PROJECT REPORT ON MERCHANT BANKING

A PROJECT SUBMITTED TO
UNIVERSITY OF MUMBAI FOR
PARTIAL COMPLETION OF

THE DEGREE OF BACHELOR IN COMMERCE (ACCOUNTING AND FINANCE)

UNDER THE FACULTY OF COMMERCE

BY
HARIYA JASHKUMAR ANIL

UNDER THE GUIDANCE OF

MR. MITESH M. GOSRANI

MANSI BHARAT GADA DEGREE COLLEGE OF

COMMERCE, SCIENCE AND ARTS.
NEAR RAILWAY STATION, ANJURPHATA, BHIWANDI – 421 302. DISTRICT-
THANE

ACADEMIC YEAR – 2022-23

 PROJECT REPORT ON MERCHANT BANKING

A PROJECT SUBMITTED TO
UNIVERSITY OF MUMBAI FOR
PARTIAL COMPLETION OF

THE DEGREE OF BACHELOR IN COMMERCE (ACCOUNTING AND FINANCE)

UNDER THE FACULTY OF COMMERCE

BY
HARIYA JASHKUMAR ANIL

UNDER THE GUIDANCE OF

MR. MITESH M. GOSRANI

MANSI BHARAT GADA DEGREE COLLEGE OF

COMMERCE, SCIENCE AND ARTS.
NEAR RAILWAY STATION, ANJURPHATA, BHIWANDI – 421 302. DISTRICT -
THANE

ACADEMIC YEAR – 2022-23

 MANSI BHARAT GADA DEGREE COLLEGE OF
COMMERCE, SCIENCE AND ARTS.
NEAR RAILWAY STATION, ANJURPHATA, BHIWANDI – 421 302. DISTRICT -
THANE

CERTIFICATE

This is to certify that Mr. HARIYA JASHKUMAR ANIL, has worked and duly
completed his project work for the degree of Bachelor in Commerce (Accounting
and Finance) under the faculty of commerce and his project is entitled PROJECT
REPORT ON MERCHANT BANKING under my supervision.
I further certify that the entire work has been done by the learner under my
guidance and that no part of it has been submitted previously for any Degree or
Diploma of any University.

It is his own work and facts reported by his personal findings and investigations.

Name and Signature of

Guiding Teacher
MR. MITESH M. GOSRANI

Date of submission:
 DECLARATION BY LEARNER

I the undersigned MR.HARIYA JASHKUMAR ANIL here by, declare

that the work embodied in this project work titled “PROJECT REPORT ON
MERCHANT_BANKING” forms my own contribution to the research work
carried out under the guidance of MR. MITESH M. GOSRANI is a result
of my own research work and has not been previously submitted to any other
University for any other Degree/ Diploma to this or any other University.
Wherever reference has been made to previous works of others, it has been clearly
indicated as such and included in the bibliography.
I, here by further declare that all information of this document has been obtained
and presented in accordance with academic rules and ethical conduct.

Name and Signature of learner

HARIYA JASHKUMAR ANIL

Certified by
Name and Signature of Guiding Teacher
MR. MITESH M. GOSRANI
 ACKNOWLEDGEMENT

To list who all have help me in difficulties because they are so

numerous, and the depth is so enormous.
I would like to acknowledge the following as being idealistic channels
and fresh dimensions in the completion of this project.

 First and foremost, praises and thanks to the god, the almighty, for his
showers of blessings throughout my research work to complete the
research successfully.

 I am extremely grateful to my parents for their love, prayers, caring and

sacrifices for educating and preparing me for my future.

 I take this opportunity to thank the University of Mumbai for giving

me chance to do this project.

 I would like to thank my Principal, Mr. Mitesh Gosrani for providing

the necessary facilities required for completion of this project.

 I take this opportunity to thank our Coordinator, Mrs. Amit Chheda

for her moral support and guidance.

 I would also like to express my sincere gratitude towards my project

guide Mr. Mitesh Gosrani whose guidance and care made the project
successful.

 I would like to thank my College Library, for having provided various

reference books and magazines related to my project.

 Lastly, I would like to thank each and every person who directly or
indirectly helped me in the completion of this project.
 INDEX

CHAPTERS TITLE OF THE CHAPTER PAGE NO.

Chapter No. 1 Introduction 1-4

Chapter No. 2 Research Methodology 5-7

Chapter No. 3 Literature Review 8-64

Chapter No. 4 Data Analysis and Interpretation 65-76

Chapter No. 5 Findings And Conclusion 77-79

Chapter No. 6 Suggestions 80-81

Webliography and Questionnaire

Chapter No. 7 82-85
 CHAPTER NO. 1

ABSTRACT

This research is conducted to gain the understanding of merchant banking

in India by having an outlook of its emergence and scope as well as its
operations in the country. Although merchant banking activity has been into
operation decades ago across the globe, it was only in 1992 after the
formation of Securities and Exchange Board of India (SEBI) that India
saw an official recognition of the same as was the necessity of banks
themselves which were in need of non - fund based income so as to improve
their profitability margins by all means in the changing economic scenario.
Making it unique is: Acting as an advisor, broker, and a principal, that has
a longer-term approach than a typical investment bank and is highly
concerned with the viability of each investment opportunity and providing
the right advice for a strong partnership with each client company. This
project gives an overview about the merchant banking in India starting
from its origin, scope, regulations, recent developments, major players,
its operations, structural view including the actual fees being charged
by merchant banks globally, its contribution to the economy, the
perspective of banks towards the same published by other reports as well as
a brief comparison of few merchant banks based on parameters including
revenues, profits, earnings available for equity shareholders, etc. The urge to
see the effect of economic downturns, etc. on the performance of these banks
is what have also been studied.

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INTRODUCTION:-

A Merchant Bank is a British term for a bank providing various financial

services such as accepting bills arising out of trade, providing advice on
acquisitions, mergers, foreign exchange, underwriting new issues, and
portfolio management.

A Merchant Bank can be generally described as a financial services company

with a private equity investment arm offering investment banking and
ancillary services as well. Because a merchant bank acts not only as an
advisor and broker but also as a principal, a merchant bank has a longer term
approach than a typical investment bank and is highly concerned with the
viability of each investment
Opportunity and providing the right
advice for a strong partnership with
each client company.

In banking, a merchant bank is a

traditional term for an Investment
Bank. It can also be used to describe the private equity activities of banking.
This article is about the history of banking as developed by merchants, from
the Middle Ages onwards. Amidst the swift changes sweeping the financial
world, Merchant Banking has emerged as an indispensable financial
advisory package. Merchant banking is a service-oriented function that
transfers capital from those who own to those who can use it. They try to
identify the needs of the investors & corporate sector & advice entrepreneurs
what to do to be successful.

The term Merchant Banking has its origin in the trading methods of
countries in the late eighteenth and early nineteenth century when trade-
taking place was financed by bill of exchange drawn by merchanting houses.

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At that time the merchants were merely financing their own activities. As
international trade grew and other lesser known names wanted to import
goods from abroad, the established merchants ‘lent their names’ to the
newcomers by agreeing to accept bills of exchange on their behalf. The
acceptance houses would charge a commission for this service and thus
there grew up the business of accepting bills of finance trade not merely of
themselves, but of others. Acceptance business thus became and to a degree
always has been hallmark of true Merchant Banks. The second historical of
Merchant Banks was the raising of capital for foreign Government. In many
cases, the Merchant Banks have been trading in the countries concerned and
gained the confidence of Governments and other authorities in those
countries. Thus, the second principal ingredient of Merchant Banking
became and still is raising of capital through the issue of stocks and bonds.
Therefore, Merchant Banks can be accepting houses or issuing houses or
both. Merchant Banking started in the beginning of 20th century in UK and
USA. More recently, the services offered by Merchant Banks have entered
into the other areas of operations. Their role is wide ranging, and they can
now provide most of the financial services required by a company, touching
almost all aspects of establishing and running of industrial units on sound
financial footing.

Dictionary meaning of ‘merchant bank’ refers to an organization that

underwrites corporate securities and advises such clients on issues like
corporate mergers, etc. involved in the ownership of commercial ventures.

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DEFINITION:-

The first authoritative definition for the term Merchant Banker has been
given in the Rule 2 (e) of SEBI (Merchant Bankers) Rules, 1922.
Accordingly, ― A Merchant Banker means any person who is engaged in
the business of Issue Management either by making arrangements regarding
selling, buying or subscribing to Securities as Manager Consultant, Adviser
of rendering Corporate Advisory Service in relation to Such Issue
Management”.

Section 5 (b) of the Banking Regulation Act, 1949 defines Banking as ―

Accepting, for the purpose of lending or investment of deposits of money
from the public, repayable on demand or otherwise and withdraw able by
cheque, draft, order or otherwise.

The Notification of the Ministry of Finance defines a merchant banker as,

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 rendering corporate advisory
service in relation to such issue Management.

