AMRITSAR COLLEGE OF ENGINEERING AND

TECHNOLOGY
DEPARTMENT OF MANAGEMENT STUDIES
ASSIGNMENT- 3 (Merchant Banking)

Submitted By:-
Submitted to:- Maninder Kaur(1700842)
Ms. Pooja Puri Mandeep Kaur(1700840)
(Assistant Prof) Kirandeep Kaur(1700838)
Subject: MFS
Subject code: MBA-922
MERCHANT BANKING
 MERCHANT
BANKING
The merchant bank is more specialized organization
that takes money and after analyzing the possible
risks and economic conditions gives advice to
convert it into more money.The services provided
by merchant bank takes many forms like securities
underwriting , stock and bond trading, facilitating
mergers and acquisitions, arranging and syndicated
loans and providing financial advice to companies on
aspects like pricing of securities.
Origin And Development Of
Merchant Banking
The origin of merchant banking is traced in Italy.
The oldest merchant bank in London was Baring
Brothers.The first merchant banking was started
by Grindlays Bank in 1970.After the
recommendations of Banking commission,1972,
all the Indian banks got permission for starting
merchant banking services. In 1972, the second
bank was State Bank of India which started
merchant banking division.The commercial banks
that followed state bank of India were Central
Bank of India, Bank of India, Syndicate Bank, PNB,
Canara Bank, ICICI, IDBI,IFCI.
Scope Of Merchant Banking
 Growth of new issues market:
Domestic and foreign investors setting-up their
business here. Many public and private issues
coming up
 Changing policy of foreign investments:
Liberalization of policies. Foreign investments
would require expert services of merchant banks
for project appraisal, financial management, etc.
 Development of debt market:
Good portion of capital can be raised through
debt instruments.
 Innovations in financial instruments:
New financial instruments have come-up.
Merchant Banks are market-makers for these
instruments.
 Corporate Re-structuring:
Competition in corporate sector becoming
intense. Companies reviewing their strategies,
structure and functioning, etc, leading to
corporate re-structuring.
 Entry of Foreign institutional investment:
foreign institutional investments are permitted to
invest in India.They need merchant banks to
advise them for their invitation to India.
 Disinvestment:
It means reduction of some kind of asset of a firm
for achieving either financial or ethical
objectives. Motive of disinvestment is to obtain
funds.
FUNCTIONS OF MERCHANT
BANKING
 Raising finance for clients
 Leasing Finance
 Capital Restructuring
 Issue Management
 Portfolio Management
 Working Finance
CASE STUDY
 Rand Merchant Bank,headquarters in Johannesberg,South
Africa,decided to take a proactive stance to upcoming risk
regulations ghiven the unprecedented turmoil in the
finanacial markets. As such rand merchant bank was
seeking a risk management partner that could advice
them on how best to meet the regulatory requirements
related to the ‘Guidelines for Computing Capitals for
Incremental Risk in the Trading Book,’ as proposed by the
Basel Committee on Banking Supervision(2008 and 2009)
 To meet the potential regulatory demand, Rand Merchant
Bank required consultation on building constistent is
frameworks that integrate market and credit risk allowing
them to create a frame work for calculating the increment
risk charge.
Vendor selection process
As banks have found themselves in the regulatory spotlight, Rand
Merchant Bank undertook specific risk project in order to better
understand major and manage “specific” risk associated the debt and
equity positions in the trading books. Given that the Rand Merchant
Bank recently applied for internal model approval for general market
risk in the trading books, a natural next step was to develop and internal
model for the measurement and management of specific risk.
While Rand Merchant bank had the in-house expertise to build a credit
risk and anaytics Solutions, RMB risk staff explained, we found it would
be far simpler and less time consuming to purchase an external set of
credit risk analytical. Having considered a wide range of providers and
solutions, rand merchant bank selected risk matrics groups credit
manager solution-the portfolio credit model based on risk matrices credit
matrices methodology the credits matrics methodology, an open source
transparent credit risk model is widely regarded as proven the bench
mark standrad for credit risk measurement .Therfore Riskmatrics
adbvice rand merchant bank on the implementation of credit managers
for the purpose of measuring the incremental risk charge in the banks
trading books.
 QUESTIONS

Q1.How the RiskMetrics’ senior consultants

supported Rand Merchant Bank?
Q2.Discuss the vendor selection process of
Rand Merchant Bank?
Q1.How the RiskMetrics’ senior consultants
supported Rand Merchant Bank?

ANS: RiskMetrics’ senior consultants supported

Rand Merchant Bank with the following:
 The rating assignment to each issuer in the
portfolio, as it is not uncommon to find unrated
company in the trading book.
 The measurement of probabilities of default and
transition matrices over a short horizon.
 The estimation of the liquidity period for
categories of traded products.
 The implementation of the regulatory principle
of the “constant level of risk”.
 Including equities in the overall credit risk
framework.
Q2.Discuss the vendor selection process of
Rand Merchant Bank?
ANS: Rand Merchant Bank recently applied for
internal model approval for general market risk
in the trading book, a natural next step was to
develop an internal model for the measurement
and management of specific risk.. Having
considered a wide range of providers and
solutions, Rand Merchant Bank selected
RiskMetrics group’s Credit Manager solution –
the portfolio credit model based on RiskMetrics’
Credit Metrics methodology. Credit Manager is
web-based, easy to use, and implement, provides
a solution to all types of exposure and has great
features in the reporting set-up.
THANK YOU