INDEX

SR.N O 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

TOPIC RESEARCH METHODOLOGY INTRODUCTION HISTORY AND MERCHANT BANKING IN INDIA ORGANIZATIONAL SETUP OF MERCHANT BANKERS IN INDIA REQUIREMENT FOR SETTING UP A MERCHANT BANK OUTFIT MAIN OBJECTIVES OF MERCHANT BANKERS SERVICES OF MERCHANT BANKERS OBLIGATIONS AND RESPONSIBILITIES CODE OF CONDUCT PROBLEMS OF MERCHANT BANKING CURRENT AFFAIRS DIFFERENCE BETWEEN CASE STUDY OF ICICI BANK LTD. CONCLUSION BIBLIOGRAPHY

RESEARCH METHODOLOGY
OBJECTIVES: 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 compare the public & private sector company engaged in providing merchant banking services on various grounds. To find out the growth potential of the Merchant Banking public & private sector companies. To understand the rights & duties of a merchant banker and his contributions to the overall banking system. HYPOTHESIS It would help us to develop the ability to study the functioning of Merchant Banking in India & learn & apply multidisciplinary concepts, tools & techniques to solve vital problems. It familiarizes with the various services provided by Merchant Bankers. They would help us to draw comparison between public & private sector companies engaged in Merchant Banking activities.

INTRODUCTION
Financial services are an important component of financial system. The smooth functioning of financial system depends upon the range of financial services extended by the providers. Financial services in India have 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 as specialized agencies. The resources raising functions remains to be the primary business of a merchant banker. The primary market holds the key to rapid capital formation, growth in industrial productions and exports. There has to be accountability to the end use of funds raised from the market. The increase in the number of issues and amount raised the number of merchant bankers. Therefore, the field became highly competitive market where it requires a specialized skill in handling the situation. The merchant bankers have a social responsibility to in building an industrial structure in India. Merchant bankers assist corporate in raising capital. They assist in issue of Shares, syndicating loans, public issue of debentures. They do not provide funds. They only assist. They also actively arrange working capital, appraisal, Projects scrutinize & persuade merger proposals.

The merchant banking has been defined as to what a merchant banker does. A merchant Banker has been defined by Securities Exchange Board Of India (Merchant Banker) rules, 1992, as Any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant, advisor or rendering corporate advisory services in relation to such issue management

HISTORY OF MERCHANT BANKING

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.

HISTORY
In late 17th and early 18th century Europe, the largest companies of the world was merchant adventurers. Supported by wealthy groups of people and a network of overseas trading posts, the collected large amounts of money to finance trade across parts of the world. For example, The East India Trading Company secured a Royal Warrant from England, providing the firm with official rights to lucrative trading activities in India. This company was the forerunner in developing the crown jewel of the English Empire. The English colony was started by what we would today call merchant bankers, because of the firm's involvement in financing,

negotiating, and implementing trade transactions. The colonies of other European countries were started in the same manner. For example, the Dutch merchant adventurers were active in what are now Indonesia; the French and Portuguese acted similarly in their respective colonies. The American colonies also represent the product of merchant banking, as evidenced by the activities of the famous Hudson Bay Company. One does not typically look at these countries' economic development as having been fueled by merchant bank adventurers. However, the colonies and their progress stem from the business of merchant banks, according to today's accepted sense of the word. Merchant banks, now so called, 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 on the back of the Lombard plains cereal crops many of the displaced Jews who had fled persecution after 613 entered the trade. They brought with them to the grain trade ancient practices that had grown to normalcy in the middle and Far East, along the Silk Road, for the finance of long distance goods trades. Christians were strictly forbidden the sin 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 did not bind the Jews. In this way they could secure the grain sale rights against the eventual harvest. They then began to advance against the 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.

