Defination

A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to.

Today, according to the US Federal Deposit Insurance Corporation (acronym FDIC), "the term merchant banking is generally understood to mean negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies." [1] Both commercial banks and investment banks may engage in merchant banking activities. Historically, merchant banks' original purpose was to facilitate and/or finance production and trade of commodities, hence the name "merchant". Few banks today restrict their activities to such a narrow scope.

History
Main article: History of banking Merchant banks are in fact the original "banks". These were invented in the Middle Ages by Italian grain merchants. As the Lombardy merchants and bankers grew in stature based on the strength of the Lombard plains cereal crops, many displaced Jews fleeing Spanish persecution were attracted to the trade. They brought with them ancient practices from the Middle and Far East silk routes. Originally intended for the finance of long trading journeys, these methods were applied to finance the production and trading of grain. The Jews could not hold land in Italy, so they entered the great trading piazzas and halls of Lombardy, alongside the local traders, and set up their benches to trade in crops. They had one great advantage over the locals. Christians were strictly forbidden the sin of usury, defined as lending at interest (Islam makes similar condemnations of usury). The Jewish newcomers, on the other hand, could lend to farmers against crops in the field, a high-risk loan at what would have been considered usurious rates by the Church; but the Jews were not subject to the Church's dictates.[citation needed] In this way they could secure the grain-sale rights against the eventual harvest. They then began to advance payment against the future delivery of grain shipped to distant ports. In both cases they made their profit from the present discount against the future price. This two-handed trade was time-consuming and soon there arose a class of merchants who were trading grain debt instead of grain. The Jewish trader performed both financing (credit) and underwriting (insurance) functions. Financing took the form of a crop loan at the beginning of the growing season, which allowed a farmer to develop and manufacture (through seeding, growing, weeding, and harvesting) his annual crop. Underwriting in the form of a crop, or commodity, insurance guaranteed the delivery of the crop to its buyer, typically a merchant wholesaler. In addition, traders performed the merchant function by making arrangements to supply the buyer of the crop through alternative sourcesgrain stores or alternate markets, for instancein the event of crop failure. He could also keep the farmer (or other commodity producer) in business during a drought or other crop failure, through the issuance of a crop (or commodity) insurance against the hazard of failure of his crop. Merchant banking progressed from financing trade on one's own behalf to settling trades for others and then to holding deposits for settlement of "billette" or notes written by the people who were sti ll brokering the actual grain. And so the merchant's "benches" (bank is derived from the Italian for bench, banco, as in a counter) in the great grain markets became centers for holding money against a bill (billette, a note, a letter of formal exchange, later a bill of exchange and later still a cheque). These deposited funds were intended to be held for the settlement of grain trades, but often were used for the bench's own trades in the meantime. The term bankrupt is a corruption of the Italian banca rotta, or broken bench, which is what happened when someone lost his traders' deposits. Being "broke" has the same connotation.

A sensible manner of discounting interest to the depositors against what could be earned by employing their money in the trade of the bench soon developed; in short, selling an "interest" to them in a specific trade, thus overcoming the usury objection. Once again this merely developed what was an ancient method of financing long-distance transport of goods. The medieval Italian markets were disrupted by wars and in any case were limited by the fractured nature of the Italian states. And so the next generation of bankers arose from migrant Jewish merchants in the great wheat-growing areas of Germany and Poland. Many of these merchants were from the same families who had been part of the development of the banking process in Italy. They also had links with family members who had, centuries before, fled Spain for both Italy and England. As non-agricultural wealth expanded, many families of goldsmiths (another business not prohibited to Jews) also gradually moved into banking. This course of events set the stage for the rise of Jewish family banking firms whose names still resonate today, such as Warburgs and Rothschilds. The rise of Protestantism, however, freed many European Christians from Rome's dictates against usury. In the late 18th century, protestant merchant families began to move into banking, especially in trading countries such as the United Kingdom (Barings), Germany (Schroders) and the Netherlands (Hope & Co.) At the same time, new types of financial activities broadened the scope of banking far beyond its origins. The merchantbanking families dealt in everything from underwriting bonds to originating foreign loans. For instance, bullion trading and bond issuance were two of the specialties of the Rothschilds. In 1803, Barings teamed with Hope & Co. to facilitate the Louisiana Purchase. In the 19th century, the rise of trade and industry in the US led to powerful new private merchant banks, culminating in J.P. Morgan & Co. During the 20th century, however, the financial world began to outgrow the resources of family-owned and other forms of private-equity banking. Corporations came to dominate the banking business. For the same reasons, merchant banking activities became just one area of interest for modern banks.

Slide 3: SERVICES OF MERCHANT BANKERS 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. LOAN SYNDICATION : Assistance is rendered to raise loans for projects after determining promoters contribution. These loans can be obtained from a single institution or a consortium.

Slide 9: 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

Slide 11: GUIDELINES FOR MERCHANT BANKERS : SEBIs 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 Merchant bankers are prohibited from buying securities based on the unpublished price sensitive information of their clients

MERCHANT BANKING : MERCHANT BANKING

INTRODUCTION & MEANING - : INTRODUCTION & MEANING - Business of money. Intermediary Channel . Advisory services to existing units for expanding and diversifying production. Renderer of non-banking services. Gives assistance to set up new industrial ventures .

