MERCHANT BANKING

AN OVERVIEW IN LIGHT OF SEBI (MERCHANT BANKERS) REGULATIONS, 1992

(PROJECT REPORT)

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT AWARD OF THE DEGREE OF MASTER OF LAWS IN CORPORATE LAW AND GOVERNANCE UNDER THE GUIDANCE OF
PROFESSOR DR. K. VIDYULLATHA REDDY [BANKING AND FINANCE LAWS]

BY
PARUL PRASAD 1ST YEAR, LL.M. ROLL NUMBER - 2012-28

DATE OF SUBMISSION
02.04.2013

AT
NALSAR UNIVERSITY OF LAW HYDERABAD

PREFACE

I am extremely grateful to my professor, Dr. K. Vidyullatha Reddy for her support for the project, from initial guidance in the early stages of conceptual inception, and through ongoing advice and encouragement to this day. She has been instrumental in conceptualization of this study.

I would also like to extend my heartfelt regards and gratitude to the Library Staff.

I am also grateful to my friends for their huge support and encouraging words, during this project.

PARUL PRASAD

CONTENTS

INTRODUCTION MERCHANT BANK OBLIGATIONS AND RESPONSIBILITIES PROCEDURE FOR INSPECTION BRIEF ANALYSIS OF SOME MERCHANT BANKS IN INDIA MERCHANT BANKING - RECENT NEWS CONCLUSION SELECT BIBLIOGRAPHY

1 INTRODUCTION
A merchant bank is defined as a financial institution or an organization that underwrites corporate securities and advice such clients on issue like corporate mergers etc involved in the ownership of commercial venture, etc. this organization may be bank corporate body, a firm or a priority concern Although merchant banking activity was ushered in two decades ago, it was only in 1992 after the formation of Securities and Exchange Board of India that it is defined and a set of rules and regulations governing it are in place. According to the Securities and Exchange Board of India [Merchant Banker] Rules, 1992 as any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing securities as manager, consultant, advisor or rendering corporate advisory service in relation to such issue management. In BRITAIN, merchant bankers & investment bankers are synonymous. In The U.S.A., Merchant bank means as investment bank which is well equipped to handle multinational corporations. In INDIA merchant bankers is a body corporate who carries on any activity of the issue management, which consist of preparing prospectus & other information relating to the issue. Merchant banks in India are not allowed to conduct any business other than that related to securities market. There is no official category in investment banking.

ORIGIN The origin of merchant banking is to be traced to Italy in late medieval times and France during the seventeenth and eighteenth centuries. The Italian merchant bankers introduced into England not only the bill of exchange but also all the institutions and techniques connected with an organized money market. Merchant banking consisted initially of merchants who assisted in financing the transactions of other merchants in addition to their own trade. In France, during seventeenth and eighteenth centuries a merchant banker (le merchand Banquer) was not merely a trader but an entrepreneur. He invested his accumulated profits in all kinds of promising activities. He added banking business to his merchant activities and became a merchant banker.

GROWTH OF MERCHANT BANKING IN INDIA:A HISTORICAL PERSPECTIVE In India Merchant Banking activities started from the year 1967, following the footsteps of similar activities in UK & USA. Till 18th century moneylenders, moneychangers, village merchants & saucers performed the function of banks & merchant banks. They also issued &

discounted bills of exchange & bank draft. They gave loans on mutual trust, on mortgage of lands, ornaments & other property. [1] In 1967, RBI issued its first merchant banking license to Grindlays Bank. Grindlays started with management of capital issues, production planning, system design and also market research. It provides management consulting services as well. Following Grindlays Bank, Citi Bank set up its merchant banking division in 1970 its scope includes assisting new entrepreneur, evaluating new projects, raising funds through borrowing and issuing equity. Consequent to the recommendations of Banking Commission in 1972, Indian banks started banking services as a part of multiple services they offered to clients from 1972. State bank of India started the merchant banking division in 1972. In the initial years the objective was to render corporate advice and assistance to small and medium entrepreneurs. The commercial banks that followed State Bank of India were Central Bank of India, Bank of India and Syndicate Bank in 1977. Bank of Baroda, Standard Chartered Bank and Mercantile Bank in 1978. United Bank of India, United Commercial Bank, Punjab National Bank, Canara Bank and Indian Overseas Bank in late 1970s and early 1980s. Among the development banks, ICICI started merchant banking activities in 1973 followed by IFCI (1986) and IDBI (1991). Mid seventies witnessed a growth of merchant banking organization in the country with various commercial banks, financial institutions, broker firms entering in to the field of merchant banking. The growth in merchant banking business during the early seventies was to forcing exchange regulation act 1973 [ FERA] where in large number of forcing companies operating in India were required to dilute their foreign holdings In order to continue business in the country his result in expansion in the capital markets providing enough opportunities to merchant bankers to established themselves. The change in Indian economy opened new doors for merchant banking business enter in diversified area of activities, but at the same time this brought competition in merchant banking sector. This sector has traditionally been dominated by financial institution, banks and their subsidiaries. Now, various private sectors merchant bankers have emerged and some of them having international reputation. Till the end of 1990, the merchant banking sector was almost monopoly public sector institution and commercial banks, however since 1991 considerable number of private merchant banker have emerged on same. Various existing corporate entities and non-banking finance companies have also focused their activities in merchant banking business. Before 1990 there were less than 40 merchant banking concerns while in 199 this number has exceeded to more than 400 firms. Merchant Banking is an emerging concept in the area of financial services in India. The profession of Merchant Banking is dedicated to fulfil the needs of trade and industries by acting as an intermediary, consultant, liaison man and financer too. Merchant banking is a result oriented profession commanding high degree of skills and dexterity in solving business problems, assisting in investments and financial decision making, assisting in laying corporate strategies, assessing capital needs and helping in producing the owed as well as
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JAGAT SHETH (1720-1773AD, BENGAL) HABIB & SONS which is now HABIB BANK (founded in 1941, now is in PAKISTAN). These were the organized merchant bankers in recent history of INDIA.