MERCHANT BANKING IN INDIA

In India Merchant Banking activities started from the year 1967, following the footsteps of similar activities in UK & USA. Currently Merchant Banking activity has mushroomed in the Indian capital market with both public & private sector settings up their respective merchant Banking divisions. Currently, the total no. of merchant bankers in India are approx. 1450 with more than 930 registered with SEBI. The SEBI authorized Merchant Bankers Include merchant Banking divisions of All India Financial Institutions, nationalized & foreign banks, subsidies of the commercial banks, private merchant banks engaged in stock broking, underwriting activities & financial consultancy & investment advisory service firms. Grindlays Banks 1967 Citi banks 1970 SBI 1973 ICICI - 1974 Merchant banking in India - an overview Companies raise capital by issuing securities in the market. Merchant bankers act as intermediaries between the issuers of capital and the ultimate investors who purchase these securities. Merchant banking is the financial intermediation that matches the entities that need capital and those that have capital. It is a function that facilitates the flow of capital in the market.

Merchant banker registered with SEBI: Public Sector: - Commercial banks (24), Financial Institutions (6), State Institutions (4) Private sector: - International bankers (10), Banks (10), finance & investment (231)

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 Indias 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.

(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 times 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.

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.

3. Registration of Merchant Bankers a. 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.

b. Application to conform to the requirements The application should conform to all the requirements under the SEBI guidelines, otherwise it may be rejected. c. 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. d. 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, equipments, 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:Category Category I Category II Category III Category IV

Minimum Amount Rs. 5, 00, 00, 000 Rs. 50, 00, 000 Rs. 20, 00, 000 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.

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

MAIN OBJECTIVES OF MERCHANT BANKERS

Merchant bankers render their specialized assistance in achieving the main objectives which are presented below: I. To carry on the business of merchant banking, assist in the capital formation, manage advice, underwrite, provide standby assistance, securities and all kinds of investments issued, to be issued or guaranteed by any company, corporation, society, firm, trust person, government, municipality, civil body, public authority established in India. II. III. IV. V. The main object of merchant banker is to create secondary market for bills and discount or re-discount bills and acts as an acceptance house. Merchant bankers another objective is to set up and provide services for the venture capital technology funds. They also provide services to the finance housing schemes for the construction of houses and buying of land. They render the services like foreign exchange dealer, money exchange, and authorized dealer and to buy and sell foreign exchange in all lawful ways in compliance with the relevant laws of India. VI. They will invest in buying and selling of transfers, hypothecate and deal with dispose of shares, stocks, debentures, securities and properties of any other company.

SERVICES OF MERCHANT BANKERS:Business planning stage: 1) Project feasibility study 2) Advice on capital structuring Equity raising: 3) Preparation of prospectus and liaison with SEBI 4) Pricing decisions 5) Marketing in the capacity of lead managers 6) Underwriters to the issue 7) Post issue management 8) Assistance in ADR/GDR Debt raising: 9) Management of debenture issue 10) Preparation of bankable

proposal and syndication of loan Working capital raising: 11) Assistance in arranging optimal capital finance Strategic advice: 12) Advice on mergers and

acquisitions 13) Corporate structuring advice

SERVICES PROVIDED BY MERCHANT BANKS: (in detail)

The development activity through the country had exerted excess demand on the sources of funds by the ever expanding industry and trade which could not be met by the All India Financial Institutions. In these circumstances, the corporate sector enterprises had the only alternative to avail themselves of the capital market services for meeting the long-term fund requirements through capital issues of equity and debentures. The growing demand for funds from capital market has enthused many organizations to enter into the field of merchant banking for managing the public issues. The need of merchant banker is also felt in the wake of huge untapped public savings as merchant bankers can play a highly significant role in mobilizing funds from savers to invest in channels assuring promising return on investments and thus narrow down the gap between demand for and supply of investible funds. Merchant bankers not only provide advisory services to corporate enterprises but also advise the investors of the incentives available in the form of tax relief and other statutory obligations. Thus, the merchant bankers help industry and trade to raise funds, and the investors to invest their saved money in sound and healthy concerns with confidence, safety and expectation of higher yields.

Broadly a merchant banker can provide the following services: 1. Corporate Counseling 2. Project Counseling And Pre-Investment Studies 3. Credit Syndication And Project Finance 4. Issue Management 5. Underwriting 6. Bankers 7. Portfolio Management 8. Venture Capital Financing 9. Leasing
10. 11. 12. 13. 14. 15.

