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The basic objective of the Project on "Merchant Banking in
India" was to deal with the following things:
To examine the role of merchant banking in promoting
capital market in India.
To study the rules and regulations of SEBI for merchant
bankers as issue managers.
To evaluate the performance of the merchant bankers.
To study the marketing aspects of the merchant bankers
relating to the issue.
To study the effectiveness of pricing of the ‘issues’ (as
determined by issuing company and the merchant banker).
To make appropriate recommendations to merchant bankers
for improving their performance.
Merchant Bankers worldwide have experienced a
huge growth during the last 7-8 years. So it was not possible to
cover the whole of this as there is still huge scope for research
in this area.
It was possible to only cover a part of the whole
Merchant Banking industry so as to provide a broad outlook
over the emergence of Merchant Banking services in India.
The time period of study is limited and so the premise
of study is also restricted to the periphery of few of the
functions of merchant bankers.
Capital market is a very big market which comprises
of many types of securities but this project focuses only on the
primary market which deals in shares.
Merchant Banking assumes diverse functions in different
countries. So, merchant banking may be defined as, "an
institution which covers a wide range of activities such as
management of customer services, portfolio management,
credit syndication, acceptance credit, counseling, insurance,
A merchant banker shall endeavor to ensure that the investors
are provided with true and adequate information without
making any misleading or exaggerated claims or any
misrepresentation and are made aware of the attendant risks
before taking any investment decision.
As per SEBI, "Merchant Banker" means any person who is
engaged in the business of issue management either by making
arrangements regarding selling, buying or subscribing to
securities or acting as manager, consultant, adviser or rendering
corporate advisory service in relation to such issue
To raise money from capital market, promoters bank upon
merchant bankers who manage the whole show by
rendering multifarious services.
The various steps involved in the preparation & appraisal of
project are :
1st STEP: PROJECT IDENTIFICATION
2nd STEP: FEASIBILITY STUDY REPORT
3rd STEP: APPRAISAL OF PROJECT
Merchant Bankers help corporate clients to raise syndicated
loans from commercial banks. Merchant Banks help clients
approach financial institutions for term loans.
Merchant Bankers provide portfolio management services to
The entire investment of an household of India in the capital markets
can be shown as below in the following figure, which shows that
after Mutual Funds, Share market is the 2nd biggest area of
investment in which a household bets on. This is based on the NCAER
Report on "How households Save and Invest" of July, 2013.
The companies can bring
public issue of shares in
mainly two ways in India:
There are mainly two
methods in which public
issue can be brought about
The Company is majorly in the business of retailing of sarees under
the brand names of "KALAMANDIR", "MANDIR" &
"VARAMAHALAKSHMI". It started as a retailer of sarees in Hyderabad
in August 2005.
It brought out its IPO in February, 2013 to raise a capital of about 89
Crore. Ashika Capital Limited & Vivro Financial Services Pvt. Ltd.
Acted as the Book Running Lead Managers in the 100 % Book Built
Entering into an agreement with the body corporate;
Appointment of Compliance Officer;
Appointment of all other Intermediaries & coordinating with
Preparation of Offer Document of Letter of Offer or Prospectus
and filing them with Registrar, Stock Exchange & SEBI;
Due Diligence Report;
Inter-Se Allocation of Responsibilities;
Pricing, Coordinating with the Stock Exchange for Book Building
process including software, bidding terminals and book building;
Collection of application forms from bankers and statement of
Redresser of Investor Grievances;
Post Issue Monitoring
Speciality Restaurants Limited (SRL), the first of its kind which
brought its IPO in May, 2012 where it offered 1, 17, 39,415
Equity Shares in the issue. The Company had a price band of
Rs. 146 - 155 and a issue price of Rs. 150. The issue opened on
16th May, 2012 & closed on 18th May, 2012.
The Company proposed to utilize the Issue proceeds, after
deducting the underwriting and issue management fees,
selling commissions and other expenses associated with the
Issue (the "Net Proceeds") for the following objects:
Development of New Restaurants;
Development of a food plaza;
Repayment of portions of term loan facilities; and
General corporate purposes.
Showing whether investors
read offer documents
Showing whether investors
base their investment
decision on the Merchant
Showing other factors on which investors base their
Showing how investors rate the Merchant banking services in
the Indian context
SEBI Guidelines have authorized merchant bankers to
undertake issue related activities only with an exception of
portfolio management. These guidelines have made them
either to restrict their activities or think of separating these
activities from the present one and float new subsidiary and
enlarge the scope of its activities.
SEBI Guidelines stipulate a minimum net worth of Rs. 5 crore
for their authorization. Small but professional & specialized
merchant bankers who do not have such net worth may
have to close down their business. The entry is denied to
young, specialized professionals into merchant banking
Non-co-operation of the issuing company in timely allotment
of securities and refund of application money is another
problem of Merchant Bankers.
Net Safety Gain option can be exercised if the issue price falls
to a large extent, In Sai Silks (Kalamandir) Ltd. Issue; the
company had opted for this option.
There has to be accountability of the end use of funds raised
from the market. It is not enough that prospectus states the
purpose of raising funds.
To cover cases of system failure, insurance cover has to be
devised to protect the investors from loss subject to ceiling of,
say Rs. 1 lakhs.
Given the risk, our securities should yield more in the long run.
Merchant Bankers can make this happen by developing a
sense of personal responsibility for the projects they bring to
the market for financing.
It is to be emphasized that mere rules & regulations are not
enough to evolve and nurture sound traditions and practices
in merchant banking and to build a vibrant capital market.
The quality of the projects that are proposed to be financed
by capital issues should be impeccable because it is the
primary market that holds the key to rapid capital formation,
growth in industrial production and exports.
The securities sold to the public should represent genuine
claims on future cash flows and viable assets.
Merchant Bankers in India have a social responsibility to help
build an industrial structure, technologically sound to none in
the world and financially viable.