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Topic: Merchant Banking
Table of content
Introduction

History

Main services provided by merchant banks

Who can be merchant banker?

Requirements for setting up a merchant bank

Categories of Merchant Banker

Qualities of A merchant banker

Merchant banking in India

Commercial Banking Vs Merchant Banking

Main merchant banking companies

Key foreign players

Merchant banking structure in India

Guidelines for Merchant Bankers

Conclusion
Introduction
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”
HISTORY

 Merchant banking started in Italy in late medieval
  times
 Reached in France during the seventeenth century
 Italian merchant bankers introduced Merchant
  banking into England in eighteenth century
 European bankers developed merchant banking In
  USA
 In 1972, merchant banking started in South Africa
 In 1967, National Grindlays Bank started merchant
  banking in India
Main Services Provided By Merchant Banks
   Project Counselling

   Loan Syndication

   Managers to Issue

   Underwriting

   Portfolio Management

   Non-Resident Investment

   Advising On Mergers And Take-Over

   Arranging Offshore Finance

   Corporate Restructuring
Who can be Merchant Banker?

                Private
                sector

                          International
Public sector
                              banks
Requirements For Setting Up A
       Merchant Bank

 • Formation of the business organization


 • Adoption of a viable business plan


 • Registration of merchant bankers
Registration of Merchant Bankers

Application for grant of certificate

   Furnishing of information, clarification
        and personal representation

          Consideration of application

                   Grant of a certificate

              Payment of fees and the consequences
                      of failure to pay fees
Consideration Of Application (contd)
The applicant must fulfils the capital adequacy
 requirement is as follows :-
   The capital adequacy requirement should not be less than
    the net worth of the person making the application for
    grant of registration
   The net worth shall be as follows:-

             Category             Minimum Amount

            Category I            Rs. 5, 00, 00, 000

            Category II             Rs. 50, 00, 000

            Category III            Rs. 20, 00, 000
Payment Of Fees And The
 Consequences Of Failure To Pay Fees
             (contd)
A merchant banker has to pay to SEBI :-
  Applicant fee of 25000
  Registration Rs 10 lakhs
  Renewal fee of Rs 5 lakh 3 years from the 4th year
   from the date of initial registration
Categories Of Merchant Bankers
   Category              Role           Fees charged
               Issue management
               Advisor             •2.5 lakhs for first two
Category I     Consultant                   years
               Manager             •1.50 lakhs for 3rd year
               Underwriter
               Portfolio manager
               Advisor
               Consultant          •1.5 lakhs for first two
Category II    Underwriter                  years
               Portfolio manager    •50,000 for 3rd year
               Co-manager
               Underwriter
Category III   Advisor               •Minimum 50,000
               consultant
               Advisor
Category IV    Consultant            •Minimum 50,000
Qualities of a Merchant Banker
                    Ability to
                     analyse



  Capital
                                       Abundant
  Market
                                       knowledge
Familiarity




                                 Innovative
        Integrity
                                  approach
Merchant Banking In India
Foreign bank National Grindlays Bank started
 merchant banking in 1967
 Then Citibank in1970 & State Bank of India in
 1972 started merchant banking
 Later ICICI set up its merchant Banking
 Division followed by Bank of India, Bank of
 Baroda, Canara Bank etc..
Commercial banking Vs Merchant
                banking
POINTS               COMMERCIAL BANKS            MERCHANT BANKING

Function             Saving                      Financial
                     accounts,loans,credit       consultant,advisory
                     cards,credit to             services
                     business,brokerage services
How They Make        loans, issuing mortgages,   profit from fees it
Money                and by providing small      charges its large
                     business and home           customers for the
                     improvement loans           services it provides
Effect On The Economy Provide money for loans    Provide money to large
                     and also for expansion of   corporations
                     business
Investment           Can not buy securities      No such investment
                     more than five percent of   regulations to merchant
                     net incremental deposits of banks
                     previous year
Main Merchant Banking companies

                                            • ICICI Securities
         • SBI capital markets
           ltd
                                              Ltd
         • Punjab national                  • Axis Bank Ltd
           bank                             • Bajaj Capital Ltd
         • Bank of                          • Reliance
Public     Maharashtra
         • Karur Vysya bank ltd   Private     Securities
                                              Limited
Sector   • State Bank of
           Bikaner and Jaipur.    Sector    • Kotak Mahindra
                                              Capital
         • IFCI financial
           services ltd.                      Company Ltd
                                            • Yes Bank Ltd
Key Foreign Players
Goldman Sachs (India) Securities Pvt. Ltd.

Morgan Stanley India Company Pvt. Ltd.

Barclays Securities (India) Pvt. Ltd.

Bank Of America

Citigroup Global Markets India Pvt. Ltd.