borrowed funds for achieving balanced capital structure of the client corporate un its. Merchants bankers with the confidence of investors and general public command high reputation for passing on accurate, adequate and timely information which helps and facilities in the functioning of capital markets, money markets & international financial system. Merchant Bankers observe their skill as personal possession for their comparative strengths in the profession. Merchant banking activities are organized and undertaken in several forms. Commercial banks and foreign development finance institutions have organized them through formation of division; nationalized banks have formed subsidiaries; companies, share brokers and consultancies constituted themselves into public ltd. Co. or registered themselves as private ltd. companies. Some of them have equity stake of foreign merchant bankers. Companies raise capital by issuing securities in the market. Merchant bankers act as intermediaries between the issuers of capital and the ultimate investors who purchase these securities. Merchant banking is the financial intermediation that matches the entities that need capital and those that have capital. It is a function that facilitates the flow of capital in the market. Currently Merchant Banking activity has mushroomed in the Indian capital market with both public & private sector settings up their respective merchant Banking divisions. Currently, the total number of merchant bankers in India is approx 1450 with more than 930 registered with SEBI. The SEBI authorized Merchant Bankers Include merchant Banking divisions of All India Financial Institutions, nationalized & foreign banks, subsidies of the commercial banks, private merchant banks engaged in stock broking, underwriting activities & financial consultancy & investment advisory service firms. Grindlays Banks 1967 Citi banks 1970 SBI 1973 ICICI - 1974

2 MERCHANT BANK
DEFINITION In banking, a merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and wealthy individuals on how to use their money. The term can also be used to describe the private equity activities of banking. According to Cox, D. merchant banking is defined as, merchant banks are the financial institutions providing specialist services which generally include the acceptance of bills of exchange, corporate finance, portfolio management and other banking services. The Notification of the Ministry of Finance defines a merchant banker as, any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager, consultant, advisor or rendering corporate advisory service in relation to such issue management. According to SEBI (Merchant Bankers) Regulations, 1992 [Section 2 (cb)] Merchant Banker means 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 manager, consultant, advisor or rendering corporate advisory service in relation to such issue management.

IMPORTANCE AND NEED OF MERCHANT BANKING Important reason for the growth of merchant banking has been developmental activity throughout the country, exerting excess demand on the sources of funds for ever expanding industry and trade, thus, leaving a widening gap under bridged between the supply and demand of inventible funds. All Indian financial institutions and experienced resources constraint to meet the ever increasing demands for funds from the corporate sector enterprises. In such circumstances corporate sector had the only alternative to avail of the capital market services for meeting their long-term financial requirements through capital issues of equity and debentures. With the growing demand for funds there was pressure on capital market that encouraged the commercial banks, share brokers and financial consultant firms to enter into the field of merchant banking and share the growing capital markets. As a result, all the commercial banks in nationalized and public sector as well as in private sector including the foreign banks in India have opened their merchant banking windows and are competing in this field. There has been a mushroom growth of financial consultancy firms and broker firms doing advisory functions as well as managing public issues in syndication with other merchant bankers. Notwithstanding the above facts, the need of merchant banking institutions is felt in the wake of huge public savings lying still untapped. Merchant banks can play highly significant role 7

in mobilizing funds of savers to investible channels assuring promising return on investments and thus can help in meeting the widening demand for investible funds for economic activity. With the growth of merchant banking profession corporate enterprises in both public and private sectors would be able to raise required amount of funds annually from the capital market to meet the growing requirements for funds for establishing new enterprises, undertaking expansion/modernization/diversification of the existing enterprises. This reinforces the need for a vigorous role to be played by merchant banks. Need for merchant banking is felt in the wake of huge public saving lying untapped. Merchant banker can play highly significant role in mobilizing funds of savers to invisible channels assuring promising returns on investment and thus can assist in meeting the widening demand for invisible funds for economic activity. With growth of merchant banking profession corporate enterprises in both private sectors would be able to raise required amount of funds annually from the capital market to meet the growing requirement for funds for establishing new enterprises, undertaking expansion, modernization and diversification of the existing enterprises. This reinforces the need for a vigorous role to be played by merchant banking. In view of multitude of enactment, rules and regulation, gridlines and offshoot press release instructions brought out the government from time to time imposing statutory obligations upon the corporate sector to comply with those entire requirement prescribed there in the need of a skilled agency existed which could provide counselling in these matters in a package form. A merchant banker with their skills updated information and knowledge provide this service to the corporate units and advice them on such requirement to be complied with for raising funds from the capital market under different enactment viz. companies act, income tax act, foreign exchange regulation act, securities contracts corporate laws and regulations. Merchant bank advice the investors of the incentives available in the form of tax relief, other statutory relaxation, good return on investment and capital appreciation in such investment to motivate them to invest their savings securities of the corporate sector. Thus merchant banks help industries and trade to rise and the investors to invest their saved money in sound and healthy concern with confidence, safety and expectation for higher yields. Finance is the backbone of business activities. Merchant bankers make available finance for business enterprises acting as intermediaries between them raising demand for funds and the supplies of funds besides rendering various other services. The following are some of the reasons why specialist merchant bank have a crucial role to play in India Growing complexity in rules and procedures of the government. Growing industrialization and increase of technologically advanced industries. Need for encouragement of small and medium industrialists, who require specialist services. Need to develop backward areas and states which require different criteria. Exploring the possibility of joint ventures abroad and foreign market. Promoting the role of new issue market in mobilizing saving from. Most of the financial institution in India is in public sector and therefore such setup plays a role on the lines of governmental priorities and policies. 8

ORGANIZATIONAL SETUP OF MERCHANT BANKERS IN INDIA In India a common organizational setup of merchant bankers to operate is in the form of divisions of Indian and foreign banks and financial institutions, subsidiary companies established by bankers like SBI, Canara Bank, Punjab National Bank, Bank of India, etc. Some firms are also organized by financial and technical consultants and professionals. Securities and Exchange Board of India has divided the merchant bankers into four categories based on their capital adequacy. Each category is authorized to perform certain functions. From the point of organizational setup Indias merchant banking organizations can be categorized into four groups on the basis of their linkage with parent activity. They are: (A) Institutional Base Where merchant banks function as an independent wing or as subsidiary of various private, Central Governments or State Governments financial institutions. Most of the financial institutions in India are in public sector and therefore such setup plays a role on the lines of government priorities and policies. (B) Banker Base These merchant bankers function as division/subsidiary of banking organization. The parent banks are either nationalized commercial bank or the foreign banks operating in India. These organizations have brought professionalism in merchant banking sector and they help their parent organization to make a presence in capital market. (C) Broker Base In the recent past there has been an inflow of qualified and professionally skilled brokers in various stock exchanges of India. These brokers undertake merchant banking related operations also like providing investment and portfolio management services. (D) Private Base These merchant banking firms are originated in private sector. These organizations are the outcome of opportunities and scope in merchant banking business and they are providing skill-oriented specialized services to their clients. Some foreign merchant bankers are also entering either independently or through some collaboration with their Indian counterparts. Private sector merchant banking firms have come up either as the sole proprietorship or public limited companies. Many of these firms were in existence for quite some times before they added a new activity in the form of merchant banking services by opening new divisions on the lines of commercial banks and All India Financial Institutions.

