<ul><li>INTRODUCTION & MEANING -</li></ul>Business of money.<br />Intermediary Channel .<br /> Advisory services to existing units for expanding and diversifying production.<br /> Renderer of non-banking services.<br /> Gives assistance to set up new industrial ventures .<br />
<ul><li> DEFINITIONS -</li></ul>“A kind of financial institution which provides a variety of services such as investment banking, management of customer’s securities, portfolios, insurance, acceptance of bills, etc. is known Merchant Banking.” <br />“It is a fee-based business, where the bank assumes market risks but no long-term credit risk.”<br />“It is a vision, investment banking is a technique.”<br />“It is a conversion of dreams into reality with the help of money.”<br />
The term merchant banking originated from the London who started financing foreign trade through acceptance of bills.
Later on, they helped government of under developed countries to raise long term funds.
Thereafter, these merchants formed an association which is now called “Merchant Banking and Securities House Association.”</li></li></ul><li><ul><li>Growth of Merchant Banks in India -</li></ul>Grindlays Bank (1967) .<br />City Bank ( 1970).<br />SBI (1972).<br />Other Banks – Private Banks, Foreign Banks.<br />Financial Institutions – Commercial Banks, Development Banks.<br />
<ul><li>FEATURES -</li></ul>Combination of Banking and Consultancy Services.<br />Acts as a Financial Engineer.<br />Provides variety of Services.<br />
<ul><li> NEED AND IMPORTANCE -</li></ul>Growth of Primary Markets.<br />Purchasing Securities.<br />Capital Flow.<br />Promoting Financial Surplus.<br />Coordinating activities to the Share Issue.<br />Complying with Rules and Regulations.<br />
<ul><li> TYPES OF MERCHANT BANKS -</li></li></ul><li><ul><li>ORGANISATIONAL STRUCTURE -</li></li></ul><li><ul><li> FUNCTIONS AND SERVICES -</li></ul>Issue Management.<br />Project Counselling.<br />Underwriting of Public Issues.<br />Portfolio Management.<br />Mergers and Takeovers.<br />Loan Syndication.<br />Offshore Finance.<br />Rehabilitation of Sick Units.<br />Capital Restructuring Services.<br />Private Placement.<br />Foreign Direct Investment.<br />Working Capital Finance.<br />Credit Accepting and Bill Discounting.<br />
<ul><li>Merchant Banking Services in India -</li></li></ul><li><ul><li>MERCHANT BANKING REGULATIONS IN INDIA -</li></ul>Certificate from SEBI is a must. <br />They are of four types:<br />Category I merchant bankers : Can act as Issue Managers.<br />Category II merchant bankers : Can act only as Co –Managers.<br />Category III merchant bankers : Can act as co-managers but cannot undertake Portfolio Management.<br />Category IV merchant bankers :Can merely act as Consultant or Advisor to issue of capital . <br />CAPITAL ADEQUACY NORMS :<br />Category I : Rs. 5 Crores.<br />Category II : Rs.50 Lakhs.<br />Category III : Rs.20 Lakhs.<br />Category IV : Nil.<br />
<ul><li> GUIDELINES FOR MERCHANT BANKERS -</li></ul>SEBI’s authorization is a must to act as Merchant Bankers. Authorisation criteria include – <br /><ul><li>Qualifications.
Appointment of Compliance Officer.</li></li></ul><li><ul><li>CODE OF CONDUCT -</li></ul>Should make all efforts to protect the interest of Investors.<br />Should maintain high standards of Integrity, Dignity and Fairness in conduct of Business.<br />Should ensure that Prospectus, Letter of Offer etc.. is available to Investors at the time of issue.<br />Any penal action taken by SEBI should be informed to its clients.<br />
Should inform the Board about any legal proceedings initiated against it.<br />Should abide by the rules of “Securities and Exchange Board of India Regulations,2003 .”<br />It is responsible for the act of its Employees and Agents.<br />Should not create false market.<br />
<ul><li> REFERENCES -</li></ul>P. N. Varshney, ‘Banking Law and Practice’, (4.262) New Delhi; Sultan Chand and Sons(2008).<br />Prof. Anil Agashe, ‘Merchant Banking and Financial Services’ , Pune; Everest Publishing House(2005).<br /> Internet.<br />