Non-Resident Investment Counseling And Management Acceptance Credit And Bill Discounting Advising On Mergers, Amalgamations And Take-Over Arranging Offshore Finance Fixed Deposit Broking Relief To Sick Industries

Lets take a brief look at each of these functions: Corporate Counseling It includes a whole range of financial services provided by a merchant banker to a corporate unit a view to ensure better performance, maintain steady growth and create a better image among investors. It covers the entire field of merchant banking activities i.e., project counseling, capital restructuring, portfolio management and the full range of financial engineering including venture capital, public issue management, loan syndication, working capital, fixed deposits, lease financing, acceptance credit, etc. However, the scope of corporate counseling is limited to suggestions and opinions leaving to the client to take corrective actions for solving its corporate problems. A merchant banker finds out the problems of enterprise, which shall include organizational goals for the enterprise, size of the organization and operational scales, choice of a product, pricing, etc, and suggests ways and means to solve those problems. Project Counseling Project counseling is an important merchant banking service which includes preparation of project reports, deciding upon the financing pattern to finance the cost of the project, appraising the project report with the financial institutions/banks. Project reports are prepared to obtain government approval of the project, for procuring financial assistance from financial institutions and banks, for ensuring market for the proposed product, for planning public issues, etc.

Financing the project cost is an important aspect of project counseling. The two sources of funds available to finance the project cost are internal sources of funds (or owners' funds) which includes promoter's contribution and retained earnings; and external sources of funds which refers to the borrowed funds in the form of loans from banks, private investors and financial institutions and in the form of debentures from the public. Merchant banker has to decide the financing mix of the internal and external sources of funds keeping in view the rules, regulations and norms prescribed by the government or followed by the term lending financial institutions. While rendering project counseling services, the merchant banker has to ensure that the application forms for obtaining the funds from financial institutions are filled in with relevant and appropriate information and before submitting the application, the merchant banker has to appraise the project considering the various aspects as to the type of the project, location, technical, commercial and financial viability of the project. Credit Syndication Once the client company has decided about the project proposed to be undertaken, the next step is looking for the sources wherefrom the funds could be procured to implement the project. Merchant banker has to locate the sources of funds and comply the formalities required to procure the funds. This service rendered by the merchant banker in arranging and procuring credit from financial institutions, banks and other lending and investment organizations for financing the clients' project cost or meeting working capital requirement is referred to as loan syndication or credit syndication.

Credit syndication in case of domestic borrowings is with the institutional lenders and banks. Long and medium term funds are obtained from the All India Financial Institutions like IFCI, IDBI etc., state level financial bodies like SFC, SIDC etc., commercial banks, mutual funds etc. Short-term funds are also required by the firm for purchase of raw materials, payment of wages, salaries etc. Sources of financing these short term requirements or working capital needs can be from internal sources like internal accruals from working or operations and short term loans from friends and relatives; or from external sources like short term borrowings from banks etc. Issue Management and Underwriting Management of capital issues is a professional service rendered by the skilled and experienced merchant bankers. Previously, the managing agents for a particular corporate used to manage public issues. The abolition of the managing agency system, the growth in the public limited companies in number and size, the imposition of new rules and regulations regarding the public issue of securities made it necessary for merchant bankers to play a definite role in the management of public issues. Public issue management involves marketing of corporate securities by offering the securities to the public, procuring private subscription to the securities and offering securities to existing shareholders of the company. As a manager to the public issue, the merchant banker, before the public issue has to obtain the consent of the stock exchanges to the memorandum and articles of association, appoint other managers, bankers, underwriters, brokers etc. ,advice the company to appoint auditors, solicitors and board of directors, draft the prospectus

and obtain consent from the companies legal advisors, board of directors and other concerned parties, file the prospectus with registrar, make an application for enlistment with stock exchanges and finally advertise for the issue. A merchant bankers post issue activities include final allotment and/or refund of subscription amount, calculation of underwriters liability in case of under subscription and complying the necessary statutory requirements for listing of securities on the stock exchange. Under writing of public issue A fully underwritten public issue spells confidence to the investing public, which ensures a good response to the issue. Keeping this in view companies, which float a public issue usually, desire a full underwriting of the issue. Underwriting is only the guarantee given by the underwriter that in the event of under subscription, the amount underwritten would be subscribed in proportion by the underwriter. An underwriter of the issue gets the following benefits:

It earns a commission of the commitment given. It earns the right to be appointed as bankers of that issue. It expands its clientele by underwriting more and more issues.