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 CHAPTER NO. 2

RESEARCH METHODOLOGY

Research is a purposeful investigation. The term ‘research’ refers to the

systematic method of clarifying the problem, formulating a hypothesis,
collecting the data, analysing the data, and reaching certain conclusions.
Research process starts with defining the research problem, formulating a
hypothesis, design research, collecting data and finally interpretation and
analysing the data to form a report.

Therefore, research methodology is a way to systematically solve the

research problem. Investigators need to adopt an appropriate methodology
in a systematic way to achieve the objectives.

Scope Of Study

i. It would help us to develop the ability to study the functioning of

Merchant banking in India & apply multi-disciplinary concept tools and
techniques to solve vital problem.
ii. It familiarizes with the various services provided by merchant.
iii. Based upon the comparison, it would help us to determine which sector
has more growth potential & where should one invest his or her fund to
maximise the return at minimum risk.

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Objective of study

The Objective to study on Awareness of Merchant Banking in General

Public regarding Investment Option are as follow:

 To study the Merchant banking services in India.

 To study about various kinds of services provided by merchant banking
& also in various banks, companies & financial institutions .
 To know people invest in shares and securities for their savings.
 To develop the ability to study the functioning of Merchant Banking in
India & learn &apply multidisciplinary concepts, tools &techniques to
solve vital problems.
 To familiarize with the various services provided by merchant bankers.
 To inform the investors about merchant banking as a consultant option.
 To understand whether investors trust merchant banker while investing
 To interpret analysis and give recommendation and conclusion.
 Understanding the merchant banking services and their role.

Limitation Of Study

 Due to paucity of time only limited information can be collected.

 There can be a possibility of “individual biasness” on the part of
respondent.
 The customers may be hesitant to provide the necessary information.
 Only 60 respondents were Selected for Sampling.
 Data is collected only from limited area ( Oswal park ).
 People can be reluctant to go into details because of their busy schedules.
 The customers may not feel the need to answer certain questions as per
their convenience.

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Types Of Research

The research is primarily both exploratory as well as descriptive in nature.

The sources of information are both Primary & Secondary.
A well-structured questionnaire was prepared to collect the perception of the
respondent, through this questionnaire.

Types Of Data

The data is collected from the following sources:-

1. Primary Data:- Primary data is the first-hand data which is collected from
the number of respondents. Here structured questionnaire was used to
collect primary data through surveys.

2. Secondary Data:- Secondary data has been collected for other for other
useful resources & information essential required in order to successfully
complete the project report & company figures from the internet, books,
magazines as well as newspaper.

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 CHAPTER NO. 3

LITERATURE REVIEW

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 organized 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.

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History Of Merchant Banking :-

During the seventeenth and most of the eighteenth-century international

finance was centred on Amsterdam. Consequently, Amsterdam merchants
became the first masters of the various financial techniques and
developments which, in the course of time, became identified with the
emergent profession of ‘Merchant Bankers’.

Commercial Banking and Investment Banking are often confused with

Merchant Banking. In many ways, there may be similarities in their
functions. However, in certain ways, Merchant Banking is distinctly
different from commercial Banking and Investment Banking.

The primary function of a commercial bank is to receive deposits from the

public and lend the same to others. Commercial Banks
can undertake some of the merchant banking activities
like Issue Management whereas Merchant Banking
Units can not undertake commercial banking
activities. However, the functions of Merchant
Banking may not widely vary from Investment Banking. The Merchant
Banker mainly deals with Issue Management, post issue services, corporate
adviser services etc. the Investment Banker undertaken trading in securities,
Investment advisers and bought out deals which are not the main activities
of Merchant Bankers.

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Organizational Setup Of Merchant Bankers In India :-

In India a common organizational setup of merchant bankers to operate is in

the form of divisions of Indian and foreign banks and financial institutions,
subsidiary companies established by bankers like SBI, Canara Bank, Punjab
National Bank, Bank of India, etc. Some firms are also organized by
financial and technical consultants and professionals. Securities and
Exchange Board of India has divided the merchant bankers into four
categories based on their capital adequacy. Each category is authorized to
perform certain functions. From the point of organizational setup India’s
merchant banking organizations can be categorized into four groups on the
basis of their linkage with parent activity. They are:

(A) Institutional Base

Where merchant banks function as an independent wing or as subsidiary of

various private/Central Governments/State Governments financial
institutions. Most of the financial institutions in India are in public sector and
therefore such setup plays a role on the lines of government priorities and
policies.

(B) Banker Base

These merchant bankers function as division/subsidiary of banking

organization. The parent banks are either nationalized commercial bank or
the foreign banks operating in India. These organizations have brought
professionalism in merchant banking sector, and they help their parent
organization to make a presence in capital market.

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(C) Broker Base

In the recent past there has been an inflow of qualified and professionally
skilled brokers in various stock exchanges of India. These brokers
undertake merchant banking related operations also like providing
investment and portfolio management services.

(D) Private Base

These merchant banking firms are originated in private sector. These

organizations are the outcome of opportunities and scope in merchant
banking business, and they are providing skill-oriented specialized services
to their clients. Some foreign merchant bankers are also entering either
independently or through some collaboration with their Indian counterparts.
Private sector merchant banking firms have come up either as the sole
proprietorship or public limited companies. Many of these firms were in
existence for quite some time before they added a new activity in the form
of merchant banking services by opening new divisions on the lines of
commercial banks and All India Financial Institutions.

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Growth Of Merchant Banking in India :-

Formal merchant banking activity in India was originated in 1969 with

Merchant Banking Division set up by the Grind lays Bank, the largest foreign
bank in the country. The main service offered at that time to the corporate
enterprises by the merchant banks included the management of public
issues and some aspects of financial consultancy. Other foreign banks like
City Bank, Chartered Bank also assumed the merchant banking activity in
India. State Bank of India started merchant banking in 1973 followed by
ICICI in 1974. Both these Indian merchant bankers emerged as leaders in
merchant banking having done significant business during the period of 1974
- 1987 in comparison to foreign banks. The early and mid-seventies
witnessed a boom in the growth of merchant banking organizations in the
country with various commercial banks, financial institutions, and broker‘s
firms entering into the field of merchant banking.

The early growth of merchant banking in the country is assigned to the

Foreign Exchange Regulation Act, 1973 (FERA) where under large number
of foreign companies operating in India were required to dilute their foreign
holdings in order to continue business in the country. This had caused two-
pronged effect viz. firstly, in the form of spate in Foreign Exchange
Regulation Act Issues eliciting interest of the investors by creating massive
awareness about capital markets amongst the new class of investing public,
secondly, merchant banking Activity became Attractive to banks and the
firms of consultants and share brokers who entered into these fields
vigorously to reap the advantages of the market.

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Merchant Banking: Indian Scenario :-

Merchant Banking activity was formally initiated into the Indian capital
markets when Grindlays Bank received the license from Reserve Bank in
1967. Grindlays which started with management of capital issues,
recognized the needs of emerging class of entrepreneurs for diverse financial
services ranging from production planning and system design to market
research. Apart from meeting specially, the needs of small-scale units it
provided management constancy services to large and medium sized
companies. Following Grindlays Bank, Citi Bank set-up its Merchant
Banking division in 1970. The division took up the task of assisting new
entrepreneur and existing units in the evaluation of new projects and raising
funds through borrowing and issue of equity. Management consultant
services were also offered. Consequent to the recommendations of Banking
Commission in1972, that Indian bank should start Merchant Banking
Division in 1972. In the initial years the SBI’s objective was to render
corporate advice and assistance to small and medium entrepreneurs.

The economic reforms initiated by the Government since July 1991 in the
files of industry, trade and financial sector have paved the way for rapid
development of the economy. Several projects have been conceived since
then and almost all the major groups in the country that have announced their
intentions to set-up mega projects in infrastructure sector envisaging
investment of thousands of crores. With several large projects been set-up
and many more on the drawing board, the demand for a complete range of
Merchant Banking services encompassing project advisory services, issue
management and financial advisory services for corporate sector has
increased considerably. This has led to a sharp growth in the Merchant
Banking business in the last 2 years.

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In India prior to the enactment of Indian Companies Act, 1956,managing
agents acted as issue houses for securities, evaluated project reports, planned
capital structure and to some extent provided venture capital for new firms.
Few share broking firms also functioned as merchant bankers. The need for
specialized merchant banking services was felt in India with the rapid growth
in the number and size of the issues made in the primary market. The
merchant banking services were started by foreign banks, namely the
National Grind lays Bank in 1967 and the City Bank in 1970.

The Banking Commission in its report in 1972 recommended the setting up

of merchant banking institutions. This marked the beginning of specialized
merchant banking in India. To begin with, merchant banking services were
offered along with other traditional banking services. In the mid-Eighties,
the Banking Regulation Act was amended permitting commercial banks to
offer a wide range of financial services through the subsidy rule.

The State Bank of India was the first India Bank to set up merchant Banking
division in 1972. Later ICICI set up its Merchant Banking division followed
by Bank of India, Bank of Baroda, Canara Bank, Punjab National Bank and
UCO Bank. The merchant banking gained prominence during 1983-84 due
to new issue boom.

