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MERCHANT BANKING

What is a Merchant Bank?

A merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and to wealthy individuals. 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.

A set of financial institution that are engaged in providing specialist services, which generally include the acceptance of: Bills of Exchange Hire Purchase Installment Buying International Trade Financing Long Term Loans Investment and Portfolio Management.

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

Role of Merchant Bankers

Project Counselling. Corporate Counselling Loan Syndication. Issue Management. Portfolio Management. Working Capital Finance NRI Investment Advisory Service Relating to Mergers & Acquisitions Off- Shore Finance.

Project Counselling
Includes preparation of Project Reports

Deciding upon the Financing Pattern.

Appraising the Project relating to its Technical Commercial and Financial viability. Includes filling up forms for obtaining funds from Financial Institutions.

Corporate Counselling
Providing guidance in the area of diversification Undertaking appraisal of product lines, forecasting futures

Providing assistance in getting soft loans fro financial institution for capital expenditure
Exploring possibilities for takeover of sick units and making consequential arrangement and negotiation

Loan Syndication
Activities connected with credit procurement and project financing, aimed at raising currency loans from banks and financial institution. Activities covered are: Drawing up a financial plans for the total project cost to the requirement of promoter. Preparing loan application for financial assistance from term lender. Arranging bridge finance Assessing working capital

Issue Management
It involves management of the public issues of corporate Securities i.e. Equity Shares, Preference Shares, and Debentures. Preparation of budget for the total expense for the issue Selection of institutional and broker underwriter for underwriting arrangement Arranging for stocks exchange clearances and listing of securities. Determine the quantum, terms and timing of public issues of different form of securities.

Portfolio Management
Making decision relating to the investment of the cash
resources of a corporate enterprise in marketable securities by deciding the timing and the type of security to be bought Undertaking investment in securities. Safe custody of securities Providing advice on selection of investment Collecting and remitting interest on dividend on investment Carrying out critical evaluation of portfolio investment

Working Capital Finance

The finance required to meet day to day expenses Assessment of working capital requirement Preparing the necessary application for the sanction of appropriate credit facilities. Assisting coordination and expediting documents for disbursement Suggesting a sharing pattern of credit limit among participating banks

Managers Consultants or Advisers to the Issue

SEBI insists that all issues be managed by at least one
authorized Merchant Banker.

For an Issue of 100 crores a max. of Four Merchant Banks are appointed.
They help in Listing of Shares in Stock Exchange, Completion of Formalities under Companies Act etc.

Advisory Services Relating to Mergers & Takeovers

Merger means combination of two or more companies. Here one survives, while other loses its existence.
Takeover is the purchase by one Company & acquiring controlling Interest in the Share Capital of another Company. Merchant Banks act as Middlemen between the Offeror & the 'Offeree.

Foreign Currency Financing

Finance provided to fund foreign trade transaction Providing guidance on forward cover for exchange risk Assisting in arranging foreign currency guarantees and performance bonds for exporters. Providing assistance in opening and operating bank accounts abroad Arranging foreign currency loans for importing goods

NRI Investment
NRIs have to follow lot of complicated Rules for Investing in Shares in India.
Merchant Bankers help them in choosing the Shares. Also provide Expert Advice fulfilling Govt. Norms. & Regulations. Thus they provide more resources for Corporate Sector.

Brokering Fixed Deposit

Following are the service rendered by merchant banks: Drafting of advertisement

Making arrangements for the collection of deposit at the bankers branches.

Making arrangements for the payments of interest. Drafting and printing of application forms.

Merchant Banking Institutes

Commercial Banks.
Foreign Banks like National Grindlays Bank, CitiBank, HSBC Bank etc. Development Banks like ICICI, IFCI, IDBI etc. SFC, SIDCs. Pvt. Firms like JM Financial & In vestment Services, DSP Financial Consultants, CEA7 Kotak Mahindra, Morgan-Stanley etc.

Problems of Merchant Bankers

SEBI stipulates high capital adequacy norms for
authorization. Non co-operation of issuing companies in timely allotment of securities and refund of application of money etc.Is vast, but should develop adequate expertise to provide a full range of merchant banking services.

-THANK YOU-