DEFINITIONS - : DEFINITIONS - A kind of financial institution which provides a variety of services such as investment banking, management of customers securities, portfolios, in surance, acceptance of bills, etc. is known Merchant Banking. It is a fee-based business, where the bank assumes market risks but no long -term credit risk. It is a vision, investment banking is a technique. It is a conversion of dreams into reality w ith the help of money.

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

Growth of Merchant Banks in India - : Growth of Merchant Banks in India - Grindlays Bank (1967) . City Bank ( 1970). SBI (1972). Other Banks Private Banks, Foreign Banks. Financial Institutions Commercial Banks, Development Banks.

FEATURES - : FEATURES - Combination of Banking and Consultancy Services. Acts as a Financial Engineer. Provides variety of Services.

NEED AND IMPORTANCE - : NEED AND IMPORTANCE - Growth of Primary Markets. Purchasing Securities. Capital Flow. Promoting Financial Surplus. Coordinating activities to the Share Issue. Complying with Rules and Regulations.

TYPES OF MERCHANT BANKS - : TYPES OF MERCHANT BANKS -

ORGANISATIONAL STRUCTURE - : ORGANISATIONAL STRUCTURE -

FUNCTIONS AND SERVICES - : FUNCTIONS AND SERVICES - Issue Management. Project Counselling. Underwriting of Public Issues. Portfolio Management. Mergers and Takeovers. Loan Syndication. Offshore Finance. Rehabilitation of Sick Units. Capital

Restructuring Services. Private Placement. Foreign Direct Investment. Working Capital Finance. Credit Accepting and Bill Discounting.

Merchant Banking Services in India - : Merchant Banking Services in India -

MERCHANT BANKING REGULATIONS IN INDIA - : MERCHANT BANKING REGULATIONS IN INDIA - 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 . CAPITAL ADEQUACY NORMS : Category I : Rs. 5 Crores. Category II : Rs.50 Lakhs. Category III : Rs.20 Lakhs. Category IV : Nil.

GUIDELINES FOR MERCHANT BANKERS - : GUIDELINES FOR MERCHANT BANKERS - SEBIs authorization is a must to act as Merchant Bankers. Authorisation criteria include Qualifications. Infrastructure. Report submission to SEBI. Prohibition from buying Securities. Power of SEBI. Appointment of Compliance Officer.

CODE OF CONDUCT - : 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 ensure that Prospectus, Letter of Offer etc.. is available to Investors at the time of issue. Any penal action taken by SEBI should be informed to its clients.

Slide 15: 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 . It is responsible for the act of its Employees and Agents. Should not create false market.

ROLE / CONTRIBUTION - : ROLE / CONTRIBUTION - Channelizing. Coordinating activities. Ensuring compliance.

REFERENCES - : REFERENCES - P. N. Varshney, Banking Law and Practice, (4.262) New Delhi; Sultan Chand and Sons(2008). Prof. Anil Agashe, Merchant Banking and Financial Services , Pune; Everest Publishing House(2005). Internet.

MERCHANT BANKING : MERCHANT BANKING

INTRODUCTION & MEANING - : INTRODUCTION & MEANING - Business of money. Intermediary Channel . Advisory services to exi sting units for expanding and diversifying production. Renderer of non -banking services. Gives assistance to set up new industrial ventures .

DEFINITIONS - : DEFINITIONS - A kind of financial institution which provides a variety of services such as inve stment banking, management of customers securities, portfolios, insurance, acceptance of bills, etc. is known Merchant Banking. It is a fee-based business, where the bank assumes market risks but no long -term credit risk. It is a vision, investment ba nking is a technique. It is a conversion of dreams into reality with the help of money.

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

Growth of Merchant Banks in India - : Growth of Merchant Banks in In dia - Grindlays Bank (1967) . City Bank ( 1970). SBI (1972). Other Banks Private Banks, Foreign Banks. Financial Institutions Commercial Banks, Development Banks.

FEATURES - : FEATURES - Combination of Banking and Consultancy Services. Acts as a Financial Engineer. Provides variety of Services.

NEED AND IMPORTANCE - : NEED AND IMPORTANCE - Growth of Primary Markets. Purchasing Securities. Capital Flow. Promoting Financial Surplus. Coordinating activities to the Share Issue. Complying with Rules and Regulations.

TYPES OF MERCHANT BANKS - : TYPES OF MERCHANT BANKS -

ORGANISATIONAL STRUCTURE - : ORGANISATIONAL STRUCTURE -

FUNCTIONS AND SERVICES - : FUNCTIONS AND SERVICES - Issue Management. Project Counselling. Underwriting of Public Issues. P ortfolio Management. Mergers and Takeovers. Loan Syndication. Offshore Finance. Rehabilitation of Sick Units. Capital

Restructuring Services. Private Placement. Foreign Direct Investment. Working Capital Finance. Credit Accepting and Bill Discounting.

