Merchant Banking


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This presentation include Introduction, Origin, Indian scenario, Definition, Growth, category ,Prospectus, Function, Quality Problem and Guideline for Merchant Banking.

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Merchant Banking

  1. 1. <ul><li>Merchant banking </li></ul><ul><li>Presented by:- </li></ul><ul><li>Mr. Aaditya s. n. </li></ul><ul><li>Mr. brijesh tiwari </li></ul><ul><li>Mr. Gudnidhi patel </li></ul><ul><li>(xavier institute ,Xidas jabalpur) </li></ul>10/11/09 XIDAS, Jabalpur
  2. 2. INTRODUCTION <ul><li>Investment Banking is an American Synonym of Merchant Banking; </li></ul><ul><li>Merchants used to attend to extending of loans and arranging finance for trade purposes; </li></ul><ul><li>As the time passed the banking assumed more importance and the merchants switched over to banking activities, hence the term merchant Banking took placed. </li></ul>10/11/09 XIDAS, Jabalpur
  3. 3. Meaning <ul><li>Merchant banking is a non-banking financial activity similar to banking; </li></ul><ul><li>Merchant banking is a fee based business, where the bank assumes market risk but no long-term credit risk. </li></ul><ul><li>These are financial institutions providing valuable solutions such as:- </li></ul><ul><li>Acceptance of bills of exchange; </li></ul><ul><li>Corporate finance; </li></ul><ul><li>Portfolio management; </li></ul><ul><li>Other non-banking services. </li></ul>10/11/09 XIDAS, Jabalpur
  4. 4. definition <ul><li>“ An organization that underwrites securities for corporations, advices such clients on mergers, and is involved in the ownership of commercial ventures”. </li></ul><ul><li>According to Mr. Rosenburg </li></ul><ul><li>“ Any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to the securities as manager; consultant adviser; or one rendering corporate advisory services in relation to such activities in the management”. </li></ul><ul><li>According to MOF, India </li></ul>10/11/09 XIDAS, Jabalpur
  5. 5. Origin <ul><li>In Britain started in the 13 th century when a few private firms engaged themselves in foreign trade and finance. </li></ul><ul><li>Based on the British model Dutch and Scottish traders started merchant banking. </li></ul><ul><li>In USA merchant banking was developed by the European bankers. </li></ul><ul><li>West Germany developed close link with the commercial banks thus offering variety of services to customers. </li></ul><ul><li>In 1972 merchant banking practice was started in South Africa </li></ul>10/11/09 XIDAS, Jabalpur
  6. 6. Indian scenario <ul><li>In 1857, the chartered mercantile bank of india started its operations. </li></ul><ul><li>During the 19 th century, the foreign bankers operated in India through the popular agency house called East India House. </li></ul><ul><li>National Grindlays Bank opened its branch in 1967. </li></ul><ul><li>SBI floated its merchant banking division in 1972. </li></ul><ul><li>Some of the banks which started Merchant banking are Central bank of India, BOI, syndicate bank, BOB, Standard chartered bank, ICICI, IFCI and IDBI etc. </li></ul>10/11/09 XIDAS, Jabalpur
  7. 7. Functions <ul><li>Issue Management Services – to act as Book Running Lead Manager/Lead Manager for the IPOs/FPOs/Right issues/Debt issues </li></ul><ul><li>Project appraisal; </li></ul><ul><li>Corporate Advisory Services; </li></ul><ul><li>Underwriting of equity issues; </li></ul><ul><li>Banker to the Issue/Paying Banker; </li></ul><ul><li>Refund Banker; </li></ul><ul><li>Monitoring Agency; </li></ul><ul><li>Debenture Trustee; </li></ul>10/11/09 XIDAS, Jabalpur
  8. 8. Categories <ul><li>To act as a merchant banker, a person or firm should hold a certificate granted by the regulator- the securities and exchange board of India. SEBI regulations provide for 4 categories of Merchant Bankers; </li></ul><ul><li>Category I: It Will take up activities associated with issue management. </li></ul><ul><li>Category II: Allowed to carry the roles of advisor, consultant, co-manager, underwriter and portfolio manager; </li></ul><ul><li>Category III: Allowed to act as underwriter, advisor, and consultant; and </li></ul><ul><li>Category IV: Only allowed to act as advisor or consultant. </li></ul>10/11/09 XIDAS, Jabalpur
  9. 9. CAPITAL ADEQUACY NORMS : Category I : Rs. 5 crores Category II : Rs.50 lakhs Category III : Rs.20 lakhs Category IV : Nil
  10. 10. Services of Merchant Bankers <ul><li>Corporate counseling; </li></ul><ul><li>Project Counseling; </li></ul><ul><li>Loan syndication; </li></ul><ul><li>Management of capital issues; </li></ul><ul><li>Advisory services to mergers and takeovers; </li></ul><ul><li>Consultancy to sick industrial units; </li></ul><ul><li>Corporate Advisory services; </li></ul><ul><li>Portfolio management; </li></ul><ul><li>Leasing; and </li></ul><ul><li>Issue Management. </li></ul>10/11/09 XIDAS, Jabalpur