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Need And Importance Of Merchant Banking In India :-

 Important reason for the growth of merchant banking is due to exerting

excess demand on the sources of funds forever expanding industry and
trade.
 Corporate sector had the only alternative to avail of the capital market
services for meeting their long-term financial requirements through
capital issues of equity and debentures.
 With the growing demand for funds there was pressure on capital market
that enthused the commercial banks, share brokers and financial
consultancy firms to enter into the field of merchant banking and share
the growing capital market.
 In India have opened their merchant banking windows and are
competing in this field, and also doing advisory functions as merchant
bankers as well as managing public issues in syndication with other
merchant bankers.
 Merchant banks can play highly significant role in mobilizing funds of
savers to investible channels assuring promising return on investments
activity.
 With the growth of merchant banking profession corporate enterprises in
both public and private, sectors would be able to meet the growing
requirements for the funds for establishing new enterprises, undertaking
expansion/modernization/diversification of the existing enterprises.
 Merchant banks have been procuring impressive support from capital
market for the corporate sector for financing their projects.
 In view of multitude of enactments, rules and regulations, guidelines and
offshoot press release instructions brought out by the Government

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 from time to time imposing statutory obligations upon the corporate sector
to comply with all those requirements prescribed therein, the need of skilled
agency existed which could provide counselling.
 Merchant bankers advise the investors of the incentives available in the form
of tax relief’s, other statutory relaxations, good return on investment and 7
capital appreciation in such investment to motivate them to invest their
savings in securities.

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Requirements For Setting Up A Merchant Bank Outfit :-

1. Formation of the Business Organization

SEBI act, 1992 does not prescribe any specific form of business
organization to carry on the activities as merchant banker. However, the
types of organizations are listed below:

a. Sole proprietorship
b. Partnership firm
c. Hindu Undivided Family (HUF)
d. Corporate Enterprises
e. Co-operative Society

Generally, it is preferred that the Merchant Banking outfit be a registered

company. Merchant Banks are generally setup as subsidiary companies of
banks (Public or Private). For example, SBI caps, ICICI Securities etc.

2. Adoption of a viable business plan

All the basic tests required to find out whether the business to be undertaken
is viable or not are also applicable to a Merchant Banking setup. Capital
adequacy, profitability, growth opportunities and current market size are
some of the factors which need to be looked into.

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 3. Registration of Merchant Bankers

1.Application for grant of certificate

An application for grant of a certificate needs to be made to SEBI .

The application can be made for any one of the following categories of the
merchant banker namely:-

 Category I, that is –
(i) To carry on any activity of the issue management, which will inter-alia
consist of 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; and
(ii) To act as adviser, consultant, manager, underwriter, portfolio
manager.

 Category II, that is, to act as adviser, consultant, co- manager,

underwriter, portfolio manager.

 Category III, that is to act as underwriter, adviser, consultant to an

issue.

 Category IV, that is to act only as adviser or consultant to an issue.

To carry on the activity as underwriter or portfolio manager a separate

certificate of registration needs to be obtained from SEBI.

2. Application to conform to the requirements.

The application should conform to all the requirements under the SEBI
guidelines, otherwise it may be rejected.

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 3. Furnishing of information, clarification, and personal representation

The Board may require the applicant to furnish further information or

clarification regarding matters relevant to the activity of a merchant banker
for the purpose of disposal of the application. The applicant or its principal
officer may appear before the Board for personal representation.

Consideration of application

The Board shall take into account for considering the grant of a certificate,
all matters, which are relevant to the activities relating to merchant banker
and in particular the applicant complies with the following requirements,
namely: -

 the applicant shall be a body corporate other than a non- banking

financial company.
 the merchant banker who has been granted registration by the Reserve
Bank of India to act as a Primary or Satellite dealer may carry on such
activity subject to the condition that it shall not accept or hold public
deposit.
 the applicant has the necessary infrastructure like adequate office
space, equipment, and manpower to effectively discharge his
activities.
 the applicant has in his employment minimum of two persons who
have the experience to conduct the business of the merchant banker.
 a person directly or indirectly connected with the applicant has not
been granted registration by the Board.
 the applicant fulfils the capital adequacy requirement is as follows.

The capital adequacy requirement should not be less than the net worth of
the person making the application for grant of registration. The net worth
shall be as follows:-

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 Category Minimum Amount
Category I Rs.5,00,00,000
Category II Rs. 50,00,000
Category III Rs. 20,00,000
Category IV Nil

 The applicant, his partner, director or principal officer is not involved in

any litigation connected with the securities market which has an adverse
bearing on the business of the applicant and have not at any time been
convicted for any offence involving moral turpitude or has been found
guilty of any economic offence

 The applicant has the professional qualification from an institution

recognized by the Government in finance, law, or business management.

 Grant of certificate to the applicant is in the interest of investors.

 Procedure for Registration

The Board on being satisfied that the applicant is eligible shall grant a
certificate. On the grant of a certificate the applicant shall be liable to pay
the fees as prescribed.

 Payment of fees and the consequences of failure to pay fees.

Every applicant eligible for grant of a certificate shall pay such fees in such
manner and within the period specified.

Where a merchant banker fails to pay the Annual fees as provided in

Schedule II, the Board may suspend the registration certificate,
whereupon the merchant banker shall cease to carry on any activity as a
merchant banker for the period during which the suspension subsists.

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The Merchant Bank can commence business on acquisition of a Certificate
of Registration from the SEBI after completion of the above mentioned
formalities

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Role Of Merchant Banker :-

The role of merchant banker is dynamic in the wake of diverse nature of

merchant banking services. Merchant banker’s dynamism lies in promptly
attending to the corporate problems and suggests ways and means to solve
it. The nature of merchant banking services is development oriented and
promotional to help the industry and trade to grow and survive. Merchant
banker is, therefore, dedicated to achieving this objective through his
dynamism. He is always awake to renew his skills, develop expertise in new
areas so as to equip himself with the knowledge and techniques to deal with
emerging new problems of corporate business world. He has to keep pace
with the changing environment where Government rules, regulations and
policies affecting business conditions frequently change; where science and
technology create new innovations in production processes of industries
envisaging immediate renovations, diversification, modernizations or
replacements of existing plant and machinery or other equipment’s putting
new demands for finances and necessitating overhauling of the capital
structure of the firms.

Merchant banker has to think and devise new instruments of financing

industrial projects. He has to assume wider responsibilities of saving
industrial units from going sick and guiding industries to be set up
industrially backward areas to eliminate regional imbalances in industrial
development of the country. He has to guide the wider section of the
community possessing surplus money to invest in corporate securities and
other productive investment channels. He has to help the industry in different
forms to ensure that it runs risk free and devoid of uncertainty by assisting
the has to watch the interest and win over the confidence of the Government,
its agencies, along with the entrepreneurs, the investors, and the whole
community. He must bridge the communication gap between different

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sections and resolve the problem being faced in different areas concerned
with the business world.

In the days ahead, merchant bankers have very significant role to play tuning
their activities to the requirements of the growth pattern of corporate sector,
the industry, and the economy as a whole, which is, in it, a challenging task
and to meet these challenges merchant bankers will have to be more vigorous
and strategic in playing their role. They will have also to adopt new ways
and means in discharging their role.

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Merchant Banking In India :-

A merchant bank may be considered as an institution which centres its

operation on all or most of the following activities.

1. Corporate financial advice, on such diverse matters as new share and

bond issues, capital reconstructions, mergers, and acquisitions
2. The taking of deposits and currency, money market operations
including foreign exchange dealing.
3. Medium-term lending and syndication of loans.
4. Acceptance credits and all forms of export finance.
5. The holding and dealing in quoted and unquoted investment.
6. Fund management on behalf of clients, most typically pension funds,
unit trust, investment trusts and wealthy individuals.

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Functions Of Merchant Banking :-

 Consulting advice on going public and international business.

 Advice and help in taking your company public. If they are unwilling to
supply investment banking bridge loans, they have a low-cost strategy
for taking your company public.
 They do private investment in public equities.
 They can advise or help with a company’s M&A strategy.
 They are essential advisors for companies seeking to become
multinational corporations.

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Services Rendered by Merchant Banker (In Detail) :-

Merchant banker provide service like underwriting connected with the public
issue management business, Managing/advising on In the present dynamic
environment where public money is playing a vital role in financing a large
number of projects, both in the public and private sectors, Merchant Banking
has a significant role in managing the show and meeting the growing
demands for funds by the corporate sector. Merchant Banking includes a
whole gamut of activities which meet the needs of both corporate and
individual investors and which range from identification, evaluation,
promoting and financing of projects (both domestic and overseas) by raising
resources in the equity and long-term loans, to organize and participate in
international consortia, to raise foreign currency loans and to offer advisory
services on various matters related to finance, investment, capital
management, structure, mergers, amalgamation, takeovers and acquisitions.
They also play a useful role in the portfolio management, money market
operations, venture capital, leasing, etc. Merchant bankers act as a guide for
the entrepreneurs who are unaware, or have little knowledge or experience,
of the complexities involved in the above spheres.
In addition to the above, the scope of Merchant Banking services has
extended to providing advisory services to companies to increase or divest
their stakes, public sector undertaking disinvestments, international issues,
etc. With the OTCEI being operation now, Merchant Bankers will have a
key role to play in terms of appraising the projects and offering two-way
quotes for market making in case of entrepreneur going for listing in the
above exchange.

