Refers to British
Merchant banking .
mobilising savings of
MERCHANT BANKING is defined as “an
institution which covers a wide range of activities
such as management of customer services, portfolio
mgmt, credit syndication, acceptance credit,
counselling, insurance etc.
Originated through London
Extension of activities to
domestic business of
syndication of long-term &
short-term finance, share
transfer agents, debenture
trustees, takeover etc.
Merchant banking in India
Need for merchant banking was felt with rapid
growth in number & size of issues made in
Merchant banking services were started by
foreign banks, namely National Grindlays in
1967 & City bank in 1970 .
Merchant banking services were offered along
with other traditional banking services.
SBI was first Indian bank to set up Merchant
banking division in 1972.
DIFFERENCE BETWEEN COMMERCIAL
BANKING & MERCHANT BANKING
Deals with Debt &
Debt related finance.
Deals with Equity &
Equity related finance.
Generally avoid risks.
Willing to accepts risks.
SERVICES OF MERCHANT BANK
The financial institutions in India could not
meet the demand for long-term fund required
by the ever expanding industry and trade.
Corporate sectors enterprise meet their demand
through issuing share and debenture in capital
Services of Merchant Banks
Covers the entire field of
merchant banking, Ltd to
Preparing project report for
govt. approval , financial
3 Loan Syndication
Assistance rendered to get term loan
for project, help client make appraisal,
designing capital structure etc
4 Issue Management
Marketing corporate securities,
intermediary in transfer of capital
from one who owns to needy
Guarantee given by the underwriter,
make raising of external resource easy
6 Managers to Issue
Drafting, completion of formalities,
appoint Registrar etc
Investment in different kind of
8 Mergers and
Middlemen in setting negotiation
9 Off Shore Finance Help in areas involving foreign
10 Non- Resident
Provide help in better and
smooth trade to NRIs
Merchant Banker as Managers, Consultants
Companies are free to appoint one or more agencies as
managers to the issue.
Sebi guidelines prescribe that issue should be managed
atleast by one authorised merchant banker.
Not more than two M.B. should be appointed as lead
managers to a public issue.
In issue over Rs.100 crores, maximum upto four M.B.
could be associated as managers.
Merchant Banker As lead Manager
Appointment of a lead manager by a company
Size of the issue
Less than Rs.50 crores
Rs.50 crores to Rs.100 crores
Rs.100 crores to Rs.200 crores
Rs.200 crores to Rs.400 crores
Above Rs.400 crores
5 or more as
Duties & Responsibilities Of LM
To enter into an agreement
Certificate of registration with SEBI
Work of issue management
Clearly defined responsibility
Minimum underwriting obligation
Due care & diligence
Submitting due diligence certificates
Submit all particulars to SEBI
Suggestions or modifications
Collections of the amount
Inform depository participants
Qualities Required of Merchant Bankers
(Best merchant bankers)
Ability to analyse
Ability to built up
(left) Rashesh Shah
Chairman & CEO, Edelweiss
(right) Nimesh Kampani
Chairman & MD, JM Financial
The M.B.registered with SEBI classified
according to the category :MERCHANT
BANKER :- 10
BANKS :- 24
BANKS :- 10
INSTITUTION :- 6
INVESTMENT :- 231
INSTITUTION :- 4
Restriction of merchant banking
SEBI guidelines have authorised merchant
bankers to undertake issue related activities
and made them restrict their activities or think
of separating these activities from present one
and float new subsidiary and enlarge the scope
of its activities.
Minimum net worth of Rs.1 crore
stipulate that a
minimum net worth of
Rs.1 crore for
Non co-operation of issuing companies
of the issuing companies
in timely allotment of securities and refund
of application money is another problem
faced by merchant bankers.
MERCHANT BANKERS COMMISSION
Project appraisal fees
Lead Manager :-
- 0.5% upto Rs.25 crores
- 0.2% more in excess of Rs.25 crores
1) Growth of new issues market
Indian market largest emerging market
Domestic and foreign investors setting up their
Many public and private issues coming up
Growth in new issues market
Scope for M.Bs. have risen
2) Entry of FII
Indian capital market is globalised
Indian Cos. are permitted to invest in euro issues.
Similarly, FII are permitted to invest in India.
Hence they need M.Bs to advise them for their invt in
Increasing no. of JVs also require expert services of
3) Changing policy of FI
Liberalisation of policies
FI would require expert services of M.Bs for
project appraisal, financial management,
financial restructuring etc.
4) Development of debt market
Good portion of capital
can be raised through debt
5) Innovations in Financial Instruments
New financial instruments have come up.
M.Bs are market makers for these instruments.
6) Corporate Restructuring
Liberalisation and globalisation
Competition in corporate sector becoming intense.
Cos. reviewing their strategies, structure and
functioning etc. leading to corporate restructuring.
Good opportunity to M.Bs to extend their area of
It means reduction of some
kind of asset of a firm for
achieving either financial or
Motive of disinvestment is to
Inspite of problems popping up, merchant
banking in India has vast scope to develop
because of lot of domestic as well as foreign
businesses booming here. Indian economy
provides an amicable environment for these
firms to set up, flourish and expand here.