REGULATORY FRAMEWORK The merchant banking activity in India is governed by SEBI (Merchant Bankers) Regulations, 1992. Registration with SEBI is mandatory to carry out the business of merchant banking in India. All merchant banks incorporated under the Companies Act, 1956 are governed by the provisions of that Act. Those merchant banks that are incorporated under a separate statute are regulated by their respective statute. Example: SBI, IDBI. Universal banks [Universal banking is a combination of Commercial banking, Investment banking, Development banking, Insurance and many other financial activities. A universal bank is a bank which offers commercial bank functions plus other functions such as Merchant Banking, Mutual Funds, Factoring, Credit cards, Housing Finance, Auto loans, Retail loans, Insurance, etc.]. Example: HSBC. The universal banks that function as merchant banks are regulated by RBI under the RBI Act, 1934. All Non-banking Finance Companies that function as merchant banks are regulated by RBI under RBI Act, 1934. Those merchant banks that carry foreign direct investment either through joint ventures or as fully owned subsidiaries are governed by Foreign Exchange Management Act, 1999 with respect to foreign investment.

REQUIREMENTS FOR SETTING UP A MERCHANT BANK 1. Formation of the Business Organisation SEBI act, 1992 does not prescribe any specific form of business organization to carry on the activities as merchant banker. However, the types of organizations are listed below: a. Sole proprietorship b. Partnership firm c. Hindu Undivided Family (HUF) d. Corporate Enterprises e. Co-operative Society Generally it is preferred that the Merchant Banking outfit be a registered company. Merchant Banks are generally setup as subsidiary companies of banks (Public or Private). For example, SBI caps, ICICI Securities etc. 2. Adoption of a viable business plan All the basic tests required to find out whether the business to be undertaken is viable or not are also applicable to a Merchant Banking setup. Capital adequacy, profitability, growth opportunities and current market size are some of the factors which need to be looked into. 10

3. Registration of Merchant Bankers [2] a) Application for grant of certificate An application for grant of a certificate needs to be made to SEBI in Form A .The application can be made for any one of the following categories of the merchant banker namely: i. Category I, that is To carry on any activity of the issue management, which will inter-alia consist of preparation of prospectus and other information relating to the issue, determining financial structure, tie-up of financiers and final allotment and refund of the subscription; and To act as adviser, consultant, manager, underwriter, portfolio manager. Category II, that is, to act as adviser, consultant, co- manager, underwriter, portfolio manager; Category III, that is to act as underwriter, adviser, consultant to an issue; Category IV, that is to act only as adviser or consultant to an issue.

ii.

To carry on the activity as underwriter or portfolio manager a separate certificate of registration needs to be obtained from SEBI. b) Application to conform to the requirements The application should conform to all the requirements under the SEBI guidelines, otherwise it may be rejected. c) Furnishing of information, clarification and personal representation The Board may require the applicant to furnish further information or clarification regarding matters relevant to the activity of a merchant banker for the purpose of disposal of the application. The applicant or its principal officer may appear before the Board for personal representation. d) Consideration of application The Board shall take into account for considering the grant of a certificate, all matters, which are relevant to the activities relating to merchant banker and in particular the applicant complies with the following requirements, namely: the applicant shall be a body corporate other than a non- banking financial company the merchant banker who has been granted registration by the Reserve Bank of India to act as a Primary or Satellite dealer may carry on such activity subject to the condition that it shall not accept or hold public deposit

Chapter II of SEBI (Merchant Bankers) Regulations, 1992 Sections 3 to 12

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the applicant has the necessary infrastructure like adequate office space, equipments, and manpower to effectively discharge his activities the applicant has in his employment minimum of two persons who have the experience to conduct the business of the merchant banker a person directly or indirectly connected with the applicant has not been granted registration by the Board; the applicant, his partner, director or principal officer is not involved in any litigation connected with the securities market which has an adverse bearing on the business of the applicant and have not at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence the applicant has the professional qualification from an institution recognised by the Government in finance, law or business management grant of certificate to the applicant is in the interest of investors, and the applicant fulfils the capital adequacy requirement is as follows:-

The capital adequacy requirement should not be less than the net worth of the person making the application for grant of registration. The net worth shall be as follows:-

The categories for which registration may be granted are given below Category I Merchant Banker - Entire range of services connected with the issue of securities including preparation of prospectus, determining the capital structure, obtaining various approvals, acting as a underwriter to the issue and acting as a lead manager to the public / rights issue. Category II Merchant Banker Can act as an adviser, consultant, co-manager, underwriter, and portfolio-manager. Note: Cannot act as a lead manager for an issue. Category III Merchant Banker Can act as an underwriter, adviser or consultant to an issue Category IV Merchant Banker No minimum requirement of Net worth. Can provide only advisory services. Note: cannot act as a manager to the issue or an underwriter. With effect from 9th December 1998, SEBI has abolished the categories of II, III & IV. There will be only one category of Merchant Bankers. An application for grant of

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certificate as Merchant Banker can only be made for carrying on the following activities: To carry on any activity of issue management, which will, inter-alia, consist of preparation of prospectus and other information relating to the issue, determining financial allotment and refund of the subscriptions, and To act as advisor, consultant, manager, underwriter, portfolio manager. He can carry on the activity as portfolio manager or underwriter when he obtains a separate certificate of registration under WEBI (Portfolio Manager) Regulations, 1993 and SEBI (Underwriters) Regulations, 1992. e) Procedure for Registration The Board on being satisfied that the applicant is eligible shall grant a certificate in Form B. On the grant of a certificate the applicant shall be liable to pay the fees as prescribed.
An application should be submitted to SEBI in Form A of SEBI (Merchant Bankers) Regulations, 1992

SEBI shall consider the application and on being satisfied issue a certificate of registration in Form B of the SEBI (Merchant Bankers) Regulations, 1992

Rs. 5 Lakhs should be paid within 15 days of date of receipt of intimation regarding grant of certificate

The certificate is valid only for a period of 3 years

Three months before the expiry period, an application should be submitted to SEBI in Form A of SEBI (Merchant Bankers) Regulations, 1992. SEBI shall consider the application and on being satisfied renew certificate of registration for a further period of 3 years.