Merchant Bankers acts as a critical link between the corporate who are
intended to raise funds and the investors who are interested to invest in
securities Industry. Besides issue management, the Merchant Bankers are

Page | 26
also undertake the activities international offerings of Debt/Equity i.e., GDR,
ADR, Bonds and other instruments, Private placement securities, Primary or
Satellite dealership of government securities, Corporate Advisory services
related to securities market (e.g., Takeovers, acquisitions, disengagement),
Stock-Broking, Advisory Services for projects, Syndication of rupee term
loans and International Financial Advisory Services. The services can be
represented as follows:

Page | 27
A. Issue Management:

The abolition of the managing agency system, the growth of the public
limited companies in numbers and in sizes, the imposition of new rules and
regulations regarding the public issues of securities by SEBI has given the
merchant bankers a key role to play in managing the public issues of
corporate houses in India. The performance includes procuring long term
finance for their clients through issue of equity, preference shares, rights
shares, and debentures/bonds to the public.

Capital issue management involves specialized marketing of corporate

securities through offering securities to the public, procuring private
subscription of securities (i.e. private placement) and granting securities to
the existing shareholders of the company (i.e. right issue or bonus share
issues). In case of a public issue, a merchant banker in respect of pre-issue
management (as lead manager) has:

(a) to take requisite actions as per SEBI guidelines

(b) to appoint managers, bankers, underwriters, brokers, etc.

(c) to advise the company on appointment of auditors, solicitors, and board

of directors

Page | 28
(d) to draft prospectus and obtain consent from company’s legal advisors,
board of directors and other concerned parties

(e) to file the prospectus with registrar

(f) to make an application for enlistment with stock exchanges and finally

(g) to make an arrangement for advertisement about the issue.

Page | 29
B. Underwriting

Underwriting is like insurance against the failure of an issue. It is a

guarantee to the issuing the company, that the money that it requires for its
project will definitely be raised. It means that even if the issue is not fully
subscribed to by the public, the underwriters will make up the short fall.

Underwriting involves the underwriter agreeing to subscribe directly, or to

procure subscription for the unsubscribe portion of the issue, which is not
taken up. For the risk that the underwriter takes, he is paid commission.

New companies entering the markets for the first time, always face number
of problems in raising funds from the market. One of the biggest problems
of course that the company is not well known to the investors and many of
them will be unwilling to invest their money in such ventures. Many a times
even existing companies may find it difficult to raise money, due to some
reasons. Issuing companies therefore approach different underwriters with a
request to underwrite the issue.

Underwriters on their part need to satisfy themselves about the viability of

the project and also about the integrity of the promoters of the company. It
must be noted that when an issue is under subscribed, the underwriters will
pick the shares and only if the project is good enough, then in future they can

Page | 30
sell the shares in the market and get not only their money back but can also
make a decent profit as well.

It is obligatory for the merchant bankers to accept a minimum 5%

underwriting in the issue subject to a ceiling. By taking underwriting in an
issue managed by them, they show their full commitment to the issue that
they are managing.

Underwriting is an agreement made between an issuing company and other

party called as underwriter who binds himself to accept the under•
subscription of securities in consideration of certain amount of commission.
A fully underwritten public issue spells confidence to the investing public,
which generally ensures a good response to the issue. Keeping this in view,
companies when float any public issues must have full understanding about
such issue. Merchant bankers, managing an issue, have to decide very
carefully after going through detail of the issue and also the issue amount to
be underwritten. The underwriters must be the SEBI authorized and
registered merchant bankers, brokers, banks, financial institutions, etc.

Page | 31
C. Project Counselling

Project counselling is very important and lucrative merchant banking

services which only very few merchant bankers having advantages of
knowledge, skills and experience over others are able to render satisfactorily.
The corporate seek advice in respect of identification of profitable
investment opportunities in the related business areas (like
forward/backward integration) or as part of diversification process. The
merchant bankers carry out detailed studies on product demand patterns, cost
structures, etc., to enable the corporate in preparation of feasibility study may
involve arrangement of a foreign collaboration, advice on technical
parameters and also legal issues.

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Scope Of Services

Project counselling services are needed by industrial entrepreneurs in India

in the following areas:

 Preparation of project report

 Deciding upon the financing pattern to finance the cost of the project.

 Aspects of project appraisal with financial institutions/banks.

Project Report

Project report consists of technical process, location, management profile,

means of financing, reports on market surveys and market explorations.
Merchant bankers advise the clients on project preparation. Merchant
bankers, on behalf of their clients, engage technical consultants specialized
in the specific area, and marketing experts to prepare technical feasibility
report and market survey reports. Merchant bankers maintain the list of such
experts approves by financial institutions and assign the work to these
experts.

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D. Loan Syndication

It refers to assistance rendered by merchant banks to get mainly term loans

for projects. Such loans may be obtained from a single development finance
institution or a syndicate or consortium as in the case of large term loans.
Merchant banks can also help corporate clients to raise syndicated loans from
commercial banks.

 Establish Lending Terms and Conditions

 Invitation to Lender (Participating Financial Institution)

 Make and Enter into an Agreement, etc.

 The Arranger may also participate in the syndicate group.

 Fund Settlement Services (Management of Due Dates, Collect and

Payment of Principal and Interest).

 Communication Services (Send Various Notifications), etc...

Page | 34
Scope Of Service

Once the client company has decided about the project proposed to be undertaken,
the next step is looking for the sources wherefrom funds could be procured to
implement the project. The responsibility of locating the sources of finance,
approaching these sources by putting in requisite prescribed applications and
complying with all the formalities involved in the sanction and disbursal of loan
rests with the merchant bankers who provide the service of loan/credit syndication.

Loan syndication in the case of domestic borrowing is undertaken with the

institutional lenders and the banks. Amongst institutional lenders the following
institutions are the main suppliers of the long and medium term funds with which
the merchant bankers contact, liaison and arrange loans working for and on behalf
of their clients.

All India financial institutions:

 Industrial Finance Corporation of India (IFCI)

 Industrial Development Bank of India (IDBI)

 Industrial Credit & Investment Corporation of India Ltd (ICICI)

State level financial bodies:

 State Financial Corporation’s (SFCs)

 State Industrial Development Corporations (SIDCs)

 State Industrial & Investment Corporations (SIICs)

Page | 35
All India level investment institutions:

 Life Insurance Corporation of India (LIC)

 Unit Trust of India (UTI)

 General Insurance Corporation of India (GIC) & its subsidiary companies.

 Commercial banks: Commercial banks join in consortium loan being provided

by the above institutions.

Page | 36
E. Portfolio management:

Portfolio is a combination of securities such as stocks, bonds, and money

market instruments. The process of blending together the broad assets classes
so as to obtain optimum return with minimum risk is referred to as portfolio
management. Portfolio management service is one of the merchant banking
activities recognized by SEBI. Presently, portfolio management services can
be performed by SEBI authorized Category-I merchant bankers or the
portfolio managers or the discretionary portfolio manager as defined in
clauses (e) and (f) of Rule 2 of SEBI (Portfolio Managers) Rules, 1993.
According to the definition, a portfolio manager means any person who
pursuant to a contract or arrangement with a client, advises or directs or
undertakes on behalf of the client (whether as a discretionary portfolio
manager or otherwise) the management or administration of a portfolio of
securities or the funds of the client, as the case may be [Clause (e) of Rule2].
Discretionary portfolio manager means a portfolio manager who exercises
or may, under a contract relating to portfolio management, exercise any
degree of discretion as to the investments or management of the portfolio of
securities or the funds of the client, as the case may be [Clause (f) of Rule 2]

Merchant bankers take up the management of a portfolio of securities on

behalf of their clients, providing special services with a view to ensuring
maximum return by such investment with minimum risk of loss of return on
the money invested in securities. In performing the services of portfolio
management, a merchant banker has to enquire the investment needs of
clients, their tax bracket, ability to bear risk, marketability and liquidity of
securities, reasonable return on investment etc. In addition to that, merchant
bankers and portfolio managers are required to perform other set of functions
including:

Page | 37
(a) studying capital market environment,

(b) studying price trends of securities in stock exchanges,

(c) identifying blue-chip companies where investments may be proved better

and safe,

(d) collecting necessary information on financial performance of various

companies,

(e) maintaining complete records of latest amendments in Government

policies, stock exchange, RBI regulations, etc.,

(f) studying the behavioural pattern of brokers community engaging in

different stock exchanges,

(g) educating prospective investors

(h) guiding on purchase and sale of securities on behalf of their clients to

achieve maximum return at lesser risk.