Merchant Banking Services in India - : Merchant Banking Services in India -

MERCHANT BANKING REGULATIONS IN INDIA - : MERCHANT BANKING REGULATIONS IN INDIA - 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 . CAPITAL ADEQUACY NORMS : Category I : Rs. 5 Crores. Category II : Rs.50 Lakhs. Category III : Rs.20 Lakhs. Category IV : Nil.

GUIDELINES FOR MERCHANT BANKERS - : GUIDELINES FOR MERCHANT BANKERS - SEBIs authorization is a must to act as Mercha nt Bankers. Authorisation criteria include Qualifications. Infrastructure. Report submission to SEBI. Prohibition from buying Securities. Power of SEBI. Appointment of Compliance Officer.

CODE OF CONDUCT - : 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 ensure that Prospectus, Letter of Offer etc.. is available to Investors at the time of issue. Any penal action taken by SEB I should be informed to its clients.

Slide 15: 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 . It is responsible for the act of its Employees and Agents. Should not create false market.

ROLE / CONTRIBUTION - : ROLE / CONTRIBUTION - Channelizing. Coordinating activities. Ensuring compliance.

REFERENCES - : REFERENCES - P. N. Varshney, Banking Law and Practice, (4.262) New Delhi; Sultan Chand and Sons(2008). Prof. Anil Agashe, Merchant Banking and Financial Services , Pune; Everest Publishing House(2005). Internet.

MERCHANT BANKING IN INDIA As planning and industrial policy envisaged the setting up of new industries and technology, greater financial sophistication and financial services are required. According to Goldsmith, there is a well proven link between economic growth and financial technology. Economic development requires specialist financial skills: savings banks to marshal individual savings; finance companies for consumer lending and mortgage finance; insurance companies for life and property cover; agricultural banks for rural development; and a range of specialised government or government sponsored institutions. As new units were set up and businesses expanded, they required additional financial services which were then not provided by the banking system. Like the local banking system and the trade before, the local system of family enterprises was unsuited for raising large amounts of capital. A public equity or debt issue was the logical source of funds. Merchant banks serve a dual role within the financial sector. Through deposits or sales of securities they obtain funds for lending to their clients (SEBI forbids lending by them): a function similar to most institutions. Their other role is to act as agents in return for fee. SEBI envisages a mandatory role for merchant banks in exercising due diligence apart from issue management, in buy-backs and public offer in take over bids. Their underwriting and corporate financial services are all fee rather than fund based and their significance is not reflected in their total assets of the industry. SEBI has been pressing for merchant banks to be primarily fee based institutions.

ORIGIN OF MERCHANT BANKING The origin of merchant banking is to be traced to Italy in late medieval times and France during the seventeenth and eighteenth centuries. The Italian merchant bankers introduced into England not only the bill of exchange but also all the institutions and techniques connected with an organised money market. Merchant banking consisted initially of merchants who assisted in financing the transactions of other merchants in addition to their own trade. In France, during seventeenth and eighteenth centuries a merchant banker (le merchand Banquer) was not merely a trader but an entrepreneur par excellence. He invested his accumulated profits in all kinds of promising activities. He added banking business to his merchant activities and became a merchant banker. MONEY CHANGER AND EXCHANGER 1 In the late medieval to early modern times, a distinction existed in banking s y s t e m s b e t w e e n m o n e y c h a n g e r a n d e x c h a n g e r. M o n e y c h a n g e r s concentrated on the manual change of different currencies, operated locally and later accepted deposits for security reasons. In course of time, money changers evolved into public or deposit banks; exchangers who operated internationally, engaged in bill-broking, raising foreign exchange and provision of long-term capital for public borrowers. The exchangers were remitters and merchant bankers. In the seventeenth century, a merchant banker was a dealer in bills of exchange who operated with correspondents abroad and speculated on the rate of exchange.

MERCHANT BANKING IN INDIA INTRODUCTION FINAN CIAL S ER VI C ES A RE AN IMP ORT ANT COM PON E NT OF FINAN C IAL SYST EM . THESMOOTH FUNCTIONING OF FINANCIAL SYSTEM DEPENDS UPON THE RANGE OF FINANCIALS E R V I C E S E X T E N D E D B Y T H E P ROVIDERS. FINANCIAL SERVICES IN INDI A H A V E WITNESSED REMARKABLE CHANGES IN THE RECENT PAST AFTER THE IMPLEMENTATION OF
Liberalization, privatization and globalization .Funds are tapped from the capital market to finance various mega industrial projects. In attracting public savings, merchant bankers play a vital role ass p e c i a l i z e d a g e n ci e s. T h e re s o u r ce s ra i s i n g f u n ct i o n s re m a i n s t o b e t h e primary business of a merchant banker. The primary market holds the key torapid capital formation, growth in industrial productions and exports. Therehas to be accountability to the end use of funds raised from the market. Theincrease in the number of issues and amount raised the number of merchant bankers. Therefore, the field became highly competitive market where itrequires aspecialized skill in handling the situation. The merchant bankershave a social responsibility to in building an industrial structure in India.