Failing to Pay Registration Fees

Rs. 2.5 Lakhs which should be paid within 15 days of date of receipt of intimation regarding renewal of certificate

Cancellation of certificate

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f) Renewal of certificate Three months before expiry of the period of certificate, the merchant banker, may if he so desires, make an application for renewal in Form A. The application for renewal shall be dealt within the same manner as if it were a fresh application for grant of a certificate. The SEBI on being satisfied that the applicant is eligible for renewal of certificate shall grant a certificate in Form B and send intimation of the applicant.

g) Payment of fees and the consequences of failure to pay fees Every applicant eligible for grant of a certificate shall pay such fees in such manner and within the period specified. Where a merchant banker fails to pay the Annual fees as provided in Schedule II, the Board may suspend the registration certificate, whereupon the merchant banker shall cease to carry on any activity as a merchant banker for the period during which the suspension subsists. The Merchant Bank can commence business on acquisition of a Certificate of Registration from the SEBI after completion of the above mentioned formalities.

FUNCTIONS OF MERCHANT BANKERS 1. Management of Debt and Equity Offerings: This forms the main function of the merchant banker. He assists the companies in raising funds from the market. The undergoing tasks include instrument designing, pricing the issue, registration of the offer document, underwriting support, marketing of the issue, allotment and refund and listing on stock exchanges. 2. Placement and Distribution: The merchant banker helps in distributing various securities like equity shares, debt instruments, mutual funds, insurance products, and commercial paper, to name a few. The distribution network of the merchant banker can be classified as institutional and retail in nature. The institutional network consists of mutual funds, foreign institutional investors; private equity funds pension funds, financial institutions, etc. 3. Corporate Advisory Services: Merchant bankers offer customized solutions to their clients' financial problems. Financial structuring includes determining the right debt-equity ratio and the framing of appropriate capital structure theory. 4. Project Advisory Services:

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Merchant bankers help their clients in various stages of the project undertaken by the clients. They assist them in conceptualizing the project idea in the initial stage. Once the idea is formed, they conduct feasibility studies to examine the viability of the proposed project. 5. Loan Syndication: Merchant bankers arrange to tie up loans for their clients. This takes place in a series of steps. Firstly, they analyze the pattern of the client's cash flows, based on which the terms of the borrowings can be defined. Then the merchant banker prepares a detailed loan memorandum, which is circulated to various banks and financial institutions and they are invited to participate in the syndicate. The banks then negotiate the terms of lending on the basis of which the final allocation is done. 6. Providing Venture Capital Financing: Merchant bankers help companies in obtaining venture capital financing for financing their new and innovative strategies

SERVICES PROVIDED BY MERCHANT BANKS Broadly a merchant bank provides the following services: 1. Corporate Counselling: It includes a whole range of financial services provided by a merchant banker to a corporate unit a view to ensure better performance, maintain steady growth and create a better image among investors. It covers the entire field of merchant banking activities i.e., project counselling, capital restructuring, portfolio management and the full range of financial engineering including venture capital, public issue management, loan syndication, working capital, fixed deposits, lease financing, acceptance credit, etc. However, the scope of corporate counselling is limited to suggestions and opinions leaving to the client to take corrective actions for solving its corporate problems. A merchant banker finds out the problems of enterprise, which shall include organizational goals for the enterprise, size of the organization and operational scales, choice of a product, pricing, etc, and suggests ways and means to solve those problems. 2. Project Counselling: Project counselling is an important merchant banking service which includes preparation of project reports, deciding upon the financing pattern to finance the cost of the project, appraising the project report with the financial institutions/banks.

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Project reports are prepared to obtain government approval of the project, for procuring financial assistance from financial institutions and banks, for ensuring market for the proposed product, for planning public issues, etc. Financing the project cost is an important aspect of project counselling. The two sources of funds available to finance the project cost are internal sources of funds (or owners' funds) which includes promoter's contribution and retained earnings; and external sources of funds which refers to the borrowed funds in the form of loans from banks, private investors and financial institutions and in the form of debentures from the public. Merchant banker has to decide the financing mix of the internal and external sources of funds keeping in view the rules, regulations and norms prescribed by the government or followed by the term lending financial institutions. While rendering project counselling services, the merchant banker has to ensure that the application forms for obtaining the funds from financial institutions are filled in with relevant and appropriate information and before submitting the application, the merchant banker has to appraise the project considering the various aspects as to the type of the project, location, technical, commercial and financial viability of the project. 3. Credit Syndication: Once the client company has decided about the project proposed to be undertaken, the next step is looking for the sources wherefrom the funds could be procured to implement the project. Merchant banker has to locate the sources of funds and comply the formalities required to procure the funds. This service rendered by the merchant banker in arranging and procuring credit from financial institutions, banks and other lending and investment organizations for financing the clients' project cost or meeting working capital requirement is referred to as loan syndication or credit syndication. Credit syndication in case of domestic borrowings is with the institutional lenders and banks. Long and medium term funds are obtained from the All India Financial Institutions like IFCI, IDBI etc., state level financial bodies like SFC, SIDC etc., commercial banks, mutual funds etc. Short-term funds are also required by the firm for purchase of raw materials, payment of wages, salaries etc. Sources of financing these short term requirements or working capital needs can be from internal sources like internal accruals from working or operations and short term loans from friends and relatives; or from external sources like short term borrowings from banks etc. 4. Issue Management and Underwriting: Management of capital issues is a professional service rendered by the skilled and experienced merchant bankers. Previously, the managing agents for a particular corporate used to manage public issues. The abolition of the managing agency system, the growth in the public limited companies in number and size, the imposition of new

