SUBMITTED BY:_

RAVI SINGLA120426202

SECTION-E

SUBMITTED TO:-MRS DALBIR KAUR

Definition: BankingBusiness activity of an financial advisory that accepts deposits

and channels those deposits into lending activities, either directly or through capital markets.

Few Services Offered: a) Savings/Current account

b) Home/Personal loan c) Mutual fund

d) collect cheques, drafts & notes.

Merchant Banking: OriginMerchant 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 of bill.

Merchant Banking officially came to India through Grindlays Bank in 1967.

Recognized the requirements of upcoming class of Entrepreneurs for diverse financial services.

Merchant Banking: Contd.Few Other Institutes who joined the bandwagon:-

Citibank Setup its merchant banking division in Indian in 1970.

Indian banks Started banking Services from 1972.State bank of India started the merchant banking division in

1972.Many other banks came after this like ICICI, Canara Bank,

UCO bank etc.

About Merchant BankingBank that deals 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 do not provide regular banking services to the

general public.Merchant banks invest their own capital in client companies &

provide services for mergers and acquisitions.

Contd.A merchant bank 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.

Services:Corporate counseling.Project counseling.Working capital finance.Portfolio Management.Restructuring strategies.Credit Syndication.Lease Financing.Some Other Services.

Services contd.Corporate Counseling:

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.

Contd.Project counseling:

It’s a part of corporate counseling & deals with analysis of project viability .

Comprises of preparation of project report & deciding finance pattern for cost of project.

Filling up of application form with significant information for obtaining funds.

Services contd.Working Capital Finance: Meeting the day-to-day expenses 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 marketable securities.

Decides quantum, timing & type of security to be bought.

Help in achieving maximum return with minimum risk by proper combination of 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.

Services contd.Credit Syndication:

Relates to activities connected with credit procurement & project financing.

Estimates total cost of the projectDrawing up of financial plan which conforms 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 & acqusitions.

Other Services contd.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.

Difference b/w Commercial & Merchant banks

Commercial Banking Catering needs of common man. Anyone can open an A/c. Less exposed to risk. Related to secondary markets. It’s asset oriented. Plays the role of financers.

Merchant Banking Catering needs of corporate

firms. It cannot be done. More exposed to risk. Related to Primary markets. It’s management oriented. Plays different roles like

underwriting, portfolio etc.

Merchant BankingAdvantages: Merchant banks perform functions that

cannot be carried out by businesses on their own.

Merchant banks have access to traders, financial institutions, and markets that companies or individuals could not possibly reach.

By using their skills and contacts, merchant banks can get the best possible deals for their clients.

Disadvantages: Merchant banks are really only for

large corporate customers, or extremely wealthy smaller businesses owned by individual clients.

Not all deals carried out by merchant banks meet with unqualified success.

There is always risk attached to the kinds of deal that merchant banks undertake.

Institutes offering Merchant BankingPublic 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

MERCHANT BANKING REGULATIONS :

Certificate from SEBI is a must.They are of four types:

Category I merchant bankers : Can act as Issue managers

Category II merchant bankers : can act only as co-managers

Category III merchant bankers : can act as co-managers but cannot undertake portfolio management

Category IV merchant bankers :can merely act as consultant or advisor to issue of capital

CAPITAL ADEQUACY NORMS :

Category I : Rs. 5 crores

Category II : Rs.50 lakhs

Category III : Rs.20 lakhs

Category IV : Nil

GUIDELINES FOR MERCHANT BANKERS :

SEBI’s authorization is a must to act as merchant bankers.Authorisation criteria include

Professional qualification in finace,law or business management

Infrastructure like office space,equipment and man power

Capital adequacy

Past track of record,experience,general reputation and fairness in all

transactions

Every merchant banker should maintain copies of balance sheet,Profit and loss account,statement of financial position

Half-yearly unaudited result should be submitted to SEBI

Merchant bankers are prohibited from buying securities based on the unpublished price sensitive information of their clients

SEBI has been vested with the power to suspend or cancel the authorisation in case of violation of the guidelines

Every merchant banker shall appoint a ‘Compliance Officer‘ to monitor compliance of the Act

SEBI has the right to send inspecting authority to inspect books of accounts,records etc… of merchant bankers

Inspections will be conducted by SEBI to ensure that provisions of the regulations are properly complied

An initial authorisation fee,an annual fee and renewal fee may be collected by SEBI

A lead manager holding a certificate under category I shall accept a minimum underwriting obligation of 5% of size of issue or Rs.25 lakhs whichever is less

SOME PROBLEMS OF MERCHANT BANKERS

SEBI stipulates high capital adequacy norms for authorisation which prevents young,specialised professionals into merchant banking business

Non co-operation of the issuing companies in timely allotment of securities and refund of application of money etc.. is another problem

Yet merchant banking is vast but should develop adequate expertise to provide a full range of merchant banking services

Key Foreign PlayersGoldman Sachs (India) Securities Pvt. Ltd. Morgan Stanley India Company Pvt. Ltd.Barclays Securities (India) Pvt. Ltd. Bank Of AmericaCitigroup Global Markets India Pvt. Ltd.DSP Merrill Lynch Ltd.

Thank You.