nd largest bank (after

SBI) with more than 600 branches and 2200 ATM nationwide. ICICI`s retail banking group offers lending and deposit services to small businesses and individuals. Larger businesses are served by the corporate banking group, which offers finance services and treasury products. ICICI`s rural and government banking unit offers micro loans and agricultural banking. Other ICICI offerings include online banking, asset management and insurance.

4. ICICI Bank

ICICI Security is a SEBI Registered CAT-1 Merchant Banker.

The Bank has not managed any public issues from the years 2008-2009 to 2013-2014 as a merchant banker.

ICICI Advice on wide variety of product :1. Private Equity Financing2. Secondary Sale Transactions3. Pre IPO Deals.

THANK YOU