In order to become successful in portfolio management the merchant

bankers or portfolio managers take into account a well-planned programme
including appropriate return on investment, selection of a balanced mix of
capital structure of a company, diversification of portfolio, etc. They assist
in this area not only to individual and corporate investors but also to non-
resident Indians (NRI).

Page | 38
F. Capital Assistance

In providing financial assistance, merchant banks offer a full understanding of all

facts of the capital markets. This includes all types of debt and equity financing
available from both the domestic and international markets.

It should be understood that interest rates are not the only definition of capital
costs. Restrictions on availability, prepayment terms, and operating effectiveness
can often outweigh what might appear to be inexpensive capital with low interest
rates. Too often, capital includes costs, which force an entrepreneur or a business
to undertake undesirable actions. In the short- run, some actions might be
necessary, but often in the long run are detrimental. The traditional merchant
banker understands these capital limitations and can structure a transaction, which
is beneficial to all sides of the table -- not just the capital source.

Page | 39
G. Asset Securitization

It is a process through which some inactive assets (mortgage assets) are

converted into cash/active assets. It is long-term debt financing. Here assets
are converted into long-term bonds. The whole process is done by the
Special Purpose Vehicle (SPV). In this approach, the merchant banker for
issuance of security bonds against the assets with a matching of time and
terms between mortgage property and security bonds. Here the selection of
asset is generally considered on the basis of the following:

 Quality of assets

 Certainty of repayment

 Good ranking from the credit rating agency.

The process of asset securitization takes place in the following firms:

a. Originating Institutions/Firm Special Purpose Vehicle (SPV)

b. Merchant Banker (MB)

Securitization is a whole package of transactions, where assets (such as real

estate’s to be leased, accounts receivable, or mortgages) are sold to a special
purpose vehicle (“SPV”) and the SPV issues and sells many investors
securities which entitle them to receive cash flows generated from
underlying assets. A merit for the owners of original assets (“originators”) is
to be able to liquidate assets that would otherwise be difficult to sell, while
a merit for the investors is to be able to capture a new investment
opportunity.

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H. Venture Capital

Venture capital may be termed as risk capital as risk is involved with such
capital investment. Venture capital financing refers to long term equity
financing for high risk and high reward projects, which is assisted by
merchant bankers. In this form of financing, capital is invested either for
starting up a new project or for developing an existing business enterprise
with high degree of risks associated with. An entrepreneur is generally
motivated towards such venture with the expectation of higher return as
investment in other alternative funds may prove unwise. Innovative, hi-tech
ideas are necessarily risky. It is here that the concept of venture capital steps
in. Venture capital provides long-term startup costs to high risk and return
projects. Typically, these projects have high mortality rates and, therefore,
are unattractive to risk- averse bankers and private sectors companies. Some
of the characteristic features of venture capital financing are:

Page | 41
(a) Venture capital is basically equity finance in relatively new companies
when it is too early to go to the capital market to raise funds. It involves not
only equity investments but also loan finance/ convertible debts.

(b) The objective of venture capital financing is to earn capital gains on

equity investment and debt financing is only supplementary.

(c) Venture capital also provides business skills to the investee firm, which
is termed as ‘hands-on’ approach/ management.

(d) Venture capital financing involves high risk-return spectrum.

(e) Venture capital is not technology finance, though technology finance

may form a sub-set of venture capital financing initial equity capital of 10
crores of rupees for pilot plants.

The VCF is in operations with effect from 1st April, 1986 and is administered
by IDBI. In 1988, Technology Development and Information Company of
India (TDICI) was the first of this kind set up by ICICI in collaboration with
UTI in order to render required assistance for technical advancement in
industry. In recent years major financial institutions, commercial banks and
foreign banks set up their own venture capital funds. These are:

 IDBI’s Venture Capital Scheme: It provides venture capital finance

facility to new entrepreneurs in three ways:

(a)IDBI Venture Capital Fund,

(b)IDBI Seed Capital Scheme administered through State Industrial

Development/Investment Corporations (SIDCs/ SIICs),

(c) Special Capital Scheme operated by State Financial Corporations (SFCs).

Page | 42
 ICICI’s Venture Capital Fund assistance:

It provides venture capital financing through.

(a) Technology Development and Information Company of India Ltd

(TDICI),

(b) Programme for Application of Commercial Technology (PACT).

 Industrial Finance Corporation of India Venture Capital Fund.

 SBI Venture Capital Fund set up by SBI Capital Markets Ltd.

 Can Bank Venture Capital Fund set up by Can Bank Financial Services
Ltd.

 20th Century Venture Capital Fund established by20th Century Finance

Co. Ltd.

 Indus Venture Capital Fund, jointly promoted by Hindustan Levers and

MA fatal Industries.

 Venture Capital Ltd. was set up by Andhra Pradesh Industrial

Development Corporation (APIDC).

India Investment Fund, as India’s First Private Venture Capital Fund, was
set up by ANZ Grindlays Bank. Many merchant bankers in India are entering
into this specialized services arena through arranging funds for the upcoming
projects

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Regulations Concerning Merchant Banking :-

The vast universe of Indian Financial Market is regulated and supervised

by majorly Government body as: Ministry of Finance viz. RBI and SEBI.
The jurisdictions of the central bank and the capital market regulator overlap
in some fields of Indian financial activities. Moreover, for orderly
development of the securities market, SEBI / Government of India had
amended or newly enacted the following Indian securities laws, rules, and
regulations:-

 The Companies Act, 2013.

 The Securities and Exchange Board of India Act, 1992.

 The Securities Contracts (Regulation) Act, 1956.

 Delegation of Powers to SEBI under Securities Contracts (Regulation)

Act, 1956. The Securities Contracts (Regulation) Act, 1957 Depositories
Act, 1996

 The SEBI (Depositories and Participants) Regulations, 1996.

 The SEBI (Bankers to an Issue) Rules, 1994.

 The SEBI (Bankers to an Issue) Regulations, 1994.

 The SEBI ( Debenture trustees ) Rules, 1993.

 The SEBI (Debenture trustees) Regulations, 1993.

 The SEBI ( Foreign Institutional Investors) Regulations, 1995.

 The SEBI (Insider Trading ) Regulations, 1992.

 The SEBI (Merchant Bankers) Rules, 1992.

 The SEBI (Merchant Bankers) Regulations, 1992.

Page | 44
 The SEBI ( Mutual Funds) Regulations, 1996.

 The SEBI (Portfolio Managers) Rules, 1993.

 The SEBI (Portfolio Managers) Regulations, 1993.

 The SEBI (Registrar to an Issue and Share Transfer Agent) Rules. 1993.

 The SEBI (Registrar to an Issue and Share Transfer Agent) Regulations.

1993.

 The SEBI (Stockbrokers and Sub-Brokers) Rules, 1992.

 The SEBI (Stockbrokers and Sub-Brokers) Regulations, 1992.

 The SEBI (Underwriters) Rules, 1993.

 The SEBI (Underwriters) Regulations, 1993.

 The SEBI (Venture Capital Funds) Regulations, 1996.

 The SEBI (Appeal to Central Government) Rules, 1993.

 The SEBI (Substantial Acquisition of Shares and Takeover) Regulations.

1997.

Merchant Banking in particular is regulated by:

 The SEBI (Merchant Bankers) Rules, 1992.

 The SEBI (Merchant Bankers) Regulations, 1992.

Page | 45
Merchant Bankers Commission :-

As determined by the Finance Ministry, Government of India, Merchant

Bankers are eligible to charge commission / fee from their clients as detailed
below:

 A Merchant Banker can charge 0.5% as the maximum as commission for

whole of the issue.

 They can charge project appraisal fees.

 A lead manager can claim a commission of 0.5% up to Rs.25 crore

and 0.2% in excess of Rs.25 crore.

 Underwriting Commission

 Brokerage commission 1.5%.

 Other expenses like advertising, printing, Registrar’s expenses, stamp

duty etc., in connection with the issue can be reimbursed from its clients.

Type of security On amount On amount

Devolving on subscribed
underwriters by public
1.Equity share 2.50% 2.50%
2. Preference share /
Debentures
a. Up to Rs. 500000 2.50% 1.50%
b. Excess of Rs 500000
2.00% 1.00%

Page | 46
Difference Between Commercial Banks and Merchant Bankers:-

COMMERICAL MERCHANT
BANKING BANKING
1. Provide funds in the Assist in raising capital in
form of term loan and the form of equity,
working capital. preference shares,
Financing is the main syndicated loan and
business. working capital
Instruments
2. Demand deposits are Do not accept cheque able
the key feature. deposits.

3. Mainly fund based Mainly fees-based

business. business

4. Commercial banks Most of work they get is

majority business is of about management of
term lending and bank equity issues in the
deposits capacity of lead manager,
underwriter, pricing of
issue, book running, with
SEBI.
5. Being leaders, they are Being advisors, they are
more cautious, assess closer to the customers
risks in lending and get to know risks of
proposal and cannot the transaction properly.
afford to be grossly They work on risk shields
relationship based and i.e., mitigation measures
close to the customer.

