Merchant banking originated in London through merchants extending financial activities. It is defined as an institution covering activities like portfolio management, credit syndication, and insurance. In India, the need for merchant banking arose with rapid growth in primary market issues. Early merchant banking services in India were offered by foreign banks like Grindlays and Citibank. Merchant banking deals with equity and management, while commercial banking deals with debt and risks avoidance. Merchant banking services include corporate counseling, project counseling, loan syndication, issue management, underwriting, and portfolio management. Merchant banking has significant scope in India due to the growing new issues market, foreign investment, changing policies, debt market development, and corporate restructuring needs.

1. Merchant Banking

2. INTRODUCTION
 Refers to British
Merchant banking .
 Concerned with
mobilising savings of
people .

3. DEFINITION
MERCHANT BANKING is defined as “an
institution which covers a wide range of activities
such as management of customer services, portfolio
mgmt, credit syndication, acceptance credit,
counselling, insurance etc.

4. ORIGIN

Originated through London
merchants.

Extension of activities to
domestic business of
syndication of long-term &
short-term finance, share
transfer agents, debenture
trustees, takeover etc.

5. Merchant Banking
In India…?

6. Merchant banking in India
 Need for merchant banking was felt with rapid
growth in number & size of issues made in
primary market.
 Merchant banking services were started by
foreign banks, namely National Grindlays in
1967 & City bank in 1970 .

7.  Merchant banking services were offered along
with other traditional banking services.
 SBI was first Indian bank to set up Merchant
banking division in 1972.

8. DIFFERENCE BETWEEN 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.

9. Merchant Banking
Services…?

10. SERVICES OF MERCHANT BANK
 The financial institutions in India could not
meet the demand for long-term fund required
by the ever expanding industry and trade.
 Corporate sectors enterprise meet their demand
through issuing share and debenture in capital
market.

11. Services of Merchant Banks
Sr
No
1
2
Particulars
Summary
Corporate Counseling
Covers the entire field of
merchant banking, Ltd to
giving suggestions
Project Counseling
Preparing project report for
govt. approval , financial
assistance

12. 3 Loan Syndication
Assistance rendered to get term loan
for project, help client make appraisal,
designing capital structure etc
4 Issue Management
Marketing corporate securities,
intermediary in transfer of capital
from one who owns to needy
5 Underwriting
Guarantee given by the underwriter,
make raising of external resource easy
6 Managers to Issue
Drafting, completion of formalities,
appoint Registrar etc

13. 7 Portfolio
Management
Investment in different kind of
securities
8 Mergers and
takeovers
Middlemen in setting negotiation
9 Off Shore Finance Help in areas involving foreign
currency
10 Non- Resident
Investment
Provide help in better and
smooth trade to NRIs

14. Merchant Banker as Managers, Consultants
or Advisors
Companies are free to appoint one or more agencies as
managers to the issue.
 Sebi guidelines prescribe that issue should be managed
atleast by one authorised merchant banker.
 Not more than two M.B. should be appointed as lead
managers to a public issue.
 In issue over Rs.100 crores, maximum upto four M.B.
could be associated as managers.


15. Merchant Banker As lead Manager
 Appointment of a lead manager by a company
S.
No
Size of the issue
Maximum
Number Of
Lead Manager
1.
Less than Rs.50 crores
2
2.
Rs.50 crores to Rs.100 crores
3
3.
Rs.100 crores to Rs.200 crores
4
4.
Rs.200 crores to Rs.400 crores
5
5.
Above Rs.400 crores
5 or more as
prescribed by
SEBI

16. Duties & Responsibilities Of LM

To enter into an agreement

Certificate of registration with SEBI

Work of issue management

Clearly defined responsibility

Minimum underwriting obligation

17.  Due care & diligence
 Submitting due diligence certificates
 Submit all particulars to SEBI
 Suggestions or modifications
 Collections of the amount
 Ensuring refund
 Inform depository participants

18. Qualities Required of Merchant Bankers
(Best merchant bankers)
Ability to analyse
 Abundant knowledge
 Ability to built up
relationship
 Innovative approach
 Integrity

(left) Rashesh Shah
Chairman & CEO, Edelweiss
(right) Nimesh Kampani
Chairman & MD, JM Financial

19. CATEGORY OF MERCHANT
BANKER
CATEGORY
1st
2nd
3rd
4th
::::-
MINIMUM NETWORTH
1 crore
50 lacs
20 lacs
NIL

20. The M.B.registered with SEBI classified
according to the category :MERCHANT
BANKER
PUBLIC SECTOR
PRIVATE SECTOR
INTERNATIONAL
BANKER :- 10
COMMERCIAL
BANKS :- 24
BANKS :- 10
FINANCIAL
INSTITUTION :- 6
FINANCE &
INVESTMENT :- 231
STATE
INSTITUTION :- 4
LEASING

21. Merchant banking
Problems….?

22. Restriction of merchant banking
activities
 SEBI guidelines have authorised merchant
bankers to undertake issue related activities
and made them restrict their activities or think
of separating these activities from present one
and float new subsidiary and enlarge the scope
of its activities.

23. Minimum net worth of Rs.1 crore

SEBI guidelines
stipulate that a
minimum net worth of
Rs.1 crore for
authorisation of
merchant bankers.

24. Non co-operation of issuing companies
 Non co-operation
of the issuing companies
in timely allotment of securities and refund
of application money is another problem
faced by merchant bankers.

25. MERCHANT BANKERS COMMISSION
 Maximum 0.5%
 Project appraisal fees
 Lead Manager :-
- 0.5% upto Rs.25 crores
- 0.2% more in excess of Rs.25 crores

26. 


Underwriting fees
Brokerage commission 1.5%
Other expenses :- Advertising
- Printing
- Registrar’s expenses
- Stamp duty

27. Merchant banking
Scope in India…?

28. 1) Growth of new issues market
 Indian market largest emerging market
 Domestic and foreign investors setting up their
biz here.
 Many public and private issues coming up
 Growth in new issues market
 Scope for M.Bs. have risen

29. 2) Entry of FII

Indian capital market is globalised

Indian Cos. are permitted to invest in euro issues.
Similarly, FII are permitted to invest in India.
Hence they need M.Bs to advise them for their invt in
India.
 Increasing no. of JVs also require expert services of
M.Bs.


30. 3) Changing policy of FI
 Liberalisation of policies
 FI would require expert services of M.Bs for
project appraisal, financial management,
financial restructuring etc.

31. 4) Development of debt market

Good portion of capital
can be raised through debt
instruments.

Tremendous opportunities
to M.Bs.

32. 5) Innovations in Financial Instruments
 New financial instruments have come up.
 M.Bs are market makers for these instruments.

33. 6) Corporate Restructuring

Liberalisation and globalisation

Competition in corporate sector becoming intense.

Cos. reviewing their strategies, structure and
functioning etc. leading to corporate restructuring.

Good opportunity to M.Bs to extend their area of
operation.

34. 7) Disinvestment

It means reduction of some
kind of asset of a firm for
achieving either financial or
ethical objectives.

Motive of disinvestment is to
obtain funds.

35. Conclusion
 Inspite of problems popping up, merchant
banking in India has vast scope to develop
because of lot of domestic as well as foreign
businesses booming here. Indian economy
provides an amicable environment for these
firms to set up, flourish and expand here.

36. Thank you...