Bankers to the Issue The merchant banker can automatically become the banker to the issue in the following cases:

The bank is a broker to the company It has given underwriting commitments.

It acts as a manger to the issue The function of a banker to the issue is to accept application forms from the public together with subscription money and transfer them to the account of the controlling branch.

Portfolio Management Portfolio refers to investment in different types of marketable securities or investment papers like shared, debentures and debenture stocks, bonds etc. from different companies or institutions held by individuals firm or corporate units. Portfolio management refers to managing efficiently the investment in the securities held by professionals to others. Merchant bankers take up management of a portfolio of securities on behalf of their clients, providing special services with a view to ensure maximum return by such investments with a minimum risk of loss of return on the money invested in securities. A merchant banker while performing the services of portfolio management has to enquire of the investment needs of the client, the tax bracket, ability to bare risk, liquidity requirements, etc. they should study the economic environment affecting the capital market, study the securities market and identify blue chip companies in which money can be invested. They should keep record of latest amendment in government guidelines, stock exchange regulations, RBI regulations, etc.

Advisory Services Relating To Mergers and Takeovers A merger is defined as a combination of two or more companies into a single company where one services and other looses their corporate existence. A merger is also defied as an amalgamation wherein the shareholders of the combining companies become substantially the shareholders of the company formed. A takeover is referred to as an acquisition, which is the purchase, by one company of a controlling interest in the share capital of another existing company. Merchant bankers are the middlemen settling negotiations between the offered and the offeror. Their role is specific and specialized in handling the mergers and take over assignments. Being a professional expert, the merchant banker is apt to safeguard the interest of the shareholders in both the companies and as such his assistance is useful for both the companies, i.e. the acquirer as well as the acquired company. Based on the purpose of business objective, the search of the acquirer company will start for a merger partner company. If the objective of merger is growth oriented i.e. seeking expansion in production and market segments, utilization of existing companies or optimum utilization of resources, then the acquirer company will select a business related company as a merger partner. If the objective is diversification in production line or business activities, then it will select a non-related company as a merger partner. Once the merger partner is proposed the merchant banker has to appraise the merger/takeover proposal with respect to financial viability and technical feasibility. He has to negotiate with the parties and decide the purchase

consideration and mode of payment. He has to comply with the legal formalities like getting approval from the Government/ RBI; drafting the scheme of amalgamation; getting approval of company Board, financial institution, high court if required; arranging for the meeting etc. Venture Capital Financing Financing an emerging high-risk project is called venture capital financing. Many merchant bankers are entering into this area by also financing viable upcoming projects. The financing is by subscription to the equity capital, while repayment is by selling the equity through stock market when the shares are listed. Leasing Is there another lucrative area of financing where merchant bankers are turning? Leasing is a viable source of financing while acquiring capital assets. The services include arrangement for lease finance facilities for leasing companies, legal; documents and tax consultancy. Non Resident Investment To attract NRI investments in the primary and secondary markets, the merchant bankers provide investment advisory services to the NRIs in terms of identification of investment opportunities, selection of securities, portfolio management, etc. they also take care of operational details like purchase and sale of securities securing the necessary clearance from RBI under FERA for repatriation of dividends and interest, etc.

Acceptance Credit and Bill Discounting Though merchant bankers world over specialize in acceptance credit and bill discounting, these services are not currently provided by merchant bankers in India the principal reasoning being the lack of an active market for commercial bills. Arranging Offshore Finance The merchant bankers also help their clients in the following areas involving foreign currency financing: 1. Financing Of Exports And Imports 2. Long Term Foreign Currency Loans 3. Joint Ventures Abroad 4. Foreign Collaboration Arrangements The assistance rendered as in the case of financial services covers appraisals, negotiations, compliance with procedural and legal aspects etc. Management of Fixed Deposits of Companies Recently, merchants bankers have begun to structure and mobilize fixed deposits for their corporate clients. They take care of the procedural and legal aspects, and also mange the collection and subsequent servicing of the deposits. Advice with regard to the amount to be raised, interest charges, terms of deposits and other related issues are also offered to the client.

