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Financial services-final-21-jan-09

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  • 1. Merchant Banking in IndiaPresented byRajesh MandalikKumar GauravPranay KargaonkarAbdul Qadir SaifyPavan Kumar ReddyMukesh Sahu
  • 2. Merchant BankingThe Dictionary of Banking and Financedefines a merchant bank as “ a bank whicharranges loans to companies, deals ininternational finance, buys and sells sharesand launches new companies on the stockexchange, but does not provide normalbanking services to the general public ”.
  • 3. Bird’s eye view of Merchant Banking :Merchant Banking is a fee-based service.It arranges funds rather than providing them.Originally Merchant Banking business was started in Italyand France.Later on, it came into existence in the U.K., and the U.S.A.In India, it has become popular from 1983-84.
  • 4. Merchant Banking In India The Grindlays Bank initiated the merchant banning activity in Indian Capital Market in 1969. It’s business forms was on the management of Public Issues and Financial Consultancy. City Bank introduced its merchant banking division in 1970.
  • 5. Functions of Merchant Banking  Corporate Counseling  Portfolio Management  Venture Capital Financing  Mergers and Amalgamations  Project Counseling  Underwriting 6
  • 6. Contd.... Functions of Merchant Banking  Export Financing for capital goods  Hire purchasing  Equipment leasing  Investment trust  Valuation of assets  Financial management 7
  • 7. Private Investment Bankers Lehman Brothers Merrill Lynch etc.Bought loans that fall outside the specs of agencies.
  • 8. Who’s to blame?Borrower: Buy a house with 20% down payment to live in and later sell at a profit. If this works out well, then … Buy a house with 0% down payment to live in and later sell at a bigger profit. If this works out well, then … Buy two houses with 0% down payment and sell at a profit?Investors Buy a subprime loan and sell at a profit because losses less than expected. If this works out well, then … Buy risky piece – lower rated tranches – of pool of subprime loans and sell at a bigger profit because losses less than expected.
  • 9. Core Business Portfolio Non-fund Based Merchant Banking Advisory and Services transaction Services in ->Management of ->Project Financing.Public Offers of Equityand debt Instruments. ->Syndicated loans. ->Rights issues. ->Private Equity/Venture Capital. ->Buyback Offers. Etc. ->Business Advisory. Etc.
  • 10. Core Business Portfolio Fund Base Allied Businesses ->Asset Management services. ->Underwriting. --Mutual Funds. ->Market making. --Portfolio Management ->Bought Out Deals. --Venture capital etc.->Trading in Equities, bonds and derivatives. ->Secondary Market Services. --Brooking --Equity Research.
  • 11. . Securities and Exchange Board of India (SEBI) has dividedmerchant bankers into four categories, which are as follows: -