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rules and regulations regarding the public issue of securities made it necessary for merchant bankers to play a definite role in the management of public issues. Public issue management involves marketing of corporate securities by offering the securities to the public, procuring private subscription to the securities and offering securities to existing shareholders of the company. As a manager to the public issue, the merchant banker, before the public issue has to obtain the consent of the stock exchanges to the memorandum and articles of association, appoint other managers, bankers, underwriters, brokers etc. ,advice the company to appoint auditors, solicitors and board of directors, draft the prospectus and obtain consent from the companies legal advisors, board of directors and other concerned parties, file the prospectus with registrar, make an application for enlistment with stock exchanges and finally advertise for the issue. A merchant bankers post issue activities include final allotment and/or refund of subscription amount, calculation of underwriters liability in case of under subscription and complying the necessary statutory requirements for listing of securities on the stock exchange. 5. Under-writing of Public Issue: A fully underwritten public issue spells confidence to the investing public, which ensures a good response to the issue. Keeping this in view companies, which float a public issue usually, desire a full underwriting of the issue. Underwriting is only the guarantee given by the underwriter that in the event of under subscription, the amount underwritten would be subscribed in proportion by the underwriter. An underwriter of the issue gets the following benefits: a. It earns a commission of the commitment given. b. It earns the right to be appointed as bankers of that issue. c. It expands its clientele by underwriting more and more issues. 6. Bankers to the Issue: The merchant banker can automatically become the banker to the issue in the following cases: a. The bank is a broker to the company b. It has given underwriting commitments. c. It acts as a manger to the issue d. The function of a banker to the issue is to accept application forms from the public together with subscription money and transfer them to the account of the controlling branch. 7. Portfolio Management: Portfolio refers to investment in different types of marketable securities or investment papers like shared, debentures and debenture stocks, bonds etc. from different companies or institutions held by individuals firm or corporate units.

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Portfolio management refers to managing efficiently the investment in the securities held by professionals to others. Merchant bankers take up management of a portfolio of securities on behalf of their clients, providing special services with a view to ensure maximum return by such investments with a minimum risk of loss of return on the money invested in securities. A merchant banker while performing the services of portfolio management has to enquire of the investment needs of the client, the tax bracket, ability to bare risk, liquidity requirements, etc. they should study the economic environment affecting the capital market, study the securities market and identify blue chip companies in which money can be invested. They should keep record of latest amendment in government guidelines, stock exchange regulations, RBI regulations, etc. 8. Advisory Services Relating to Mergers and Takeovers: Merchant bankers are the middlemen settling negotiations between the Offered and the Offeror. Their role is specific and specialized in handling the mergers and taker over assignments. Being a professional expert, the merchant banker is apt to safeguard the interest of the shareholders in both the companies and as such his assistance is useful for both the companies, i.e. the acquirer as well as the acquired company. Based on the purpose of business objective, the search of the acquirer company will start for a merger partner company. If the objective of merger is growth oriented i.e. seeking expansion in production and market segments, utilization of existing companies or optimum utilization of resources, then the acquirer company will select a business related company as a merger partner. If the objective is diversification in production line or business activities, then it will select a non-related company as a merger partner. Once the merger partner is proposed the merchant banker has to appraise the merger/takeover proposal with respect to financial viability and technical feasibility. He has to negotiate with the parties and decide the purchase consideration and mode of payment. He has to comply with the legal formalities like getting approval from the Government/ RBI; drafting the scheme of amalgamation; getting approval of company Board, financial institution, high court if required; arranging for the meeting etc. 9. Venture Capital Financing: Financing an emerging high-risk project is called venture capital financing. Many merchant bankers are entering into this area by also financing viable upcoming projects. The financing is by subscription to the equity capital, while repayment is by selling the equity through stock market when the shares are listed. 10. Leasing: Is there another lucrative area of financing where merchant bankers are turning? Leasing is a viable source of financing while acquiring capital assets. The services

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include arrangement for lease finance facilities for leasing companies, legal; documents and tax consultancy. 11. Non Resident Investment: To attract NRI investments in the primary and secondary markets, the merchant bankers provide investment advisory services to the NRIs in terms of identification of investment opportunities, selection of securities, portfolio management, etc. they also take care of operational details like purchase and sale of securities securing the necessary clearance from RBI under FERA for repatriation of dividends and interest, etc. 12. Acceptance Credit and Bill Discounting: Though merchant bankers world over specialize in acceptance credit and bill discounting, these services are not currently provided by merchant bankers in India the principal reasoning being the lack of an active market for commercial bills. 13. Arranging Offshore Finance: The merchant bankers also help their clients in the following areas involving foreign currency financing: a. Financing Of Exports And Imports b. Long Term Foreign Currency Loans c. Joint Ventures Abroad d. Foreign Collaboration Arrangements The assistance rendered as in the case of financial services covers appraisals, negotiations, compliance with procedural and legal aspects etc. 14. Management of Fixed Deposits of Companies: Recently, merchants bankers have begun to structure and mobilize fixed deposits for their corporate clients. They take care of the procedural and legal aspects, and also mange the collection and subsequent servicing of the deposits. Advice with regard to the amount to be raised, interest charges, terms of deposits and other related issues are also offered to the client. 15. Relief to Sick Industries: The services offered by merchant bankers to sick industries can be summarized as follows: a. Assessment of capital requirements and counselling on capital restructuring; b. Appraisal of technological, environmental, financial and other factors causing sickness; c. Preparations of programs and packages for rehabilitation of sick units; d. Providing necessary assistance where the rehabilitation package involves mergers or amalgamation;

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e. Obtaining necessary approval for implementation the rehabilitation package from the statutory authorities; f. Monitoring the implementation of the scheme of rehabilitation.

SCOPE FOR MERCHANT BANKING IN INDIA Scope for merchant banking in India depends upon the following factors: Size and dynamics of the market: Indian market is growing. In fact India is one of the largest emerging markets. Obviously, public issues, FDI, debt raising are on rise. Lots of new and green fried projects are happening. Merchant bankers have lots space to contribute. Restrictions-liberalization: More liberal the market is, more the things left to be decided by the corporate. Merchant bankers assist in decision making and hence their scope increases. With significant market freedom, merchant bankers work has increased many folds. Banking policies: RBI prefers that commercial banks do not indulge in merchant banking business directly. They should setup a subsidiary for the purpose. This limits scope of commercial banks and gives space to merchant bankers. This policy also results in fair business practices. Some countries allow commercial bankers to get involved in IPOs, placement of debentures, etc. Indian scenario is favourable to merchant bankers. Corporate culture: Corporate can do project appraisal, strategic restructuring in house as well. If the corporate prefer third-party independent assessment, then only they will engage merchant bankers. Otherwise merchant bankers role is only statutory as in issue management. India inc. apparently prefers and is happy with merchant bankers work. Corporate dynamics: More happening in business gives more opportunities to merchant bankers. Mergers, takeover acquisition, new Greenfield projects, fund raising for government institutions, active money market are all providing better business prospectus to merchant bankers.

