Financial services-final-21-jan-09

Merchant Banking in India

Presented by Rajesh MandalikKumar GauravPranay KargaonkarAbdul Qadir SaifyPavan Kumar ReddyMukesh Sahu

The Dictionary of Banking and Finance defines a merchant bank as “ a bank which arranges loans to companies, deals in international finance, buys and sells shares and launches new companies on the stock exchange, but does not provide normal banking services to the general public ”.

Merchant Banking

Bird’s eye view of Merchant Banking :

Merchant Banking is a fee-based service.It arranges funds rather than providing them.Originally Merchant Banking business was started in Italy and France.Later on, it came into existence in the U.K., and the U.S.A.In India, it has become popular from 1983-84.

The Grindlays Bank initiated the merchant banning activity in Indian Capital Market in 1969.

It’s business forms was on the management of Public Issues and Financial Consultancy.

City Bank introduced its merchant banking division in 1970.

Merchant Banking In India

Corporate Counseling

Portfolio Management

Venture Capital Financing

Mergers and Amalgamations

Project Counseling

Underwriting

Functions of Merchant Banking

6

Export Financing for capital goods

Hire purchasing

Equipment leasing

Investment trust

Valuation of assets

Financial management

Functions of Merchant Banking

7

Contd....

Private Investment Bankers

Lehman BrothersMerrill Lynch etc.

Bought loans that fall outside the specs of agencies.

Who’s to blame?

Borrower:

Buy a house with 20% down payment to live in and later sell at a profit. If this works out well, then …Buy a house with 0% down payment to live in and later sell at a bigger profit. If this works out well, then …Buy two houses with 0% down payment and sell at a profit?

Investors

Buy a subprime loan and sell at a profit because losses less than expected. If this works out well, then …Buy risky piece – lower rated tranches – of pool of subprime loans and sell at a bigger profit because losses less than expected.

Merchant Banking Services

->Management of Public Offers of Equity and debt Instruments.

->Rights issues.

->Buyback Offers.Etc.

Advisory and transaction Services in

->Project Financing.

->Syndicated loans.

->Private Equity/Venture Capital.

->Business Advisory. Etc.

Non-fund Based

Core Business Portfolio

Core Business Portfolio

Fund Base

->Underwriting.->Market making.

->Bought Out Deals.->Trading in Equities, bonds and

derivatives.

Allied Businesses

->Asset Management services.--Mutual Funds.

--Portfolio Management--Venture capital etc.

->Secondary Market Services.--Brooking

--Equity Research.

. Securities and Exchange Board of India (SEBI) has divided merchant bankers into four categories, which are as follows: -