  11. 11. Principal steps in the issue of Prospectus <ul><li>Design and vetting of prospectus; </li></ul><ul><li>Nature of instrument; </li></ul><ul><li>Pricing of the issue; </li></ul><ul><li>Appointment of underwriters; </li></ul><ul><li>Appointment of bankers; </li></ul><ul><li>Appointment of registrars; </li></ul><ul><li>Appointment of brokers and principal brokers. </li></ul>10/11/09 XIDAS, Jabalpur
  12. 12. Qualities of Merchant Banker <ul><li>Should have knowledge and information about the capital markets, trends in the stock exchange, psychology of the investing public, and technological and economical changes in the country; </li></ul><ul><li>Ability to analyze and evaluate various technical, financial, and economical aspects concerning the formation of an industrial project; </li></ul><ul><li>Safeguard the interest of the investing public. Integrity and maintenance of high professional standards are necessary for the success; </li></ul>10/11/09 XIDAS, Jabalpur
  13. 13. Conti… <ul><li>Should realize the changing environment of capital market and keep cordial relationship with the investors; </li></ul><ul><li>They should develop innovative capital market instruments for satisfying the changing needs of investors; </li></ul><ul><li>Must restrict, concentrate and develop their strength to keep costs under control. </li></ul>10/11/09 XIDAS, Jabalpur
  14. 14. Filing of the prospectus <ul><li>Printing and dispatch of prospectus and application form; </li></ul><ul><li>Filing of initial listing application; </li></ul><ul><li>Promotion of the issue; </li></ul><ul><li>Statutory announcement; </li></ul><ul><li>Collection of applications; </li></ul><ul><li>Processing of applications; </li></ul><ul><li>Allotment of shares; </li></ul><ul><li>Listing of the issue; </li></ul><ul><li>Cost of public issue. </li></ul>10/11/09 XIDAS, Jabalpur
  15. 15. Problems of Merchant Bankers <ul><li>As per SEBI guidelines, Merchant Bankers are authorized to undertake only issue related activities, which restrict their scope of activities. </li></ul><ul><li>Issuing companies do not adhere to the schedule in allotment and refund of application money thereby creating trouble for the image of these bankers at the investors. </li></ul><ul><li>Yet merchant banking is vast but should develop adequate expertise to provide a full range of merchant banking services </li></ul>10/11/09 XIDAS, Jabalpur
  16. 16. <ul><li>SOME PROBLEMS OF MERCHANT BANKERS </li></ul><ul><li>SEBI stipulates high capital adequacy norms for authorisation which prevents young,specialised professionals into merchant banking business </li></ul><ul><li>Non co-operation of the issuing companies in timely allotment of securities and refund of application of money etc.. is another problem </li></ul><ul><li>Yet merchant banking is vast but should develop adequate expertise to provide a full range of merchant banking services </li></ul>
  17. 17. Guidelines for the Merchant Bankers <ul><li>Should have qualification in finance, law or business management; </li></ul><ul><li>Should have adequate office space, equipment and manpower; </li></ul><ul><li>At least 2 merchant bank operations qualified persons to be appointed; </li></ul><ul><li>Should be fair in all transactions; </li></ul><ul><li>SEBI will supervise the activities of merchant bankers. </li></ul>10/11/09 XIDAS, Jabalpur
  18. 18. Continue… <ul><li>SEBI has laid responsibility on merchant banks for the true disclosures and factual statements made on the prospectus and the authenticity of such statements; </li></ul><ul><li>SEBI has the power to suspend or cancel the authorization of merchant bankers in case of any violation of the guidelines; </li></ul><ul><li>Merchant bankers should send quarterly reports on the public issue and rights issue on hand, the names of the companies, size of the issue, and other details; </li></ul><ul><li>Should abide by the code of conduct prescribed by SEBI; </li></ul><ul><li>For the issue over Rs. 100 crs, the number of BRLMs should be 4 to 5; </li></ul><ul><li>Merchant bankers should make an agreement with corporate bodies about their mutual rights, liabilities and obligations etc. </li></ul>10/11/09 XIDAS, Jabalpur
  19. 19. Future prospects in India <ul><li>Growth of primary market; </li></ul><ul><li>Entry of foreign investors; </li></ul><ul><li>Changing policy of financial institutions; </li></ul><ul><li>Development of debt market; </li></ul><ul><li>Corporate restructuring. </li></ul>10/11/09 XIDAS, Jabalpur
  20. 20. References <ul><li> </li></ul><ul><li> </li></ul><ul><li>Financial Services : Nalini Prava Tripathy, Prentice-Hall of India Pvt ltd.(Publisher) </li></ul>10/11/09 XIDAS, Jabalpur
  21. 21. 10/11/09 XIDAS, Jabalpur