Merchant Banking
INTRODUCTION Refers to British
Merchant banking .
Concerned with mobilising savings of people .
DEFINITION
MERCHANT BANKING is defined as “an institution which covers a wide range of activities such as management of customer services, portfolio mgmt, credit syndication, acceptance credit, counselling, insurance etc.
ORIGIN Originated through
London merchants.
Extension of activities to domestic business of syndication of long-term & short-term finance, share transfer agents, debenture trustees, takeover etc.
Merchant Banking
In India…?
Merchant banking in India Need for merchant banking was felt
with rapid growth in number & size of issues made in primary market.
Merchant banking services were started by foreign banks, namely National Grindlays in 1967 & City bank in 1970 .
Merchant banking services were offered along with other traditional banking services.
SBI was first Indian bank to set up Merchant banking division in 1972.
DIFFERENCE BETWEEN COMMERCIAL BANKING & MERCHANT BANKING Deals with Debt &
Debt related finance.
Asset oriented.
Generally avoid risks.
Deals with Equity & Equity related finance.
Management oriented.
Willing to accepts risks.
Merchant Banking
Services…?
SERVICES OF MERCHANT BANK
The financial institutions in India could not meet the demand for long-term fund required by the ever expanding industry and trade.
Corporate sectors enterprise meet their demand through issuing share and debenture in capital market.
Sr No
Particulars Summary
1 Corporate Counseling
Covers the entire field of merchant banking, Ltd to giving suggestions
2 Project Counseling
Preparing project report for govt. approval , financial assistance
Services of Merchant Banks
3 Loan Syndication
Assistance rendered to get term loan for project, help client make appraisal, designing capital structure etc
4 Issue Management
Marketing corporate securities, intermediary in transfer of capital from one who owns to needy
5 Underwriting Guarantee given by the underwriter, make raising of external resource easy
6 Managers to Issue
Drafting, completion of formalities, appoint Registrar etc
7 Portfolio Management
Investment in different kind of securities
8 Mergers and takeovers
Middlemen in setting negotiation
9 Off Shore Finance
Help in areas involving foreign currency
10
Non- Resident Investment
Provide help in better and smooth trade to NRIs
Merchant Banker as Managers, Consultants or Advisors Companies are free to appoint one or more
agencies as managers to the issue. Sebi guidelines prescribe that issue should
be managed atleast by one authorised merchant banker.
Not more than two M.B. should be appointed as lead managers to a public issue.
In issue over Rs.100 crores, maximum upto four M.B. could be associated as managers.
Merchant Banker As lead Manager
Appointment of a lead manager by a company
S. No
Size of the issue Maximum Number Of
Lead Manager
1. Less than Rs.50 crores 2
2. Rs.50 crores to Rs.100 crores 3
3. Rs.100 crores to Rs.200 crores 4
4. Rs.200 crores to Rs.400 crores 5
5. Above Rs.400 crores 5 or more as prescribed by
SEBI
Duties & Responsibilities Of LM
To enter into an agreement
Certificate of registration with SEBI
Work of issue management
Clearly defined responsibility
Minimum underwriting obligation
Due care & diligence Submitting due diligence
certificates Submit all particulars to SEBI Suggestions or modifications Collections of the amount Ensuring refund Inform depository participants
Qualities Required of Merchant Bankers
Ability to analyse Abundant
knowledge Ability to built up
relationship Innovative
approach Integrity
(left) Rashesh ShahChairman & CEO, Edelweiss
(right) Nimesh Kampani
Chairman & MD, JM Financial
(Best merchant bankers)
CATEGORY OF MERCHANT BANKER CATEGORY 1st :-
2nd :-
3rd :-
4th :-
MINIMUM NETWORTH
1 crore 50 lacs 20 lacs NIL
The M.B.registered with SEBI classified according to the category :-
MERCHANTBANKER
PUBLIC SECTOR PRIVATE SECTOR
COMMERCIALBANKS :- 24
INTERNATIONALBANKER :- 10
FINANCIAL INSTITUTION :- 6
STATE INSTITUTION :- 4
BANKS :- 10
FINANCE & INVESTMENT :- 231
LEASING
Merchant banking
Problems….?
Restriction of merchant banking activities
SEBI guidelines have authorised merchant bankers to undertake issue related activities and made them restrict their activities or think of separating these activities from present one and float new subsidiary and enlarge the scope of its activities.
Minimum net worth of Rs.1 crore SEBI guidelines
stipulate that a minimum net worth of Rs.1 crore for authorisation of merchant bankers.
Non co-operation of issuing companies
Non co-operation of the issuing companies in timely allotment of securities and refund of application money is another problem faced by merchant bankers.
MERCHANT BANKERS COMMISSION Maximum 0.5% Project appraisal fees Lead Manager :- - 0.5% upto Rs.25 crores - 0.2% more in excess of
Rs.25 crores
Underwriting fees Brokerage commission 1.5% Other expenses :- - Advertising - Printing - Registrar’s expenses - Stamp duty
Merchant banking
Scope in India…?
1) Growth of new issues market Indian market largest emerging market Domestic and foreign investors setting
up their biz here. Many public and private issues coming
up Growth in new issues market Scope for M.Bs. have risen
2) Entry of FII Indian capital market is globalised
Indian Cos. are permitted to invest in euro issues. Similarly, FII are permitted to invest in India.
Hence they need M.Bs to advise them for their invt in India.
Increasing no. of JVs also require expert services of M.Bs.
3) Changing policy of FI
Liberalisation of policies
FI would require expert services of M.Bs for project appraisal, financial management, financial restructuring etc.
4) Development of debt market Good portion of
capital can be raised through debt instruments.
Tremendous opportunities to M.Bs.
5) Innovations in Financial Instruments
New financial instruments have come up.
M.Bs are market makers for these instruments.
6) Corporate Restructuring Liberalisation and globalisation
Competition in corporate sector becoming intense.
Cos. reviewing their strategies, structure and functioning etc. leading to corporate restructuring.
Good opportunity to M.Bs to extend their area of operation.
7) Disinvestment It means reduction of
some kind of asset of a firm for achieving either financial or ethical objectives.
Motive of disinvestment is to obtain funds.
Conclusion Inspite of problems popping up,
merchant banking in India has vast scope to develop because of lot of domestic as well as foreign businesses booming here. Indian economy provides an amicable environment for these firms to set up, flourish and expand here.
Thank you...