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.

CODE OF CONDUCT

According to the 13 Regulation of the SEBI of 1992 (Merchant bankers), every merchant banker should comply with following codes of conduct. They are: a) The merchant banker must observe high integrity and fairness in all his dealings.
b) He shall render at all times high standard of services, exercise due diligence,

exercise independent professional judgment. c) If necessary, he must disclose to his clients the possible source of conflict of duties and interests. d) The merchant banker should not indulge in unfair practice or unfair competition with other merchant bankers. e) He should not make any exaggerated statement about his capacity or achievement. f) He should always Endeavour to give the best possible advise and prompt efficient and cost effective service. g) He should maintain the secrecy of all the confidential information received during the course of service to his client. h) He should not engage in the creation of a false market or price rigging or manipulation.

PROBLEMS OF MERCHANT BANKING

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

Minimum net worth of Rs.1 crore: SEBI guidelines stipulate that a minimum net worth of Rs.1 crore for authorization of merchant bankers.

Non co-operation of issuing companies: Non co-operation of the issuing companies in timely allotment of securities and refund of application money is another problem faced by merchant bankers. Merchant Bankers Commission: Maximum :- 0.5% Project appraisal fees Lead Manager :- 0.5% up to Rs.25 crores - 0.2% more in excess of Rs.25 crores Underwriting fees

 Brokerage commission :- 1.5% Other expenses :- Advertising - Printing - Registrars expenses - Stamp duty In spite of problems popping up, merchant banking in India has vast scope to develop because of lot of domestic as well as foreign businesses booming here. Indian economy provides an amicable environment for these firms to set up, flourish and expand here.

CURRENT AFFAIRS
Morgan Stanley makes i-banking comeback The joint venture between JM Financial and Morgan Stanley was inked in 1997 and formalized in 1999. The JV had investment banking operations other than equity broking, research, wealth management and advisory and securities distribution operations. Post the split, JM Financial acquired the investment banking company together with its subsidiaries, which were engaged in fixed income, equity broking, wealth management, advisory and distribution businesses of $ 20 million. The Indian partner sold its 49% holding in JM Morgan Stanley Securities (JMSPL), the institutional equity broking company to Morgan Stanley for $ 445 million. Bulge bracket investment banking major, Morgan Stanley has re-entered investment banking business on its own, after parting ways with JM Financial its former Indian partner. PNB aims profit of 7,500crore by 2013 The country's second largest public sector lender Punjab National Bank aims to double its profit to Rs7,500 crore in the next four years. "The bank has set a target to expand total business to Rs10crore and earn net profit of Rs7,500 crore by 2013," said PNB Chairman and Managing Director K C Chakrabarty, who is charge of Deputy Governor of RBI. The growth driver would be better asset liability management, thrust on recovery, focus on customers and financial inclusion, he had said. Besides, the bank plans to

open new line of businesses in the current fiscal including merchant banking subsidiary.

Merchant banks and Commercial banks

Merchant banks Commercial banks

1) Assist in raising capital in the form of Provide funds in the form of equity, preference shares, and syndicated term loan and working capital. loan working capital instruments.

2) Advisor not financer.

Financing is the main business.

3) Do not accept chequable deposits.

Demand deposits are the key feature.

4) Mainly fees based business.

Mainly fund based business

CASE STUDY

Employees:41,871 Employee growth: 37.2%

You see, ICICI Bank is India's #2 bank (after State Bank of India), with more than 600 branches and 2,200 ATMs nationwide. ICICI's retail banking group offers lending and deposit services to small businesses and individuals. Larger businesses are served by the corporate banking group, which offers finance services and treasury products. ICICI's rural and government banking unit offers micro-loans and agricultural banking. Foreign operations, as well as services related to international trade finance and expatriate Indians, fall under the international banking group. Other ICICI offerings include online banking, asset management, and insurance. Key numbers for fiscal year ending March, 2008: Sale: $5,796.3M One year growth: 99.1% Net income: $524.1M Income growth: 167.4% ICICI Advice on Wide Varity of Product: Private Equity Financing Secondary sale transactions pre IPO deals

