Merchant Banking

Presented by
Chandan Bhagat (119012)
Miral patel (119060)
 Contents
Origin
About Merchant Banking
Services
Merchant Banking VS Commercial Banking
Categories of Merchant Banking
Guidelines for Merchant Banking
Code of Conduct
 About Merchant Banking

• Bank that deal mostly in international finance, long –term loans for companies and stock
underwriting.
• Merchant banking primarily involves financial advice and services for large corporations and
wealthy individuals.
• Merchant banks invest their own capital in client companies & provide services for mergers
and acquisitions.
• A merchant banking is sometimes said to be a wholesale bank, or in the business of
wholesale banking.
• It’s because merchant banks tend to deal primarily with other merchant banks and other
large financial institutions.
• As of today there are 135 Merchant bankers who are registered with SEBI, india.
• This includes Private ,Public & Foreign players.
Merchant Banking: Origin

 Merchant Banking came into existence in 17th & 18th century in Italy & France.
 Merchant banking in the modern era started from London, Merchants started to
finance the foreign trade through acceptance bill.
 Merchant Banking officially came to India through Grindlays Bank in 1967.
 Recognized the requirements of upcoming class of Entrepreneurs for diverse
financial Services.
 Few other Institutes who joined the bandwagon:-
 Citibank setup its merchant banking division in Indian in 1970.
 Indian started banking services from 1972.
 State bank of India started the merchant banking in 1972.
 Many Other banks came after this like ICICI, Canara Bank, UCO bank etc.
 Services

 Corporate Counselling.
 Project counselling.
 Working capital finance.
 Portfolio Management.
 Restructuring strategies.
 Credit Syndication.
 Lease Financing.
 Some other Services.
Corporate Counselling

 Set of activities undertaken for efficient running of an enterprise.

 Identifying areas of growth & diversification.
 Guiding clients on aspects like locational factors, organizational size,
investment decision, choice of product.
Project Counselling

 It’s a part of corporate counselling & deals with analysis of project viability.
 Comprises of preparation of project report & deciding finance pattern of cost
of project.
 Filling up of application for with significant information for obtaining funds.
Working Capital Finance:

 Meeting the day-to-day expense of an enterprise is working capital finance.

 Assessment of working capital requirements.
 Preparing necessary application to negotiation for sanction of appropriate
credit facilities.
Portfolio Management

 Making decisions for the investment of cash resources of a corporate

enterprise in the marketable securities.
 Decide quantum, timing & type of security to be bought.
 Help in achieving maximum return with minimum risk by proper combination
fo securities.
Restructuring Strategies

 Deals with mergers & Acquisitions.

 It’s a specialized service of Merchant bankers wherein they act as middle-men
in negotiating between two companies.
 Offers expert evaluation regarding identification organizations with matching
characteristics.
 Obtaining approvals from various authorities.
Credit Syndication

 Relates to activities connected with credit procurement & project financing.

 Estimates total cost of the project.
 Drawing up of financial plan which confirms requirements of promoters &
their collaborators.
 Selecting institutions for participation for financing.
Lease Financing

 It’s an important alternative source of financing a capital outlay.

 Involves letting out assets on lease for use by the lessee for a particular
period of time.
 Providing advice on viability of leasing & choice of favorable rental structure.
Other Services:
 Relief to sick Industries:
 Rejuvenating old lines & ailing units by appraising technology, process etc.
 Evolving rehabilitation packages acceptable to financial institutions/banks.
 Exploring possibilities of mergers & acquisitions.
 Mutual Funds:
 It’s collective investment scheme that pools money from several investors & channels them into
productive investments.
 Investing money in diversified portfolio of shares & debentures.
 Assuring Investors return in terms of capital appreciation.
Merchant Bank Vs Commercial Bank
 Commercial bank are financial institution regulated by the Reserve bank of India
typically offer general banking service to an individual as well as business organisation
and on other hand Merchant Bank are the financial companies offer their services to
the business corporation and high net-worth person.
 Commercial bank are governed under Banking Regulation Act 1949 however Merchant
Bank have to follow the guidelines of SEBI because of kind of service they offer to their
clients
 Commercial bank provide only regular banking service to their corporate customer on
the other hand Merchant Bank provide a range of services on corporate financing and
fundraising to their client
 Commercial Bank act as a financer for the business Enterprises and charge interest on
loan given where is merchant bank act as a financial advisor for corporate and charges
on fees for the service they provided.
 Merchant Bank also provide Portfolio Management services to institutional investor or
other investor and facilitate the management of security on other hand commercial
bank don't provide the services.
 The main source of income of commercial banks is interest income and servicing charge
for various other service they provie, however the source of income of Merchant Bank is
the fees against a variety of services they offer to the Corporation.
 Categories of Merchant Banking

