Importance of Merchant Banking

1) Need for Merchant Banking is felt in the wake of huge public savings lying untapped.

2) Merchant bankers can play highly significant role in mobilising funds of savers to investible channels assuring promising returns on

investments and thus can assist in meeting the widening demand for investible funds for

economic activity.

1) With growth of merchant banking profession corporate enterprises, undertaking expansion,modernisation,diversification of the existing enterprises. This reinforces the need for a vigorous role to be played by merchant banking.

Reasons why Specialist merchant banks have crucial role to play in India

• 1)Growing industrialization and increase of technologically advanced industries.

• 2)Need for encouragement of small and medium industrialists, who require specialist services.

• 3)Growing complexity in rules and procedures of the government.

• 4)Need to develop backward areas and states which require different criteria

• 5)Exploring the possibility of joint ventures abroad and foreign markets.

• 6) Promoting the role of New Market in mobilizing savings from the public

Services followed by Merchant Bankers :

• 1)Corporate Counselling:• It denotes advise provided by a merchant banker

to a corporate unit to ensure better corporate performance in terms of image building among investors,steady growth through good working,appreciation in market value of its equity shares.

• The counselling is limited to only opinions and suggestions and any detailed analysis would form part of a specific service.

• The scope of corporate counselling is restricted to the explanation of concepts,procedures and laws to be observed by the client company.

• Requirement of any action to be taken or compliance of statutory formalities to be made for implementation of those suggestions would mean the demand for a specific type of service other than corporate counselling being offered by the merchant bankers.

2.Project Counselling• Project counselling is a very important and

lucrative merchant banking service.• It covers development of an idea into a project,

preparation of the project report,estimation of the cost of the project and deciding upon the means of financial and techno-economic appraisal of projects for capital issue/financing etc.

• The fee charged for project report preparation/appraisal ranges between 0.25% to 2% of the total project cost. The fee charged depends upon.

• a) Total size of the project• b) The complexity of the project.

• 3 (A) Management of Capital Issues:

• Pre-issue Management:• Steps required to be taken to manage Pre-issue

activity as as follows:• 1)Obtaining stock exchange approvals to

memorandum and articles of association.• 2)Taking action as per SEBI guidelines.• 3)Finalising the appointments of the following

agencies.

• a) Co-managers/Advisors to the issue.• b) Underwriters to the issue.• c) Brokers to the issue.• d) Bankers to the issue and refund Banker.• e) Advertising agency.• f) Printers and Registrar to the issue.• 4)Advise the company to appoint auditors, legal

advisers and broad base Board of Directors.

• 5) Drafting of prospectus.• 6)Obtaining approvals of draft prospectus from

the company's legal advisors, underwriting financial institutions/ Banks.

• 7) Obtaining consent from parties and agencies acting for the issue to be enclosed with the prospectus.

• 8)Approval of prospectus from Securities and Exchange Board of India(SEBI).

• 9)Filing of the prospectus with Registrar of Companies(ROC)

• 10)Making an application for enlistment with Stock Exchange along with copy of the prospectus.

• 11)Publicity of the issue with advertisement and conferences.

• 12)Open subscription list.

• (B)Post-issue Management:Steps involved:1)To verify and confirm that the issue is subscribed

to the extent of 90% including development from underwriters in case of under subscription.

2)To supervise and co-ordinate the allotment procedures of registrar to the issue as per prescribed Stock Exchange guidelines.

3)To ensure issue of refund order, allotment letters/certificates within the prescribed time limit of 10 weeks after the closure of subscription list

• 4)To report periodically to SEBI about the progress in the matters related to allotment and refunds.

• 5)To ensure the listing of securities at stock Exchanges.

• 6)To attend the investors for managers regarding the public issue.

• The merchant bankers for managing public issue can negotiate fee subject to a ceiling.This fee is to be shared by all leadmanagers,advisers etc.

• (a) 0.5% of the amount of public issues upto Rs.25 crores and

• (b) 0.2% of the amount exceeding Rs.25 Crores, if more than one merchant bankers are managing the issue.

4 Portfolio Management

• It involves selection of Securities and constant shifting of the portfolio in the light of varying attractiveness of the constituents of the portfolio.

• It involves selecting and revising the spectrum of securities to the portfolio based on the characteristics of an investor.

• The objectives of portfolio management is to maximise the yield and minimise the risk along with other objectives like stability of income, capital growth,liquidity, safety, tax incentives, etc.