DSP Merrill Lynch Ltd.
Merchant Banking structure in India
                       Merchant
                        banks

                                     INTERNATIONAL
PUBLIC SECTOR       PRIVATE SECTOR
                                       BANKS(10)

   COMMERCIAL
                           BANKS (10)
    BANKS (24)

     FINANCIAL            FINANCE AND
   INSITUTION (6)       INVESTMENT (231)

   STATE INSITUTIONS (4)
Guidelines for merchant bankers
• The Merchant Banker should have a professional
  qualification
• Should comply with the SEBI regulations and
  submit reports accordingly
• The Merchant Banker will be suspended if found
  violation of guidelines
• Proper fess should be collected by SEBI
• Proper information should be given when
  inspection by SEBI
Webliography
   Webpage                           Link
Wikipedia.org  http://en.wikipedia.org/wiki/Merchant_bankin
               g
Merchantbankin http://www.merchantbankingresources.com/in
gresources.com dex.php/about-us.html

investopedia.co   http://www.investopedia.com/terms/m/merch
m                 antbank.asp#axzz2EqgN9tfw

                      Bibliography
Financial Services by Vipul Prakashan
THANK YOU

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Merchant banker

  • 2. Table of content Introduction History Main services provided by merchant banks Who can be merchant banker? Requirements for setting up a merchant bank Categories of Merchant Banker Qualities of A merchant banker Merchant banking in India Commercial Banking Vs Merchant Banking Main merchant banking companies Key foreign players Merchant banking structure in India Guidelines for Merchant Bankers Conclusion
  • 3. Introduction 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”
  • 4. HISTORY  Merchant banking started in Italy in late medieval times  Reached in France during the seventeenth century  Italian merchant bankers introduced Merchant banking into England in eighteenth century  European bankers developed merchant banking In USA  In 1972, merchant banking started in South Africa  In 1967, National Grindlays Bank started merchant banking in India
  • 5. Main Services Provided By Merchant Banks Project Counselling Loan Syndication Managers to Issue Underwriting Portfolio Management Non-Resident Investment Advising On Mergers And Take-Over Arranging Offshore Finance Corporate Restructuring
  • 6. Who can be Merchant Banker? Private sector International Public sector banks
  • 7. Requirements For Setting Up A Merchant Bank • Formation of the business organization • Adoption of a viable business plan • Registration of merchant bankers
  • 8. Registration of Merchant Bankers Application for grant of certificate Furnishing of information, clarification and personal representation Consideration of application Grant of a certificate Payment of fees and the consequences of failure to pay fees
  • 9. Consideration Of Application (contd) The applicant must fulfils the capital adequacy requirement is as follows :- The capital adequacy requirement should not be less than the net worth of the person making the application for grant of registration The net worth shall be as follows:- Category Minimum Amount Category I Rs. 5, 00, 00, 000 Category II Rs. 50, 00, 000 Category III Rs. 20, 00, 000
  • 10. Payment Of Fees And The Consequences Of Failure To Pay Fees (contd) A merchant banker has to pay to SEBI :- Applicant fee of 25000 Registration Rs 10 lakhs Renewal fee of Rs 5 lakh 3 years from the 4th year from the date of initial registration
  • 11. Categories Of Merchant Bankers Category Role Fees charged Issue management Advisor •2.5 lakhs for first two Category I Consultant years Manager •1.50 lakhs for 3rd year Underwriter Portfolio manager Advisor Consultant •1.5 lakhs for first two Category II Underwriter years Portfolio manager •50,000 for 3rd year Co-manager Underwriter Category III Advisor •Minimum 50,000 consultant Advisor Category IV Consultant •Minimum 50,000
  • 12. Qualities of a Merchant Banker Ability to analyse Capital Abundant Market knowledge Familiarity Innovative Integrity approach
  • 13. Merchant Banking In India Foreign bank National Grindlays Bank started merchant banking in 1967  Then Citibank in1970 & State Bank of India in 1972 started merchant banking  Later ICICI set up its merchant Banking Division followed by Bank of India, Bank of Baroda, Canara Bank etc..
  • 14. Commercial banking Vs Merchant banking POINTS COMMERCIAL BANKS MERCHANT BANKING Function Saving Financial accounts,loans,credit consultant,advisory cards,credit to services business,brokerage services How They Make loans, issuing mortgages, profit from fees it Money and by providing small charges its large business and home customers for the improvement loans services it provides Effect On The Economy Provide money for loans Provide money to large and also for expansion of corporations business Investment Can not buy securities No such investment more than five percent of regulations to merchant net incremental deposits of banks previous year
  • 15. Main Merchant Banking companies • ICICI Securities • SBI capital markets ltd Ltd • Punjab national • Axis Bank Ltd bank • Bajaj Capital Ltd • Bank of • Reliance Public Maharashtra • Karur Vysya bank ltd Private Securities Limited Sector • State Bank of Bikaner and Jaipur. Sector • Kotak Mahindra Capital • IFCI financial services ltd. Company Ltd • Yes Bank Ltd
  • 16. Key Foreign Players Goldman Sachs (India) Securities Pvt. Ltd. Morgan Stanley India Company Pvt. Ltd. Barclays Securities (India) Pvt. Ltd. Bank Of America Citigroup Global Markets India Pvt. Ltd. DSP Merrill Lynch Ltd.
  • 17. Merchant Banking structure in India Merchant banks INTERNATIONAL PUBLIC SECTOR PRIVATE SECTOR BANKS(10) COMMERCIAL BANKS (10) BANKS (24) FINANCIAL FINANCE AND INSITUTION (6) INVESTMENT (231) STATE INSITUTIONS (4)
  • 18. Guidelines for merchant bankers • The Merchant Banker should have a professional qualification • Should comply with the SEBI regulations and submit reports accordingly • The Merchant Banker will be suspended if found violation of guidelines • Proper fess should be collected by SEBI • Proper information should be given when inspection by SEBI
  • 19. Webliography Webpage Link Wikipedia.org http://en.wikipedia.org/wiki/Merchant_bankin g Merchantbankin http://www.merchantbankingresources.com/in gresources.com dex.php/about-us.html investopedia.co http://www.investopedia.com/terms/m/merch m antbank.asp#axzz2EqgN9tfw Bibliography Financial Services by Vipul Prakashan