PROBLEMS AND HURDLES Not many but some problems as faced by Indian merchant bankers are explained as below: Industry compartmentalization: Company which is in merchant banking business would have expertise in underwriting, hire purchase, leasing, and portfolio management, money-lending. But RBI does not permit 20

merchant banking firms to get into these activities. So the same promoters have to setup different companies for different purposes. Management cost increases and expertise pooling i.e. multiple use of same talent is not possible. Malafide practices: Indian corporate culture is bettering but still many corporate have excessively friendly approach. Favored allotment of shares, tampering with project appraisal report to bankers is common. Corporate like to use merchant bankers for mala fide intentions. This gives growth to more boutique fly-by-day firms. Giant professional or multinational merchant bankers are cautions in their approach to Indian market. Regulations: Though regulations are much better now, there is still scope for further improvement. Merchant bankers can be made more accountable and responsible. Professional qualification focused on merchant banking is not available. Industry is not well organized and all the players do not play the same tune. This is specifically evident in comparison with insurance industry and mutual funds industry. According to SEBI (Merchant Banking) Regulations, 1992, the problems of Merchant Banking are: Restriction of Merchant Banking activities: SEBI guidelines have authorized merchant bankers tp 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 authorization 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: A Merchant Banker can charge 0.5% as the maximum as commission for whole of the issue. A lead manager can claim a commission of 0.5% up to Rs.25 crore and 0.2% in excess of Rs.25 crore.

THE DIFFERENCE BETWEEN INVESTMENT BANK AND MERCHANT BANK Merchant banks and investment banks, in their purest forms, are different kinds of financial institutions that perform different services. In practice, the fine lines that separate the 21

functions of merchant banks and investment banks tend to blur. Traditional merchant banks often expand into the field of securities underwriting, while many investment banks participate in trade financing activities. In theory, investment banks and merchant banks perform different functions. Pure investment banks raise funds for businesses and some governments by registering and issuing debt or equity and selling it on a market. Traditionally, investment banks only participated in underwriting and selling securities in large blocks. Investment banks facilitate mergers and acquisitions through share sales and provide research and financial consulting to companies. Traditionally, investment banks did not deal with the general public. Traditional merchant banks primarily perform international financing activities such as foreign corporate investing, foreign real estate investment, trade finance and international transaction facilitation. Some of the activities that a pure merchant bank is involved in may include issuing letters of credit, transferring funds internationally, trade consulting and co-investment in projects involving trade of one form or another. The current offering of investment banks and merchant banks varies by the institution offering the services, but there are a few characteristics that most companies that offer both investment and merchant banking share. As a general rule, investment banks focus on initial public offerings (IPOs) and large public and private share offerings. Merchant banks tend to operate on small-scale companies and offer creative equity financing, bridge financing, mezzanine financing and a number of corporate credit products. While investment banks tend to focus on larger companies, merchant banks offer their services to companies that are too big for venture capital firms to serve properly, but are still too small to make a compelling public share offering on a large exchange. In order to bridge the gap between venture capital and a public offering, larger merchant banks tend to privately place equity with other financial institutions, often taking on large portions of ownership in companies that are believed to have strong growth potential. Merchant banks still offer trade financing products to their clients. Investment banks rarely offer trade financing because most investment banking clients have already outgrown the need for trade financing and the various credit products linked to it.

DIFFERENCE BETWEEN MERCHANT BANK AND COMMERCIAL BANK

Merchant Banks

Commercial Banks

Assist in raising capital in the form of equity, Provide funds in the form of term loan and preference shares and syndicated loan working capital. working capital instruments. Advisor not financer. Do not accept chequable deposits. Mainly fees based business. Financing is the main business. Demand deposits are the key feature. Mainly fund based business.

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Being advisors, they are closer to the customers and get to know risks of the transactions properly. They work on risks shields i.e. mitigation measures.

Being lenders, they are more cautions, assess risks in lending proposal and cannot afford to be grossly relationship b ased and close to the customer.

Most of the work they get is about Commercial banks majority business is of management of equity issues in the capacity terms lending and bank deposits. of lead manager, underwriter, piercing of issue, book running and liaisoning with SEBI.

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3 OBLIGATIONS AND RESPONSIBILITIES

CODE OF CONDUCT (Section 13) Every merchant banker shall abide by the Code of Conduct as specified in Schedule III. [3] No merchant banker, other than a Bank or a Public Financial Institution, who has been granted a certificate of registration under these regulations shall after June 30, 1998 carry on any business other than that in the securities market. A merchant banker who has been granted certificate of registration to act as primary or satellite dealer by Reserve Bank of India, may carry on such business as may be permitted by the Reserve Bank of India.

MAINTENANCE OF BOOKS OF ACCOUNTS, RECORDS, ETC. (Section 14) Every merchant banker shall keep and maintain the following books of account, records and documents namely : a) a copy of balance sheet as at the end of the each accounting period; b) a copy of profit and loss account for that period; c) a copy of the auditors report on the accounts for that period; d) a statement of financial position. Every merchant banker shall intimate to the SEBI the place where the books of account, records and documents are maintained. Without prejudice to sub-regulation (1), every merchant banker shall, after the end of each accounting period furnish to the SEBI copies of the balance sheet, profit and loss account and such other documents for any other preceding five accounting years when required by the SEBI. The merchant banker shall preserve the books of account and other records and documents maintained under regulation 14 for a minimum period of five years. [Section 16]

SUBMISSION OF HALF-YEARLY RESULTS

(Section 15) Every merchant banker shall furnish to the SEBI half-yearly unaudited financial results when required by the SEBI with a view to monitor the capital adequacy of the merchant banker.

SEBI (Merchant Bankers) Regulations, 1992

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RESPONSIBILITIES OF LEAD MANAGER

(Section 20, 21, 21A & 22) No lead manager shall agree to manage or be associated with any issue unless his responsibilities relating to issue mainly, those of disclosures, allotment and refund are clearly defined, allocated and determined and a statement specifying such responsibilities is furnished to the Board at least one month before the opening of the issue for subscription. In case there are more than one lead merchant bankers to the issue the responsibilities of each of such lead merchant bankers shall clearly be demarcated. Lead merchant banker not to associate with a merchant banker without registration. A merchant banker shall not lead manage any issue or be associated with any activity undertaken under any regulations made by the SEBI, if he is a promoter or a director or an associate of the issuer of securities or of any person making an offer to sell or purchase securities in terms of any regulations made by the SEBI. However, a merchant banker who is an associate of such issuer or person may be appointed, if he is involved only in the marketing of the issue or offer. A merchant banker shall be deemed to be an associate of the issuer or person if: either of them controls, directly or indirectly through its subsidiary or holding company, not less than fifteen per cent. of the voting rights in the other; or either of them, directly or indirectly, by itself or in combination with other persons, exercises control over the other; or there is a common director, excluding nominee director, amongst the issuer, its subsidiary or holding company and the merchant banker. In respect of every issue to be managed, the lead merchant banker holding a certificate under Category I shall accept a minimum underwriting obligation of five per cent of the total underwriting commitment or rupees twenty-five lakhs, whichever is less. In case the lead merchant banker is unable to accept the minimum underwriting obligation, that lead merchant banker shall make arrangement for having the issue underwritten to that extent by a merchant banker associated with the issue and shall keep the SEBI informed of such arrangement.