ICICI Securities Ltd is the largest equity house in the country providing end-to-end solutions (including web-based services) through the largest non-banking distribution channel so as to fulfil all the diverse needs of retail and corporate customers. ICICI Securities (I-Sec) has a dominant position in its core segments of

its operations - Corporate Finance including Equity Capital Markets Advisory Services, Institutional Equities, Retail and Financial Product Distribution. ICICI Securities Inc., the step-down wholly owned US subsidiary of the company is a member of the National Association of Securities Dealers, Inc. (NASD). As a result of this membership, ICICI Securities Inc. can engage in permitted activities in the U.S. securities markets. These activities include Dealing in Securities and Corporate Advisory Services in the United States and providing research and investment advice to US investors. is a SEBI Registered CAT-1 Merchant banker. ICICI Securities Inc. is also registered with the Financial Services Authority, UK (FSA) and the Monetary Authority of Singapore (MAS).

Board of Directors:ICICI Securities Limited. Ms. Chanda Kochhar, (Chairperson) Mr. Ketan Patel Mr. Narendra Murkumbi Mr. Uday Chitale ICICI Securities Holding Inc. Ms. Anup Bagchi, (Chairman) Mr. A Murugappan Mr. Charanjit Attra Mr. Subir Saha ICICI Securities, Inc. Mr. Anup Bagchi, (Chairman) Mr. A Murugappan Mr. Charanjit Attra Mr. Subir Saha

Mr. Pravir Vohra Mr. Sonjoy Chatterjee Ms. Madhabi Puri-Buch, (Managing Director & CEO) Mr. A. Murugappan, (Executive Director) Mr. Anup Bagchi, (Executive Director)

Mr. Gopakumar P., (President)

Awards & Recognition

Institutional

 ICICI Securities is awarded as the Best Investment Bank 2008 by Global Finance Magazine The Corporate Finance group also was awarded a runner-up Best Merchant Banker by Outlook Money in 2007. ICICI Securities (I-Sec) topped the Prime Database League Tables 2007 for money raised through IPOs/FPOs. The equities team was adjudged the 'Best Indian Brokerage House-2003' by Asiamoney.

Retail ICICIdirect wins the prestigious Outlook Money - India's Best e-Brokerage House for 2009. ICICIdirect, the neighborhood financial superstore won the prestigious Franchise India `Service Retailer of the Year 2008 award. ICICIdirect wins the prestigious Outlook Money - India's Best e-Brokerage House for 2008. ICICIdirect been winning the prestigious Outlook Money - India's Best eBrokerage House for 2003-2004, 2004-2005, 2006-2007 and 2007-2008. ICICIdirect has also won the CNBC AWAAZ Consumer Award for the Most Preferred Brand of Financial Advisory Services. Best Broker - Web 18 Genius of the Web Awards 2007 Franchisor of the year award 2009 Retail concept of the year awards 2009

COMPARISION BETWEEN

PUBLIC & PRIVATE SECTORS Public Sector is the pioneer in providing Merchant Banking services in India. But due to liberalization of economy the scenario has changed many private Merchant Banking companies have entered in the industry since then. Public sector merchant banking companies facing stiff competition from the private sector companies. Market Share Public Sector= 66% Private Sector= 34%

70% 60% 50% 40% 30% 20% 10% 0%

Series1

Public sector

Private sector

CONCLUSION

The merchant banker plays a vital role in channelizing the financial surplus of the society into productive investment avenues. Hence before selecting a merchant banker, one must decide, the services for which he is being approached. Selecting the right intermediary who has the necessary skills to meet the requirements of the client will ensure success. It can be said that this project helped me to understand every details about Merchant Banking and in future how its going to get emerged in the Indian economy. Hence, Merchant Banking can be considered as essential financial body in Indian financial system. Market development is predicted on a sound, fair and transparent regulatory framework. To sustain the growth of the market and crystallize the growing awareness and interest into a committed, discerning and growing awareness and interest into an essential to remove the trading malpractice and structural inadequacies prevailing in the market, and provide the investors an organized, well regulated market.

BIBLIOGRAPHY
Reference Material

 Financial Institutions & Market By Shashi K. Gupta, Nisha Aggarwal

Merchant Banking H.R. Machiraju

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MERCHANT BANKING PLAYERS IN INDIA