Category-I can act as issue manager, advisor, consultant, underwriter and portfolio
manager.
Minimum net worth required 5 crore
Category-II can act as advisor, consultant, underwriter and portfolio manager.
Minimum net worth required 50 lakh
Category-III can act as underwriter, advisor and consultant only.
Minimum net worth required 20 lakh
Category-IV can act as consultant or advisor to the issue of capital
Minimum net worth required NIL
 Qualities of good Merchant
banking
• Ability to analyse
• Abundant knowledge
• Ability to built up relationship
• Innovative approach
• Integrity
• Capital Market facilities
• Liaisoning ability
• Cooperation and friendliness
• contacts
 Conditions by SEBI for
merchant bankers
SEBI has laid the following conditions on the merchant bankers, for conducting their operations.
1. SEBI will give authorization for a merchant banker to operate for 3 years only. Without SEBI’s
authorization, merchant bankers cannot operate.
2. The minimum net worth of merchant banker should be Rs. 1 crore.
3. Merchant banker has to pay authorization fee, annual fee and renewal fee.
4. All issue of shares must be managed by one authorized merchant banker. It should be the
lead manager.
5. The responsibility of the lead manager will be clearly indicated by SEBI.
6. Lead managers are responsible for allotment of securities, refunds, etc.
7. Merchant banker will submit to SEBI all returns and send reports regarding the issue of
shares.
8. A code of conduct for merchant bankers will be given by SEBI, which has to be followed by
them.
9. Any violation by the merchant banker will lead to the revocation of authorization by SEBI.
 Code of Conduct
• To protect the interests of investors.
• To maintain high standards of integrity, dignity and fairness in the conduct of its business.
• To fulfill all the obligations bound to us in a prompt, ethical, and professional manner.
• We shall at all times exercise due diligence, ensure proper care and exercise independent
professional judgment, if required.
• A Merchant Banker shall always endeavor to render the best possible advice to the clients
having regard to their needs.
• A Merchant Banker shall avoid conflict of interest and make adequate disclosure of its
interest.
• A Merchant Banker shall put in place a mechanism to resolve any conflict of interest situation
that may arise in the conduct of its business or where any conflict of interest arises, shall
take reasonable steps to resolve the same in an equitable manner.
•  A Merchant Banker shall not indulge in any unfair competition, such as weaning away the
clients on assurance of higher premium or advantageous offer price or which is likely to harm
the interests of other Merchant Bankers or investors or is likely to place such other Merchant
Bankers in a disadvantageous position while competing for or executing any assignment.
Institutes offering Merchant Banking
There were 5725 merchant bankers in our country registered with SEBI
Key players are

Public sector Private Foreign Players

Sbi capital market LTD ICICI Securities Ltd Goldman Sachs (India)
Securities Pvt. Ltd.
Punjab national Bank Axis Capital ltd Morgan Stanley India
Company Pvt. Ltd
Bank of Maharashtra Bajaj Capital Ltd Nomura financial
Advisory
Karur Vysya bank ltd, JM financial Edelweiss
IFCI financial services Reliance Securities Citigroup Global Markets
ltd Limited India Pvt. Ltd.
State Bank of Bikaner Kotak Mahindra Capital DSP Merrill Lynch Ltd
and Jaipur Company Ltd