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.

1. MERCHANT BANKING
BY ABDUL RAZAK K K

2. MERCHANT BANKING
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.
ORIGIN :
The term merchant banking originated from the London who started financing
foreign trade through acceptance of bills.
Later they helped government of under developed countries to raise long term
funds.
Later these merchants formed an association which is now called
”Merchant Banking and Securities House Association”.

3. • Merchant banker may be defined as an ‘institution which covers
a wide range of activities such as underwriting of shares,
portfolio management, project counseling, insurance etc…They
render all these services for a fee.
• A merchant banker is one who is a critical link between a
company raising fund and the investors.
• Merchant banker is one who underwrites corporate securities
and advices on issues like corporate mergers.
• The merchant banker may be in the form of a bank, a company,
firm or even a proprietary concern.
• Merchant Banker understands the requirements of the business
concern and arranges finance with the help of financial
institutions, banks, stock exchanges and money market
MERCHANT BANKER

4. DIFFERENCE BETWEEN MERCHANT BANKING
AND COMMERCIAL BANKING
COMMERCIAL BANKING MERCHANT BANKING
Deals with Debt & Debt related
finance.
Deals with Equity & Equity related
finance.
Asset oriented. Management oriented.
Generally avoid risks. Willing to accepts risks.
Commercial banks are referred to
as “Banks”
Merchant banks are commonly
called as “Investment Banks”
Anyone can open an A/C It cannot be done.
Related to secondary market. Related to primary market.

5. SERVICES OF MERCHANT BANKERS
1. PROJECT COUNSELLING :
It includes preparation of project reports,deciding upon the financing pattern,
appraising the project relating to its technical, commercial and financial
viability. It includes filling up of application forms for obtaining funds from
financial institutions.
2. LOAN SYNDICATION :
Assistance is rendered to raise loans for projects after determining promoter’s
contribution. These loans can be obtained from a single institution or a
consortium.

6. 3. ISSUE MANAGEMENT :
Management of issues involves marketing of corporate securities ie…
equity shares, preference shares and debentures by offering them to public.
Pre-issue activities:
They prepare copies of prospectus and send it to to SEBI and then file them
to Registrar of Companies
They conduct meetings with company representatives and advertising agencies
to decide upon the date of opening issue,closing issue,launching publicity
campaign etc..
They help the companies in fixing up the prices for their issues
Post-issue activities:
It includes collection of application forms,screening of
applications,deciding allotment procedure,mailing of allotment
letters,,share certficates and refund orders

7. 4. UNDERWRITING OF PUBLIC ISSUES :
Underwriting is an insurance to the company which makes public
issues.Raising of external resources is easy for the issues backed by well
known underwriters.
5. MANAGERS,CONSULTANTS OR ADVISERS TO THE ISSUE :
SEBI insist that all issues should be managed by atleast one authorised
merchant banker but not more than two.For an issue of 100 crores,upto a
maximum of four merchant bankers shall be appointed.They help in listing of
shares in stock exchange, completion of formalities under Companies Act
etc..

8. 6. PORTFOLIO MANAGEMENT :
Portfolio refers to investment in different kinds of securities such as
shares,debenture issued by different companies.It is a combination of assets
but a carefully blended asset combination.
Portfolio management refers to maintaining proper combination of
securities in a manner that they give maximum return
Investors are interested in safety,liquidity and profitability of his investment
but they cant choose the appropriate securities.So merchant bankers help
their investors in choosing the shares.They conduct regular market and
economic surveys.

9. 7. NRI INVESTMENT :
NRIs has to follow lots of complicated rules for investing in the shares in
India.Merchant bankers help them in choosing the shares and offer expert
advice fulfilling government regulations thus mobilising more resources for
corporate sector.
8. ADVISORY SERVICE RELATING TO MERGERS AND
TAKEOVERS :
Merger is a combination of two or more companies into a singe company
where one survives and other loses its existence
Takeover is the purchase by one company acquiring controlling interest in
the share capital of another company
Merchant banker acts as middlemen between offeror and
offeree,negotiates mode of payment and gets approval from
government.