Page | 47
6. Basically they deal in Basically they deal with
debt related finance and mainly funds raised
their activities are through money market and
appropriately arrayed capital market and the area
around credit of activity is equity and
proposals, credit equity related finance.
appraisals and loan
sanction

7. It is asset oriented, and It is management oriented.

their lending decisions They generally are willing
are based on detailed to accept risks of business.
credit analysis of loan
proposals and the value
of security offered
against loans. They
generally avoid risks

Page | 48
Problems Of Merchant Bankers :-

1. Restriction of merchant banking activities:

SEBI guidelines have authorized merchant bankers to undertake issue

related activities only with an exception of portfolio management. These
guidelines have made the merchant bankers either to restrict their activities
or think of separating these activities from the present one and float new
subsidiary and enlarge the scope of its activities.

2. Minimum net worth of Rs.1 crore:

SEBI guidelines stipulate a minimum net worth of Rs.1 crore for

authorization of merchant bankers. Small but professional and specialized
merchant bankers who do not have a net worth of Rs.1 crore may have to
close down their business. The entry is denied to young, specialized
professionals into merchant banking business.

3. 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 of merchant bankers.
The guidelines have put the responsibility on the merchant bankers. They
have to seek the co-operation of the issuing company to shoulder the
responsibility.

Page | 49
Obligations And Responsibilities :-

Merchant bankers have the following obligations and responsibilities.

1. Merchant banker should maintain proper books of accounts, records and submit
half yearly/annual financial statements to the SEBI within stipulated period of
time.

2. No merchant banker should associate with another merchant banker who is not
registered in SEBI.

3. Merchant bankers should not enter into any transactions on the basis of
unpublished information available to them in the course of their professional
assignment

. 4. Every merchant banker must submit himself to the inspection by SEBI when
required for and submit all the records.

5. Every merchant banker must disclose information to the SEBI when it requires
any information from them.

6. All merchant bankers must abide by the code of conduct prescribed for them.

7. Every merchant banker who acts as lead manager must enter into an agreement
with the issuer setting out mutual rights, liabilities, obligations, relating to such
issues with particular reference to disclosures allotment, refund etc.

8. The merchant banker shall preserve the books of accounts and other records
and documents for a minimum period of five years.

9. Every merchant banker shall appoint a compliance officer who shall be

responsible for monitoring the compliance of the Act, rules and regulations,
notifications, guidelines, instructions, etc. issued by the Board or the Central
Government and for redressal of investors’ grievances.

Page | 50
Code Of Conduct :-

(a) A merchant banker in the conduct of his business shall observe high
standards of integrity and fairness in all his dealings with his clients and other
merchant bankers.

(b) A merchant banker shall render at all times high standards of service,
exercise due diligence, ensure proper care and exercise independent
professional judgment. He shall wherever necessary, disclose to the clients,
possible sources of conflict of duties and interests, while providing unbiased
services.

(c) A merchant banker shall not make any statement or become privy to any
act. practice or unfair competition, which is likely to be harmful to the
interests of other merchant bankers or is likely to place such other merchant
bankers in a disadvantageous position in relation to the merchant banker,
while competing for or executing any assignment.

(d) A merchant banker shall not make any exaggerated statement, whether
oral or written 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.

(e) A merchant banker shall always endeavour to:

a) render the best possible advice to the clients having regard to the
clients' needs and the environments and his own professional skill,

b) ensure that all professional dealings are effected in a prompt, efficient

and cost-effective manner.

(f) A merchant banker shall not:

a) divulge to other clients, press or any other party any confidential

information about his client, which has come to his knowledge, and

Page | 51
 b) deal in securities of any client company without making disclosure to
the Board as required under the regulations and also to the Board of Directors
of the client company.

(g) A merchant banker shall endeavour to ensure that:

a) the investors are provided with true and adequate information without
making any misguiding or exaggerated claims and are made aware of
attendant risks before any investment decision is taken by them,

b) copies of prospectus, memorandum and related literature are made to

the investors,

c) adequate steps are taken for fair allotment of securities and refund of
application money without delay, and,

d) complaints from investors are adequately dealt with.

(h) The merchant bankers shall not generally and particularly in respect of
issue of any securities be party to:

a) creation of false market,

b) price rigging or manipulation,

c) passing of price sensitive information to brokers, members of the

stock exchanges and other players in the capital market or take any other
action which is unethical or unfair to the investors.

Page | 52
Merchant Banking Players In India :-

Page | 53
Case Studies :-

BREIF ANALYSIS OF SOME MERCHANT BANK OF INDIA

State Bank of India.

Kotak Securities
PNB Investment Services Limited (PNBISL)

Page | 54
A. State Bank of India

SBI Merchant Banking Group is strongly positioned to offer perfect financial

solutions to your business. We specialize in the arrangement of various
forms of Foreign Currency Credits for Corporate.

State Bank of India (SBI) a Fortune 500 company, is an Indian Multinational,

Public Sector Banking and Financial services statutory body headquartered
in Mumbai. The rich heritage and legacy of over 200 years, accredits SBI as
the most trusted Bank by Indians through generations.

State Bank of India is the nation's largest bank. Tracing its roots back some
200 years to the British East India Company (and initially established as the
Bank of Calcutta in 1806),the largest Indian Bank with 1/4th market share,
serves over 45 crore customers through its vast network of over 22,000
branches, 62617 ATMs/ADWMs, 71,968 BC outlets, with an undeterred
focus on innovation, and customer centricity, which stems from the core
values of the Bank - Service, Transparency, Ethics, Politeness and
Sustainability.

The Bank has successfully diversified businesses through its various

subsidiaries i.e., SBI General Insurance, SBI Life Insurance, SBI Mutual
Fund, SBI Card, etc. It has spread its presence globally and operates across
time zones through 229 offices in 31 foreign countries.

Page | 55
OUR PRODUCTS AND SERVICES

 Arranging External Commercial Borrowings (ECB)

 Arranging and participating in international loan syndication
 Loans backed by Export Credit Agencies
 Import Finance for Indian corporate.

SBI CAPITAL MARKETS LIMITED (SBICAPS) is India's leading

investment bank and project advisor, assisting domestic
company’s fund-mobilization efforts for last many years.

We began operations in August 1986 as a wholly owned subsidiary

of the State Bank of India, which is the largest commercial bank in India. In
January 1997, fresh equity shares were issued to Asian Development Bank
(ADB) and ADB now holds 13.84% stake in the equity of SBICAPS. The
distinguished parentage (with a 86.16% stake) together with the long
standing association of an internationally renowned financial institution like
the Asian Development Bank further enhances our image as a truly 'World
Class Investment Bank.

Our Mission - To provide Credible, Professional and Customer Focused

world-class investment banking services.

Our Vision - To be the best India based Investment Bank.

Page | 56
SBI Capital Markets Limited:

 No. 1 in Asia – Pacific for Project Advisory. Rating by Thomson Project

Finance International.

 No. 1 in IPO’s, managed 700+ issues (since 1989 – source Prime

Database).

 The only Indian Merchant Banker in the Global 10, Thomson Project
Finance International 2007.

 Pioneer in Privatization.

Page | 57
B. Kotak Securities Limited

Kotak Securities Limited (KSL), a subsidiary of Kotak Mahindra Bank,

is one of India’s largest full-service stock broking firms catering to retail and
institutional investors across all segments of the capital market.
Through a tie-up with partner brokers, the company also provides direct
access to the US markets. Supported by a strong research team, robust digital
trading platform, large branch network & franchisee base, and referral
coordinators spread across Kona of India, KSL processes lakhs of secondary
market trades every day.
KSL provides a wide array of services including investment options in
equities, derivatives (equities, commodities, currency) and mutual funds. It
also offers margin trade funding, depository services and third-party
products like insurance.

 36.6 lakh customer accounts

 182 number of Branches

 1265 Franchisees

 We cater to customers from 378 cities across India

We are corporate members with the Bombay Stock Exchange (BSE) and the
National Stock Exchange (NSE). We are also a depository participant with
National Securities Depository Limited (NSDL) and Central Depository
Services Limited (CDSL).

Page | 58
We did it first
Helping you invest your money is a job we take very seriously. Which is
why we pioneered some of these services. Here’s a quick look:

 Mobile stock trading app to keep track of your investments on the go

 Facility of Margin Finance for online stock trading
 Investing in IPOs and Mutual Funds over the phone
 SMS alerts before execution of depository transactions
 Auto Invest - A systematic investing plan in Equities and Mutual funds
 Provision of margin against securities automatically using shares in you
demat account.

Our Services

So, what does invest with India’s largest stock broking firm mean for you
as a customer? Well, all your stock broking needs get managed under one
roof. No more running from pillar to post, to keep track of your finances!

 Stock Broking services

Trade in the Stock Market, invest in IPOs, Mutual Funds or Currency

Derivatives using whichever mode that suits you best. Online, offline or even
on our stock trading app, we offer stock trading at your fingertips.

