Merchant Banking 2014

8/10/2019 Merchant Banking 2014

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Merchant banking


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Meaning of merchant banking

Anyperson who is engaged in the business of issue

management either by making arrangements

regarding selling, buying, underwriting or

subscribing to the securities as underwriter,

manager, consultant, advisor or rendering corporateadvisory services in relation to such issue

management.

The term Merchant banking has been useddifferently in different parts of the world.

As in UK called as acceptanceand issuing house.

In US called as investment banking.


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Origin of merchant banking

The term merchant banking originated from

the London who started financing foreign

trade through acceptance of bills.

Later they helped government of under

developed countries to raise long term funds.

Later these merchants formed an association

which is now called Merchant Banking and

Securities House Association.


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Origin of Merchant banking in INDIA

In 1967, National Grindlays bank in India initiated Merchantbanking services.

The Citibank followed it in 1970.

The state bank of India was the first Indian commercial bank to

set up a separate merchant banking division in 1972. ICICI followed it in 1973.

Both of these Indian merchant bankers emerged as leader inmerchant banking having done significant business during theperiod 1974-85 in comparison to foreign banks.

A number of commercial banks, financial institutions like IDBI &IFCI and other organistion are now engaged in providingmerchant banking services.

The merchant banks in India operate as an issue houses ratherthen full-fledged merchant banks.


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Example of MERCHANT BANKING

Indbank Merchant Banking Services Limited is an

India-based company. The Company is engaged in merchant banking,

stock broking, depository participant and allied

activities. It is a member of National Stock Exchange (NSE),

Bombay Stock Exchange (BSE)&Madras Stock

Exchange (MSE).

The Company provides fee-based services.

Fee-based activities include merchant banking,

stock broking, depository participant services,


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At present merchant banking services are

provided by following types of organisations in

INDIA:

Commercial banks & their subsidiaries

Foreign banks including National Grindlays bank, Citi

bank, Hong Kong bank etc..

All India Financial Institutions and Development bankssuch as IFCI, ICICI, IDBI etc..

State level financial institutions

Private consultancy firms and brokers such as KotakMahindra, Ceat financial services etc.

Technical consultancy organisations.

Professional merchant banking houses, such as VMC

project technologies.


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Classified into 4 broad sections:

Corporatecounselor

Projectcounseling

Capitalstructuring

Portfoliomanagement


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Scope of merchant banking activities

In channelizing the financial surplus of thegeneral public into productive investmentavenues.

To co-ordinate the activities of variousintermediaries to the share issue such as theregistrar, bankers, advertising agency,underwriters, broker etc.

To ensure the compliance with rules andregulations governing the securities market


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Commercial Banks & Merchant

BankingMerchant banks Commercial banks

Mainly offer financial services for a fee Accepts deposits and grant loans.

Deals with Debt & Debt related finance. Deals with Equity & Equity related

finance.

Asset oriented. Management oriented

Generally avoid risks. Willing to accepts risks.

Governed by Merchant bankers rulesissued by Ministry of Finance and

Merchant Bankers Regulations issued by

SEBI

Governed by Banking Regulation Act,1949 and operate under directives issued

by RBI from time to time.

There is no regulatory framework on

working of merchant banks.

Required to maintain required ratio of

liquid assets in form of SLR & CRR.


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In regard to services

Merchant banks

Corporate counseling

Project advisory services

Corporate restructuring

Issue management

Managing mergers/amalgamationsand takeovers

Loan syndication

Portfolio management

Corporate advisory services Leasing services

Providing assistance for technicaland financial collaboations

Commercial banks

Accepting deposists of various types

Providing working capital finance

Meeting short term credit needs

Allow customers to withdraw moneyby cheques.

Availing of cash credit, overdrafts,discounting of bill of exchange

Issuing credit cards

Providing medium term loans to SSIsor medium scale industries insyndication with the financialinstitutions.


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Functions of merchant Banking

Corporate counseling

Project counseling

Capital structuring

Portfolio management

Issue management

Credit syndication

Working capital

Venture capital

Lease finance

Fixed deposits

Bill discounting and acceptance credit

Specialised services


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Role of merchant banker

Role of merchant banker

Role of promoter, advisor, rehabilitator and an agentor the intermediary.

As a corporate advisor

As a managerial economist

As financial and managerial expert

As a manager to the issue

As a rehabilitator


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Merchant banking regulations

SEBI Regulation Act, 1992 defines merchantbanker as any person who is engaged in the

business of issue management either by making

arrangements regarding selling, buying or

subscribing to securities or acting as a manger,

consultant, adviser or rendering corporate advisory

service in relation to such issue management.

At present no organisation can act as a merchant

banker without obtaining certificate of registration

from SEBI.


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Classification of Merchant BankersCategory I

Acts as a issuemanager,advisor,

consultant,underwriterand portfolio

manager.

Category II

Acts as a advisor,

consultant,underwriter and

portfolio managers.

They cannotact as a issuemanager of

their own butcan act as aco-manger.

Category III

They are allowedto act as a

underwriter,

advisor andconsultant only.

They can neitherundertake issue

management of their ownnor they act as a co-

manger.

They cannotundertake portfolio

managementactivities.

Category IV

Acts as aconsultant oradvisor to an

issue of

capital.


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Capital adequacy norms

Category of Merchant Bankers Minimum net worth

Category I Rs. 5 crores

Category II Rs. 50 lakhs

Category III Rs. 20 lakhs

Category IV Nil


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Fees Acc. To the SEBI (Merchant bankers) Amendment

Regulations, 1999, w.e.f. 30.09.1999, everymerchant banker shall pay a sum of Rs. 5 lakhs as

registration fees at the time of grant of certificate

by the Board.

The fee shall be paid by the merchant banker

within 15 days of receipt of intimation from the

board.

Further merchant banker to keep registration in

force shall pay renewal fee of Rs. 2.5 lakhs every

three years from the fourth year from the date of

initial registration.


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Code of Conduct

Protect the interest of the investors. Adequate discloser in a timely manner.

True and adequate information.

No discrimination.

Endeavour to ensure that inquiries, grievances and

complaints are properly handled.

Not make any untrue statements or suppress

material facts.

Access to relevant information.

Not to be a party or instrument for creation of false

market, manipulation


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General obligations and

responsibilities

Merchant bankers not to associate with any

business other than that of securities market.

Maintenance of books of accounts, records etc.

Submission of half yearly results

Report on steps taken on auditors report.

Acquisition of shares prohibited.

Information to the board.

Disclosure to the board.

Merchant Banking 2014

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