10. 9. OFF SHORE FINANCE :
A company may legitimately move offshore for the purpose of tax
avoidance or to enjoy relaxed regulations. Offshore financial institutions
can also be used for illicit purposes such as money laundering and tax
evasion.
Merchant bankers help their clients in :
 Long term foreign currency loan
 Joint venture abroad
 Financing exports and imports
 Foreign collaboration arrangement

11. BANKS PROVIDING MERCHANT BANKING
SERVICES IN INDIA
 Commercial banks
 Foreign banks like National Grindlays Bank, Citibank, HSBC bank
etc..
 Development banks like ICICI, IFCI, IDBI etc..
 SFC , SIDCs
 Private firms like JM Financial and Investment service, DSP Financial
Consultants, Ceat Financial Services, Kotak Mahindra, VMC Project
Technologies, Morgan Stanley, Jardie Fleming, Klienwort Benson etc…

12. Certificate from SEBI is a must. They are of four types:
 Category I merchant bankers : Can act as Issue managers
 Category II merchant bankers : can act only as co-managers
 Category III merchant bankers : can act as co-managers but cannot
undertake portfolio management
 Category IV merchant bankers :can merely act as consultant or
advisor to issue of capital
MERCHANT BANKING REGULATIONS :

13. CAPITALADEQUACY NORMS
• The minimum net worth requirement for acting as merchant banker
is given below:
• Category I – Rs. 5 cores
• Category II – Rs, 50 lakhs
• Category III – Rs. 20 lakhs
• Category IV – Nil

14. GUIDELINES FOR MERCHANT BANKERS :
SEBI’s authorization is a must to act as merchant
bankers.Authorisation criteria include
 Professional qualification in finace,law or business management
 Infrastructure like office space,equipment and man power Capital
adequacy
 Past track of record,experience,general reputation and fairness in all
transactions
 Every merchant banker should maintain copies of balance
sheet, Profit and loss account, statement of financial position
 Half-yearly unaudited result should be submitted to SEBI

15.  SEBI has been vested with the power to suspend or cancel the
authorisation in case of violation of the guidelines
 Every merchant banker shall appoint a ‘Compliance Officer‘ to
monitor compliance of the Act
 SEBI has the right to send inspecting authority to inspect books of
accounts,records etc… of merchant bankers
 Inspections will be conducted by SEBI to ensure that provisions of the
regulations are properly complied
 An initial authorisation fee,an annual fee and renewal fee may be
collected by SEBI
 A lead manager holding a certificate under category I shall accept a
minimum underwriting obligation of 5% of size of issue or Rs.25 lakhs
whichever is less

16. CODE OF CONDUCT
 Should make all efforts to protect the interest of investors
 Should maintain high standards of integrity,dignity and fairness in conduct
of business
 Should fulfill all obligations in a professional and ethical manner Should
not discriminate among the clients
 Should ensure that prospectus, letter of offer etc.. is available to
investors at the time of issue
 Should render best possible advice to its clients
 Any penal action taken by SEBI should be informed to its clients

17.  Should inform the board about any legal proceedings initiated
against it
 Should abide by the rules of ‘‘Securities and Exchange Board of
India Regulations,2003 “
 Shall develop its own internal code of conduct for governing
its internal operations
 Should ensure that any person it employs should have the capacity to
be a merchant banker
 It is responsible for the act of its employees and agents
 Should not create false market

18. OBLIGATIONS AND RESPONSIBILITIES
 Merchant banker not to associate with any business other than that of the
securities market.
 Maintenance of book of accounts, records, etc. Every merchant banker
shall keep and maintain the following books of accounts, records and
documents namely:
 A copy of balance sheet at the end of each accountingperiod
 A copy of profit and loss account for thatperiod
 A copy of auditor’s report on the accounts of thatperiod
 A statement of financial position
 Submission of half-yearly results.
 Report on steps taken on auditor’s report.
 Acquisition of shares prohibited.
 Information to the Board.
 Disclosure to the Board

19. SOME PROBLEMS OF MERCHANT BANKERS
 SEBI stipulates high capital adequacy norms for
authorisation which prevents young, specialised
professionals into merchant banking business
 Non co-operation of the issuing companies in timely allotment of
securities and refund of application of money etc.. is another problem
 Yet merchant banking is vast but should develop adequate
expertise to provide a full range of merchant banking services

20. THANK YOU