 Portfolio Management services

Not sure of what stocks to buy or sell? Unable to keep all your investments
in one place? Don’t know how to make your money work for you?
Our Portfolio Management Service with expert advice is just the answer for
your woes.

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 Dual benefit: Stockbrokers + Depository Participants

Kotak Securities is not just a stock broking firm. We are also participants
with depositories like the NSDL and the CSDL. That means you can now
execute transactions using our stock broking services and settle your trades
using our depository services!

 Research Expertise

Benefit from in-depth stock market analysis thanks to our dedicated research
division. We publish various sector-specific research, company-specific
research, macroeconomic studies, fundamental and technical analysis of
stocks that you can avail before investing your hard-earned money.

 Updated Market Data

Apart from research that we offer, you benefit from the street-smart tips, up-
to-the-minute market information and inside news that our extensive sales
teams deliver on a daily basis.

 International Reach

Your financial interests go beyond India? Don’t worry, so do ours! Kotak

Securities has a well-entrenched presence in the Asia Pacific, European,
Middle Eastern and American markets. You can trust us with your money in
any part of the globe.

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Awards and Recognition 2020-21

 Top Performer: Currency Derivatives (Retail) : Kotak Securities got

recognized as "Top Performer in Currency Derivatives (Retail) - 2020-2021"
segment by the BSE.
 Top Performer: SGB : Another milestone reached! Kotak Securities got
recognized as the "Top Performer in the SGB - 2020-2021" segment by the
BSE.
 Top Performer: SLB : Scaling the heights of excellence with our eyes at the
summit. Kotak Securities got recognized as "Top Performer in the SLB -
2020-2021" segment by the BSE.

 CFONext100 2020 by CFO India

 Hiren Vora honoured under the category ‘Excellence in Capital

Management’, 2020-21

 Mukul Rathi honoured under the category ‘Excellence in Capital

Management’, 2020-21

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C. PNB Investment Services Limited (PNBISL)

PNB Investment Services Limited (PNBISL), incorporated on 2nd of

February 2009, is a 100% subsidiary of Punjab National Bank.

PNBISL is registered with SEBI as a Category- I Merchant Banker to

handle all major Merchant Banking Services to Corporate, Institutional, and
Individual clients.

PNBISL derives strength from Punjab National Bank which is one of the
largest Nationalized Bank in the country with Pan-India network.

PNBISL has well qualified and experienced staff to provide Corporate

Advisory services, namely, Project Appraisal, Loan Syndication, Debt
Placement Services and to execute IPOs/FPO/QIPs.

PNBISL enjoys excellent relationships with Institutional Investors and other

Intermediaries of Capital Market. In addition, our reach amongst retail and
HNI investors is very effective.

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The range of services include:-

 Merchant Banking & Issue Management

 Project Appraisal
 Corporate Advisory
 Services to Small Enterprise
 Loan Syndication
 Restructuring
 Placement of Debts/Equity
 Merger & Acquisition
 Debenture Trustee
 Security Trustee

OUR APPROACH

1.Client Focus

PNBISL measures its success by its clients' success. We are committed to

building long-term relationships with our clients and assisting them to
achieve superior results. PNBISL focuses on creating significant value for
our clients by assisting them to identify and to capitalize on market
opportunities, and to optimize strategies for long-term growth and improved
profitability.

2.Research Driven

All our businesses are built on a research and analytics foundation. Our
strong understanding of underlying market trends and strong analytical
expertise has around us with demonstrated ability to timely identify
emerging trends and themes. We focus on providing the highest quality
research and investment opinions to our clients, in all our functional
verticals.

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 OUR SERVICES

PNBISL is a registered Category I Merchant Banker with SEBI and offers

basket of financial services such as Issue Management for IPO/FPO/Rights
issues, Advisory to Public Issue, Underwriting, Syndicate Member,
Placement of Equity Shares to Qualified Institutional Buyers (QIBs), Private
Placement of Debt/Equity and ESOP valuation. In addition to the
abovementioned services, PNBISL is offering Debt / Loan Syndication,

Project Appraisal, Financial Restructuring, Security/Debenture Trustee

services and Advisory to SME.

Given below is a brief description of the spectrum of services being offered:

 Project Appraisal & Loan Syndication
 Merchant Banking Services & Issue Management
 Corporate Advisory, Restructuring & Merger and Acquisition
 Trusteeship Services
 Services to Small Enterprise

PNBISL has an edge above others when it comes to understanding the needs
of the client. A comprehensive feel of the dynamics of the markets and an
in-depth knowledge of the regulatory environment gives us a wider view of
all the aspects of this highly competitive market. We are seen by the thought
leaders in analysing and interpreting industry trends, both at micro and
macro levels.

Our knowledge and understanding enables us to offer complete end-to-end

corporate finance solutions to clients at all levels. We provide seamless
investment banking advice and execution in capital market deals, apart from
offering innovative fund-raising solutions, both domestically and
internationally in debt, equity and hybrids.

Our expertise in structuring investments enhances the enterprise value

leading to long term mutually beneficial partnerships.

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 CHAPTER NO. 4

Data Analysis and Interpretation

This project deals with the description of the sample of 60 interviewer

focused on demographic factors (gender, age, occupation) data analysis and
its interpretation. The thesis is mainly focused on the awareness of merchant
banker having or not . The project is to focus upon whether investors take an
expert advice to invest in such Investment to minimise the risk and increase
the profit margin in a short period of time. The Questions are Asked in an
descriptive manner to a multiple option type questions for eased responses.
The collected data is analysed using Pie Diagram and Bar Graph.

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Q1.Do you take any financial services from bank?

Sr.No Take Financial Nos. Percentages

Service
1 Yes 35 58.33%
2 No 25 41.67%
Total 60

Take Financial Service

No
42%
Yes
Yes
58%
No

INTERPRETATION-

Out of total respondents, 58% respondents have taken Financial Service and
rest 42% respondents have not taken financial services. Because some of
respondents would be aware about the services and some not be aware about
the merchant banking

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 Q2. Are you aware about merchant banking?

Sr. Know About Merchant No Percentage

No Banking
1 Yes 42 70%
2 No 18 30%
Total 60

Aware about merchant Banking

30%
Yes
No
70%

INTERPRETATION-

The above chart states that about 42 no’s of respondents know about the
merchant banking and about 18 respondents do not know about merchant
banks. Because they do not know about merchant banking because of the
persons would be illiterate and their education is very low, their savings
would be low, and their financial statements also would not be proper.

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Q3. What Percentage of your annual income do you save to invest ?

Sr.No Invest Percentage Nos Percentage

1 5%-10% 27 45%
2 10%-20% 15 25%
3 Above 20% 18 30%
Total 60

Invest Percentages

30%
5%-10%
45%
10%-20%
Above 20%

25%

INTERPRETATION-

The above chart depicts that the 47% of the respondents save 5 – 10% of their
income to invest, 25% of the respondents save 10 – 20% they save and 30% of
them save 20% and above. the respondents save 5%-10% of their income for
investments. the respondents save 10%-20%of their income for investments.
Based on the survey conducted it is observed that most of the respondents (i.e.,
47%) save 5 to 10% of their savings.

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Q4. What Are the Factors to Which You Give Priority When You Invest ?

Sr.No Choices Nos Percentages

1 Safety 25 42%
2 High Return 16 27%
3 Liquidity 8 13%
4 Less risk 11 18%
Total 60 100%

INTERPRETATION-

As per above pie chart it clearly that the people give safety priority factor
first 42% of respondent are think safety is must, 27% respondent think that
high return is must what we money invest, 13% think that liquidity and 18%
respondent state that less risk is best. I conclusion that Safety must is stock
market .

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Q.5 Satisfaction of customers with regard to various service offered by merchant
bank?

Sr.No Service offered Nos Percentage

1 Advisory services 15 25%
2 Consultancy services 25 42%
3 Portfolio management 20 33%
Total 60

Services offered
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
Advisory services Consultancy services Portfolio management

INTERPRETATION-

From the above diagram it states that about 25% respondents are satisfied
by the service offered by banks of Advisory Services and about 42%
respondents are satisfied by the services offered by the bank of Consultancy
Services and 33% respondents are satisfied by services of Portfolio
management.

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Q6. Do you have any bank account in the following banks?

Sr.No Banks Nos Percentages

1 State Bank of India 15 25%
2 Punjab National bank 10 17%
3 Kotak Bank 7 12%
4 Bank of Baroda 15 25%
5 Other bank 13 21%
Total 60

Having Bank account in following

banks
30%

25%
25% 25%
20%
21%
15% 17%

10% 12%

5%

0%
State Bank of Punjab Kotak Bank Bank of Baroda Other bank
India National bank

INTERPRETATION-

From the above chart it states that they are no of customers who have been
having a bank account in the above banks. State bank of India has the 15 no
of customers providing the no of services and have the bank accounts. From
the BOB there are 15 customers having bank accounts. And the SBI and
BOB have the more account as compared to Punjab National bank and Kotak
bank and other bank because of better financial service.

