merchant banking business
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Merchant Banking Business
Made byMr. Vishal Narvekar
[S.Y.B.F.M .]
Table of contentIntroduction
History
Main services provided by merchant banks
Who can be merchant banker?
Requirements for setting up a merchant bank
Categories of merchant bankers
Qualities of A merchant banker
Merchant banking in India
Main merchant banking companies
Key foreign players
Merchant banking structure in India
Ranking of merchant banks in India
Conclusion
Introduction
According to SEBI Merchant Bankers rules 1992 & The Notification of the Ministry of Finance the
merchant banker is :-“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, advisor or rendering corporate advisory services
in relation to such issue management”
History Merchant banking started in Italy in late medieval
times Reached in France during the seventeenth century Italian merchant bankers introduced Merchant
banking into England in eighteenth century European bankers developed merchant banking In
USA In 1972, merchant banking started in South Africa In 1967, National Grindlays Bank started merchant
banking in India
Main Services Provided By Merchant Banks Corporate Counselling
Project Counselling
Loan Syndication
Managers to Issue
Underwriting
Portfolio Management
Non-Resident Investment
Advising On Mergers And Take-Over
Arranging Offshore Finance
Management of Debenture Issue
Assistance in issue of ADR/GDR
Main Services Provided By Merchant Banks Particular Summary
Corporate Counselling
Covers the entire field of merchant banking , of giving suggestions
Project Counselling
Preparing project report for govt. Approval , financial assistance
Loan SyndicationAssistance rendered to get term loan for project,
help client make appraisal, designing capital structure etc
Managers to Issue Drafting, completion of formalities, appoint Registrar etc
Underwriting Guarantee given by the underwriter, make raising of external resource easy
Portfolio Management
Investment in different kind of securities
Non-Resident Investment
Provide help in better and smooth trade to Non-Resident Investments
Advising On Mergers & Take-Over
Middlemen in setting negotiation, provide advise
Arranging Offshore Finance
Help in areas funds involving foreign currency
Management of Debenture Issue
As in public issue of shares, merchant bankers also undertake similar responsibilities in case of
public issue of debentures
Assistance in issue of ADR/GDR
Merchant bankers helps Corporate to issue ADRs/GDRs in US and other global markets
Who can be Merchant Banker?
Public sector
• Commercial banks
• FI• State
institutionsPrivat
e sector
• Banks• Finance /
investment companies
• Leasing companies
International banks
Requirements For Setting Up A Merchant Bank
Formation of the business organization
Adoption of a viable business
plan
Registration of merchant bankers
Registration of Merchant Bankers
Application for grant of certificate
Furnishing of information, clarification and personal representation
Consideration of application
Grant of a certificate
Payment of fees and the consequences of failure to pay fees
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 :-Category ICategory IICategory IIICategory IV
For underwriter or portfolio manager a separate certificate of registration needs to be obtained from SEBI
Furnishing Of Information 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
The applicant or its principal officer may appear before the Board for personal representation
Consideration Of Application
Applicant complies with the following requirements:-The applicant shall be a body corporate other than
a non- banking financial company The applicant has the necessary infrastructure like
adequate office space, equipments, and manpower to effectively discharge his activities
The applicant has minimum of two persons as employ who have the experience in the business of the merchant banking
Consideration Of Application contd
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 found guilty for 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
Consideration Of Application contdThe applicant must 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 Minimum Amount
Category I Rs. 5, 00, 00, 000
Category II Rs. 50, 00, 000
Category III Rs. 20, 00, 000
Category IV Nil
Grant Of A Certificate
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, the Board may suspend the registration certificate
A merchant banker has to pay to SEBI :-Applicant fee of 25000Registration Rs 10 lakhsRenewal fee of Rs 5 lakh 3 years from the 4th year from
the date of initial registration
Categories Of Merchant BankersCategory Role Fees charged
Category IIssue managementAdvisor ConsultantManagerUnderwriter Portfolio manager
• 2.5 lakhs for first two years
•1.50 lakhs for 3rd year
Category IIAdvisorConsultantUnderwriterPortfolio managerCo-manager
• 1.5 lakhs for first two years
• 50,000 for 3rd year
Category III UnderwriterAdvisorconsultant
• Minimum 50,000
Category IV AdvisorConsultant • Minimum 50,000
Qualities of a Merchant Banker
Ability to analyse
Abundant knowledge
Innovative approach
Integrity
Capital Market Familiarity
Merchant Banking In India
Foreign bank National Grindlays Bank started merchant banking in 1967
Then Citibank in1970 & State Bank of India in 1972 started merchant banking
Later ICICI set up its merchant Banking Division followed by Bank of India, Bank of Baroda, Canara Bank etc..
Main Merchant Banking companies
Public
Sector
•SBI capital markets ltd •Punjab national bank •Bank of Maharashtra •Karur Vysya bank ltd •State Bank of Bikaner and Jaipur.•IFCI financial services ltd.
Private Sector
•ICICI Securities Ltd •Axis Bank Ltd •Bajaj Capital Ltd •Reliance Securities Limited •Kotak Mahindra Capital Company Ltd •Yes Bank Ltd
Key Foreign Players
Goldman Sachs (India) Securities Pvt. Ltd.
Morgan Stanley India Company Pvt. Ltd.
Barclays Securities (India) Pvt. Ltd.
Bank Of America
Citigroup Global Markets India Pvt. Ltd.
DSP Merrill Lynch Ltd.
Merchant Banking structure in IndiaMerchant banks
PUBLIC SECTOR
COMMERCIAL BANKS (24)
FINANCIAL INSITUTION (6)
STATE INSITUTIONS (4)
PRIVATE SECTOR
BANKS (10)
FINANCE AND INVESTMENT (231)
INTERNATIONAL BANKS(10)
Ranking Of Merchant Banks in IndiaMerchant Banker
Overall Excellence
Financial Soundness
Quality of Product &Service
Quality Management
Innovativeness
ICICI Securities 4 4 4.2 3.8 4.3
IDBI 4.2 3.2 4.5 4 4.8
SBI Caps 4.4 3.9 4.6 6.7 5.2
DPS 6.1 5.7 6 6 5.3
IFCI 6.1 5.7 6 6 6.3
Webliography Webpage Link
Wikipedia.org http://en.wikipedia.org/wiki/Merchant_banking
Fdic.gov http://www.fdic.gov/bank/analytical/banking/2001sep/article2.html
ukessays.com http://www.ukessays.com/essays/english-language/merchant-banking-in-india.php
investopedia.com http://www.investopedia.com/terms/m/merchantbank.asp#axzz2EqgN9tfw
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