OTHER OBLIGATIONS (Section 26 28) No merchant banker or any of its directors, partner or manager or principal officer shall either on their respective accounts or through their associates or relatives, enter into any transaction in securities of bodies corporate on the basis of unpublished price sensitive information obtained by them during the course of any professional assignment either from the clients or otherwise.

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Every merchant banker shall submit to the SEBI complete particulars of any transaction for acquisition of securities of any body corporate whose issue is being managed by that merchant banker within fifteen days from the date of entering into such transaction. A merchant banker shall disclose to the SEBI, as and when required, the following information, namely : his responsibilities with regard to the management of the issue; any change in the information or particulars previously furnished, which have a bearing on the certificate granted to it; the names of the body corporate whose issues he has managed or has been associated with; the particulars relating to the breach of the capital adequacy requirement as specified in regulation 7; relating to his activities as a manager, underwriter, consultant or adviser to an issue, as the case may be. The merchant banker shall submit a half yearly report to the SEBI, for the period ending with 31st March and 30th September of every year, in the format specified in schedule IV, within three months from the close of the period to which it corresponds.

APPOINTMENT OF COMPLIANCE OFFICER (Section 28A) Every merchant banker shall appoint a compliance officer who shall be responsible for monitoring the compliance of the Act, rules and regulations, notifications, guidelines, instructions, etc., issued by the SEBI or the Central Government and for redressal of investors grievances. The compliance officer shall immediately and independently report to the SEBI any noncompliance observed by him and ensure that the observations made or deficiencies pointed out by the SEBI on/in the draft prospectus or the letter of offer as the case may be, do not recur

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4 PROCEDURE FOR INSPECTION

The merchant banking activity in India is governed by SEBI (Merchant Bankers) Regulations, 1992. No doubt, Merchant Banking firms are subject to a host of control measures, regulations and rules framed and guided by SEBI. 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 SEBI (Merchant Bankers) Regulations are properly complied. SEBI has been vested with the power to suspend or cancel the authorisation in case of violation of the said regulations. SEBIS RIGHT TO INSPECT (Section 29 & 34) 1. The SEBI may appoint one or more persons as inspecting authority to undertake inspection of the books of account, records and documents of the merchant banker. The purposes for inspection may be as follows: to ensure that the books of account are being maintained in the manner required; that the provisions of the Act, rules, regulations are being complied with; to investigate into the complaints received from investors, other merchant bankers or any other person on any matter having a bearing on the activities of the merchant banker; and to investigate suo-moto in the interest of securities business or investors interest into the affairs of the merchant banker. 2. The SEBI may also appoint a qualified auditor to investigate into the books of account or the affairs of the merchant bankers provided that the auditor so appointed shall have the same powers of the inspecting authority. [Section 34]

NOTICE BEFORE INSPECTION (Section 30 & 31) Before undertaking an inspection the SEBI shall give a reasonable notice to the merchant banker for that purpose. During the course of inspection, the merchant banker, against whom an inspection is being carried out, shall be bound to discharge his obligations. The obligations of merchant banker on inspection by SEBI are as stated below:

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The merchant banker shall produce to the inspecting authority such books, accounts and other documents in his custody or control and furnish him with the statements and information relating to his activities as a merchant banker within such time as the inspecting authority may require. The merchant banker shall allow the inspecting authority to have reasonable access to the premises occupied by such merchant banker or by any other person on his behalf and also extend reasonable facility for examining any books, records, documents and computer data in the possession of the merchant banker or any such other person and also provide copies of documents or other materials which, in the opinion of the inspecting authority, are relevant for the purposes of the inspection. The inspecting authority, in the course of inspection, shall be entitled to examine or record statement of any principal officer, director, partner, proprietor and employee of the merchant banker. It shall be the duty of the merchant banker to give to the inspecting authority all assistance in connection with inspection which the merchant banker may reasonably be expected to give.

SUBMISSION OF REPORT TO SEBI (Section 32, 33 & 35) The inspecting authority shall, as soon as may be possible submit, an inspection report to the SEBI The SEBI or the Chairman shall after consideration of inspection or investigation report take such action as the SEBI or Chairman may deem fit and appropriate including action under the SEBI (Intermediaries) Regulations, 2008. A merchant banker who contravenes any of the provisions of the Act, Rules or Regulations framed there under shall be liable for one or more actions specified therein including the action under the SEBI (Intermediaries) Regulations, 2008.

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5 BRIEF ANALYSIS OF SOME MERCHANT BANKS IN INDIA

STATE BANK OF INDIA SBIs Merchant Banking Group is strongly positioned to offer perfect financial solutions to your business. They specialize in the arrangement of various forms of Foreign Currency Credits for Corporate. They provide the resources, convenience and services to meet the customer needs by arranging Foreign Currency credits through: Commercial loans Syndicated loans Lines of Credit from Foreign Banks and Financial Institutions FCNR loans Loans from Export Credit Agencies Financing of Imports. They are internationally the most Preferred Bank by Export Credit Agencies for Guarantees in case of the Indian Clients or Projects. State Bank of India was the first Indian Bank to take up merchant banking in 1986.State Bank of India is the nation's largest bank. Tracing its roots back some 200 years to the British East India Company (and initially established as the Bank of Calcutta in 1806). The bank owns majority stakes in five associate banks, such as State Bank of Bikaner & Jaipur, State Bank of Hyderabad and State Bank of Travancore, State Bank of Patiala and State Bank of Travancore.. As of 31st March 2012, the State Bank of India has 173 overseas offices spread over 34 countries. The Reserve Bank of India owns about 60% of State Bank of India. SBI being an Indian entity has no India exposure ceiling. Their Primary focus is On Indian Clients. SBI is the largest commercial bank group in India. It is the only Indian Bank to find a place in the Fortune Global 500 List. Revenue: US$ 36.950 billion (2012) Profit: US$ 3.202 billion (2012) Total assets: US$ 359.237 billion (2012) Total equity: US$ 20.854 billion (2012) Employees: 292,215 (2012) ATMs: 27,000+ [The SBI group i.e. including associate banks has about 45,000 ATMs] Products and Services: Arranging External Commercial Borrowings (ECB) Arranging and participating in international loan syndication Loans backed by Export Credit Agencies Foreign currency loans under the FCNR (B) scheme Import Finance for Indian Corporates.

