Merchant Banking & Venture Capital

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 A Merchant Bank is a financial institution
or an organization that underwrites corporate securities & advices
such clients on issues like corporate mergers etc, involved in the
ownership of commercial ventures.
in simple words
It is a bank which arranges loans to companies, deals in international
finance, buys and sells shares and launches new companies on the stock
exchange, but does not provide normal banking services to the
general public.

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also known as a Investment Bank/Accepting and Issuing Store
 the beginning…
• Originally Merchant Banking business was started in Italy and France and then came into
existence in the U.K., and the U.S.A.

• The Grindlays Bank initiated the merchant banking activity in India (1969).

• The main services offered included the management of Public Issues and Financial
Consultancy.

•City Bank introduced its merchant banking division in 1970.

• Later SBI started merchant Banking in 1973 followed by ICICI in 1974 and both these banks
emerged as leaders in merchant banking having done significant business during 1974-1985.

• The early growth of merchant banking in country is assigned to FERA, 1973

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 ? Merchant Banking
• To reduce pressure on capital market due to growing demand for funds.

• Advise the investors of the incentives available in the form of tax reliefs, other statutory
relaxations, good return on investment & capital appreciation in such investment

• Help industry and trade to raise funds, and the investors to invest their saved money in
sound and healthy concerns with confidence and expectation for higher yields.

• Make available finance for business enterprise acting as intermediaries between them
raising demand for funds & the supplies of funds besides rendering various other services.

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 Merchant Banking Activities
FUND BASED NON-FUND BASED
Which actually gets funds or money in the Which only assure the supply of fund but
organization e.g. secured loan, equity does not get fund in real terms. e.g. letter
shares, etc. of credit.
1) Equity/preference shares, bonds, 1) Capital issue related activities &
debentures and new capital issues. private placement of equity.
2) Dealing in money market 2) Loan/ Credit/ Fund syndication.
instruments. 3) Portfolio management.
3) Equipment leasing/ Hire Purchase. 4) Trusteeship mgt.
4) Dealing in secondary market 5) Mergers & Acquisitions.
operations. 6) Liaison & Broking.
5) Inter-corporate placement of funds. 7) Capital Restructuring
6) Venture capital/ fund. 8) Corporate and Project Counselling.

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 Functions of merchant banker

• Planning the total issue process in terms of timing, issue size, types of securities, issue price,
terms and conditions of issue etc.
• Drafting the prospectus and its vetting with SEBI.
• To help the company in appointment of bankers, brokers, underwriters, advertisers etc.
• Holding and conducting investors conferences, brokers conferences on behalf of the
company.
• Deciding about the closure of the subscription list on the basis of daily reports from the
collecting bankers.
• To finalize the allotment basis in consultation with the regional stock exchange, where the
securities will be listed.
• To arrange for debentures trustee in case of debenture issue.
• To arrange and/or provide for credit rating services, private placements etc.
• To assist the company in getting the security listed at the stock exchange.
• Stock broking in the securities.

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 Regulatory Framework
The merchant banking activity in India is governed by SEBI (Merchant Bankers) Regulations,
1992. Registration with SEBI is mandatory to carry out the business of merchant banking in
India. An applicant should comply with the following norms:
i) The applicant should be a corporate body.
ii) The applicant should not carry on any business other than those connected with the
securities market.
iii) The applicant should have necessary infrastructure like office space, equipment, manpower,
etc.
iv) The applicant must have at least two employees with prior experience in merchant banking.
v) Any associate company, group company, subsidiary or interconnected company of the
applicant should not have been a registered merchant banker.
vi) The applicant should not have been involved in any securities scam or proved guilt for any
offence.

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 SEBI Merchant Banking Regulations
Categorization

• Category I : to act as lead manager and carry on any activity of the issue management,
including preparation of prospectus and other information relating to the issue,
determining financial structure, tie up of financiers and final allotment and refund of the
subscription & to act as adviser ,consultant, co-manager, underwriter, portfolio manager.

• Category II : to act as adviser ,consultant, co-manager, underwriter, portfolio manager

• Category III : to act as underwriter , adviser and consultant to an issue

• Category IV : to act only as advisor or consultant to an issue

Net worth: 1crores, 50 Lakhs,Kirana Store

20 Lakhs, NIL
 Code of Conduct

• Observe high standards of integrity and fairness in all his dealings.

• Render high standard of service, proper care, exercise independent judgment & disclose
conflict of interest while providing unbiased service.

• Not make any statement or become privy to any act, practice or unfair competition, likely to
harm the interest of other MB.

• Not make exaggerated statements, written or oral, to the client either about the qualification
or the capability to render certain services or his achievements in regard to services
rendered to other clients.

• Render best possible advice to the client having regard to the clients needs and the
environment and his own professional skill.

• A MB shall not divulge to other clients, press or any other party any confidential information
about his client, which has come to his knowledge.

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 Continued…

• Provide investors with true and adequate information without making any misguiding

• Ensure that all professional dealings are effected in a prompt, efficient and cost effective
manner.

• Exaggerated claims and are aware of attendant risks before any investment decisions are
made.

• Ensure copies of prospectus, memorandum and related literature are made available to
investors.

• Fair allotment of securities and refund of application money without delay.

• Investor complaints are adequately dealt with.

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 Examples
• The last two major firms on Wall Street were Goldman Sachs and Morgan Stanley until both
banks elected to convert to traditional banking institutions on September 22, 2008, as part of
a response to the U.S. financial crisis.
• Kotak Investment Bank: India's premier Investment Bank . A subsidiary of Kotak Mahindra
Bank Ltd. Best Investment Bank in India by Finance Asia for 2008, 2007 and 2006.
• Punjab National Bank: Punjab National Bank, India’s one of the Leading Nationalized Bank is
registered with SEBI as Category – I Merchant Banker for providing all the major Merchant
Banking services. The Bank has an exclusive and specialized Capital Market Service Branch at
New Delhi for providing Merchant Banking Services to the Corporate.

• Indbank: Indbank Merchant Banking Services Limited (1989) as a subsidiary of Indian Bank
Indbank is a Category 1 Merchant Banker registered with SEBI undertaking assignments.

• Canara Bank: Canara Bank is also one of the leading Merchant Bankers in India.

• Others: SBI Capital market ltd, ICICI securities Ltd, IDBI capital markets ltd etc.

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Thank You !

Pratik Jain

Kirana Store