Merchant Baking in India

2. Merchant Banking
Merchant Banking is a combination of Banking and consultancy
services. It provides consultancy to its clients for
financial, marketing, managerial and legal matters. Consultancy
means to provide advice, guidance and service for a fee. It helps
a businessman to start a business. It helps to raise
(collect) finance. It helps to expand and modernize the business.
It helps in restructuring of a business. It helps to revive sick
business units. It also helps companies to register, buy and sell
shares at the stock exchange.
Merchant banking can be defined as a skill-oriented
professional service provided by merchant banks to their
clients, concerning their financial needs, for adequate
consideration, in the form of fee.

4. History of Merchant Banking in India
Merchant banking services, in India, were started only in 1967 by
National Grindlays. Bank followed by Citi Bank in 1970. The State
Bank of India was the first Indian commercial bank to set up a
separate merchant banking division in 1972.
Later, the ICICI set up its merchant banking division in 1973
followed by a number of other commercial banks like Canara Bank,
Bank of Broada, Bank of India, Syndicate Bank, Punjab National
Bank, Central Bank of India, UCO Bank, etc.
The FERA regulations in 1973, which required a large number of
foreign companies to dilute their shareholdings in India, gave a
boost to the merchant banking activities in India. Since then, a
number of development banks and financial institutions such as
IFCI and IDBI have also entered this field.

5. Merchant Bank
A merchant bank is a company that conducts underwriting, loan
services, financial advising, and fundraising services for large
corporations and high net worth individuals. Unlike retail
or commercial banks, merchant banks do not provide services to the
general public. They do not provide regular banking services like
checking accounts and do not take deposits.
These banks are experts in international trade, which makes them
specialists in dealing with multinational corporations. Some of the
largest merchant banks in the world include J.P. Morgan,
Goldman Sachs, and Citigroup.

6. SEBI (Merchant Banker) Regulation, 1992
 SEBI (Merchant Banker) Regulations, 1992, defines
‘merchant banker’ as:
 any person engaged in issue mgt.
 selling, buying or subscribing to securities
 acting as manager, consultant or advisor for such services.
 mandatory in case of public issues, right issues, open
offers or buy-back.
 cannot carry any fund based activity.

7. WHO ARE MERCHANT BANKER?
As per SEBI rules, a merchant banker refers to “any person
who is engaged in the business of issue management either
by making arrangement regarding buying, selling or
subscribing to securities or acting as manager, consultant or
rendering corporate advisory services in relation to such
issue management”.

8. Merchant banking services in our country are
provided by the following types of organizations
(i) Commercial banks and their subsidiaries.
(ii) Foreign banks including National Grindlays Bank, Citi
Bank, Hongkong Bank etc
(iii) All India Financial Institutions and Development Banks
such as, ICICI, IFCI, IDBI.
(iv) State Level Financial Institutions, such as, State Industrial
Development Corporations (SIDC’s) and State Financial
Corporations.

9. (v) Private Financial Consultancy Firms and Brokers, such as
J.M. Financial and Investment Services Ltd.; DSP Financial
Consultants, Fnam Financial Consultants, Kotak Mohindra,
Ceat Financial Services, etc.
(vi) Technical Consultancy Organizations.
(vii) Professional Merchant Banking Houses, such as VMC
Project Technologies.

10. List of Top Merchant Banks in the World
Leading Banks
Bank of America Merrill Lynch
Citigroup
Goldman Sachs
J.P. Morgan
Morgan Stanley
Excellent Banks
Barclays Capital
Credit Suisse
Deutsche Bank AG
Evercore
Highly Recommended Banks
Jefferies International Ltd
Lazard
RBC Capital Markets
SG CIB
Stifel
UBS Investment Bank

11. REGULATION OF MERCHANT BANKERS
Merchant banking activity in India is regulated by the SEBI
(Merchant Bankers) Rules, 1992. The Rules provide that:
a. No person shall carry on any activity as a merchant banker
unless he holds a certificate granted by SEBI.

12. b. SEBI would grant the certificate
On payment of the registration fee.
On condition that the merchant banker would redress investor
grievances within I month of investors complaint and would inform
SEBI of all such complaints received.
Only if the applicant has the necessary infrastructure and
manpower to carry out the functions as a merchant banker.
A minimum of two persons who have the experience to conduct
the business of merchant banking should be under the employment
of the applicant.

13. The applicant fulfills the capital adequacy requirements.
The capital adequacy requirement should not be less than the
net worth of the applicant and the minimum shall be
Rs.5,00,00,000 for category I merchant banking, Rs.50,00,000
for category II and Rs.20,00,000 for category III.
The applicant should be professionally qualified in law,
business or management.
The applicant should not have been involved in any litigation
involving the securities market.
The applicant should not have been convicted of any offense
involving moral turpitude.

14. Categories of a Merchant Banker
Category I: To carry on the activity of issue management & to
act as adviser, consultant, manager, underwriter, portfolio manager
(Net worth – 5 Crores)
Category II: To act as adviser, consultant, manager,
underwriter, portfolio manager (Net Worth – 50 Lakhs)
Category III: To act as underwriter, advisor or consultant to an
issue (Net Worth – 20 Lakhs)
Category IV: To act only as advisor or consultant to an issue.
(Net Worth – NIL)