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Q.7 What is the position of Merchant Banking in Private Sector?

Sr.No Position NOs Percentages

1 Good 30 50%
2 Normal 21 35%
3 Bad 9 15%
60

POSITION PRIVATE SECTOR

Bad
15%

Good
50%
Normal
35%

INTERPRETATION-
From the above pie chart, it states that 30 nos of respondent are responding
that the position of the merchant bank at present scenario is good because of
they are investing more in merchant banks and they are being properly served
by merchant bankers. Some of the respondents responds that the position is
not good because of the financial structure of the bank. And some of the
respondent’s response that the position should be improved in future by
improving the services.

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Q8. Do you feel that merchant banks are trustworthy?

Sr.No Trustworthy Nos Percentage

1 Yes 35 58%
2 No 25 42%
Total 60

Trustworthy

42%
Yes
No
58%

INTERPRETATION-

From the above pie chart the respondent’s response that about the 58% of
the merchant banks are trustworthy while investing with them. And about
42% states that they are not trustworthy while investing in merchant banks
with that they are providing the services.

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Q9. As being customers are services provided timely?

Sr.No Depend on MB Nos Percentage

1 Yes 42 70%
2 No 18 30%
Total 60

90%

80%

70% 70%

60%

50%

40%

30% 30%

20%

10%

0%
0 0.5 1 1.5 2 2.5

INTERPRETATION-

Out of total respondents 70% respondents say that they are timely served by
merchant bankers and about 30% of the total respondents say that they are
not served by the merchant bankers.

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Q 10. Do you think that the services provide by the merchant bank needs to be
improved?

Sr.No To be improved No’s Percentages

1 Yes 26 43%
2 No 15 25%
3 Maybe 19 32%
Total 60

TO BE IMPROVED
Needs
Improvement
17%

Good
Satisfactory 55%
28%

INTERPRETATION-

From the above chart it states that the about 26 respondents are responding
that there is need to be improve in the service that there should be 24x7
services should be provided. About 15 of the respondent are saying not to
improve the services because they are satisfied by the services that are being
provided by the merchant bankers. Some of them may not be having any idea
about the merchant bank so they are not aware that the services should be
improved or not.

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Q 11. How will you rate the services provided by the merchant bankers ?

Sr.No Ratings No’s Percentage

1 Good 33 55%
2 Satisfactory 17 28%
3 Needs Improvement 10 17%
Total 60

INTERPRETATION-

From the above chart it states that about 55% ratings are for good services
and some of the respondents says that they are satisfied with the services
about 28% and 17% of the respondents say that the services need to be
improve provided by banks.

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 CHAPTER 5

FINDINGS & CONCLUSION

5.1 FINDINGS:

Findings means purpose of research done for Merchant banking helps me

to find the corporate profile of the investor. The findings of the research are
as follow:

 Companies making large size issues of equity shares relied more on

foreign merchant banker than on Indian merchant banker because of
their vast international network.
 Respondents are interesting in saving their annual income for the
passive income which they will use it in the future in their retirement
for the independence on the others.
 Respondents are interesting in saving their annual income for the
passive income which they will use it in the future in their retirement
for the independence on the others.
 Long standing client relationship.
 Small and medium scale enterprise SME’s need immediate attention
from merchant bankers to get access to finance.

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5.2 CONCLUSION:

Conclusion is the chance to have the last word on the subject. The
conclusion allows you to have the final say on the issues you have raised in
your paper, to synthesize your thoughts, to demonstrate the importance of
your ideas, and to propel your reader to new view of the subject. It is also
your opportunity to make a good final impression and to end on a positive
note.

The research is further concluded as:

They trust the merchant banker’s knowledge in the financial market. The
person who are investing in the fixed deposits or any other saving options
for safe return and less risk does not have any idea about the facility
provided by the merchant banker.

The merchant banking business has increased over a short period of time
and with continued economic reforms. However, a stiff competition exists
in this line and survival will depend upon the financial skills and spectrum
of financial services and instruments offered by the merchant banker.
Hence, Merchant banking services is taking shape for turbulent times.

Merchant banking is an activity initially undertaken by a few large

commercial banks in India, and it is now being adopted and undertaken by
practically every commercial banks through its Merchant banking
department. The range of activities covered under merchant banking were
very wide indeed. The merchant banks offer a package of financial service.
Unlike in the past, their activities are now primarily non-fund based.

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Therefore, they do not require much capital. One of the basic requirements
of merchant banking is a highly professional staff and worldwide contacts.
Merchant banking is usually international on character.

As looking forward for the growing demand of merchant banking it a

roadmap the unemployed population for put their step in it. As merchant
banker can becomes a career option for the students.

Page | 79
 Chapter No. 6

SUGGESTIONS

 Indian public issues are characterized for their high cost on expenses like
advertisement, stationery, and commission to intermediaries. Dual
payment to underwriters on same issue one as underwriting commission
and other as brokerage should be curtailed as such type of overlapping
payments enhances cost of the issues. With increased competition the
merchant banker should be allowed to negotiate their issue management
fees instead of having fixed fees. Due to this the merchant bankers will
have to offer comparable services at lower cost. This also means that
public sector banks may face difficulties if they do not become cost
effective. Cost reduction would also be possible by restoring to the
maximum use of non-traditional practices of raising the equity and
debenture capital in the market viz. offer for sale without prospectus,
offer for sale by tender, public issue by tender, private placement of
shares etc.

 There have been a large number of investors who have come in capital
markets through primary markets. These investors are in majority not
exposed to stock market operations. They remain in a state of uncertainty
about the marketability of their stock. The merchant banker in future can
play an active role in establishing a link between primary market
investors and stock exchanges. This would remove uncertainty from the
minds of investors about marketability of their security holding and also
create a balance in bullish and bearish forces by attracting their attention
to these transactions. Stock exchange introduction would be made more
prominent and be frequently permitted as a less costly way for obtaining
quotation and making the shares familiar with the investing public. This

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 may help those companies who have widespread of shareholders but
could not obtain a quotation from stock exchanges.

 The traditional process of issue management takes between three to four

months on an average causing in uncertainty and delay in raising funds.
The issue becomes risky as for a new company its success also depends on
success of issue. It increases company’s stake and thus the cost of issue.
Merchant banks can provide a permanent solution to the problem by buying
the entire issue at a discount from the company and encash it at a premium
in the market when the company’s project goes into production after
gestation period. SBI Capital Market Ltd. has taken the first step in this
direction. The company will pick up entire equity issue of small companies
and later on sell the shares in phases through private placement and through
stock exchanges.

 The real threat to the merchant bankers functioning in the country is from
the entry of international investment bankers. Managing rural surplus can
be an area in which Indian Merchant Bankers can have an edge over the
foreign counter parts. Indian merchant bankers seem to have some
glamorous attraction for NRI’s Funds, and they are not giving due attention
to the vast resource of indigenous sources should not go untapped. In this
area merchant banks have to put their efforts in mopping up the rural
surplus and channelize it into corporate securities. This is an open field and
the Indian merchant bankers can explore it instead of concentrating on NRI
Funds.

Page | 81
WEBILOGRAPHY:

 http://www.sebi.com
 http://www.economictimes.com
 http://www.sbicaps.com
 http://www.pnbindia.in/subsidiaries
 http://www.kotaksecurities.com
 http://www.wikipedia.com
 http://www.investopedia.com/terms/m/merchant-agreement.asp
 http://www.moneycontrol.com/
 https://www.icsi.edu/media/webmodules/SLCM.pdf
 https://forms.gle/LTaXaCuuxATYn9zT7
 https://www.businessmanagementideas.com/financial-
management/merchant-banking/merchant-banking-origin-
meaning-and-evolution/4158

Page | 82
Questionnaire:

Age :

Gender

 Male
 Female

Q1. Do you take any financial services from bank?

 Yes
 No

Q2. Are you aware about merchant banking?

 Yes
 No

Q.3 Satisfaction of customers with regard to various service offered by

merchant bank?
 Advisory services
 Consultancy Services
 Portfolio management

Q.4 Do you have any bank account in the following banks?

 State Bank of India
 Punjab National Bank
 Kotak bank
 Bank of Baroda
 Other Banks

Page | 83
 Q5. What Percentage of your annual income do you save to invest ?

 5%-10%
 10%-20%
 Above 20%

Q6. What Are the Factors To Which You Give Priority When You Invest ?

 Safety
 High Return
 Liquidity
 Less Risk

Q.7 What is the position of Merchant Banking in Private Sector?

 Good
 Bad
 Normal

Q8. Do you feel that merchant banks are trustworthy?

 Yes
 No

Q9. As being customers are services provided timely?

 Yes
 No

Q 10. Do you think that the services provide by the merchant bank needs to
be improved?
 Yes
 No
 Maybe

Page | 84
Q 11. How will you rate the services provided by the merchant bankers ?
 Good
 Satisfactory
 Need improvement

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