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SBI Capital Markets Ltd (SBICAPS) [4] is India's leading investment bank and project advisor, assisting domestic companys fund-mobilization efforts for last many years. They began operations in August 1986 as a wholly owned subsidiary of the State Bank of India. In January 1997 the Asian Development Bank acquired a 13.84% equity stake in SBICAPS. This share was repurchased by State Bank of India in March 2010. Services offered by SBICAPS: Project Advisory & Structured Finance Energy, Telecom, Transportation and Urban Infrastructure Capital Markets Expertise and Credentials Managing Rights Issues Managing Takeover Open Offers Managing Delisting Offers M&A and Advisory Merger and Acquisitions Private Equity Foreign Currency Convertible Bonds Corporate Advisory Services Awards and Rcognitions: India Loan House 2011 by Thomson Reuters (IFA Asia) for 3rd consecutive year Best arranger of Indian Loans 2011 by EuroWeek Asia. Financial Advisor of the year 2011 for Power and for Oil and Gas by IJ Infrastructure Journal

ICICI BANK ICICI Bank is the second largest bank in India by assets and third largest by market capitalization. It is India's largest private sector bank established in 1996. ICICI Bank's presence currently spans 19 countries, including India. It has more than 2,907 branches and 10,088 ATMs in India. [5] ICICI's retail banking group offers lending and deposit services to small businesses and individuals. Larger businesses are served by the corporate banking group, which offers finance services and treasury products. ICICI's rural and government banking unit offers micro-loans and agricultural banking. Foreign operations, as well as services related to international trade finance and expatriate Indians, fall under the international banking group. Other ICICI offerings include online banking, asset management, and insurance. Profit: Rs. 64.65 billion (2012)
4 5

http://www.sbicaps.com/Main/index.aspx www.icicibank.com

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Total asset: US$ 122 billion (2012) Branches: 2,907 (2012) ATMs: 10,088 (2012) ICICI advices on wide variety of Products: Private Equity Financing Secondary sale transactions Pre IPO deals ICICI Securities Ltd is the largest equity house in the country providing end-to-end solutions (including web-based services) through the largest non-banking distribution channel so as to fulfil all the diverse needs of retail and corporate customers. ICICI Securities (I-Sec) has a dominant position in its core segments of its operations - Corporate Finance including Equity Capital Markets Advisory Services, Institutional Equities, Retail and Financial Product Distribution. ICICI Securities Inc., the step-down wholly owned US subsidiary of the company is a member of the National Association of Securities Dealers, Inc. (NASD). As a result of this membership, ICICI Securities Inc. can engage in permitted activities in the U.S. securities markets. These activities include Dealing in Securities and Corporate Advisory Services in the United States and providing research and investment advice to US investors. ICICI is a SEBI Registered Category-I Merchant banker. ICICI Securities Inc. is also registered with the Financial Services Authority, UK (FSA) and the Monetary Authority of Singapore (MAS). Awards and Recognitions: ICICI Securities won the Outlook Smart use Technology eRetailer of the year 2013 conferred by FIHL in association with HomeShop18.com. ICICI Securities Business Partners (Sub Broker channel) won the 'Franchisor of the Year' at the Franchise Awards 2012 for the fourth time in a row. ICICI Securities won the 'BSE IPF D&B Equity Broking Awards 2012' under two categories: Best Equity Broking House - Cash Segment and Largest E-Broking House. ICICI Securities awarded the Asiamoney `Best Domestic Equity House' for 2012 ICICI Securities has awarded as the Best Investment Bank 2008 by Global Finance Magazine.

Current affairs: ICICI Securities has advised investors to 'subscribe' to the initial public offering of Repco Home Finance (RHF) at the upper end of the price band. The company has entered the primary market on March 13th, 2013, with a public issue of 15,720,262 equity shares of the face value of Rs 10 each for cash at a price band fixed between Rs 165 and Rs 172 per share. "At the IPO price band of Rs 165-172, the stock is available at multiple of 1.8x-1.9x FY13E ABV (post dilution).

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PUNJAB NATIONAL BANK Punjab National Bank (PNB) was established in 1895. PNB is the largest nationalised Bank in the country in terms of Branch Network, Total Business, Advances, Operating Profit and Low Cost CASA Deposits. PNB is a public sector bank. Bank has expanded its footprint into 10 countries. Bank also has 4 overseas branches in Hong Kong, Dubai & Afghanistan and an Offshore Banking Unit (OBU) Branch in SEEPZ, Mumbai. Bank has one wholly owned overseas Banking subsidiary, PNB International Ltd. (UK) along with other two overseas subsidiaries are Druk PNB Bank Ltd, Bhutan and PNB Kazakhstan besides Representative Office in Sydney, Australia, Dubai, Almaty, China & Norway. Bank is planning to set up its second wholly owned subsidiary in Canada. Bank is also looking to upgrade its Representative Offices at Norway, China and Australia to fullfledged branches. Bank is also exploring possibilities for presence in Maldives, South Africa, Bangladesh, Myanmar, Pakistan, Singapore and Brazil. Customers: 72 million (2012) Branches: 5937 (2012) Profit: 1246 crore (2012) Total asset: 679,823 crore (2012) ATMs: 6050 (2012) PNB Investment Services Ltd. (PNBISL) was incorporated on the 2nd of February 2009. It is a wholly owned subsidiary of PNB and has been set up for carrying out Merchant Banking Business. PNBISL is registered with SEBI as a Category- I Merchant Banker to handle all major Merchant Banking Services to Corporate, Institutional and Individual clients. Their gamut of Merchant Banking services includes: Managing Initial Public Offerings and Follow-on Public offerings and Offers-forSale. Managing Rights Offering, be it the traditional or the structured formats. Qualified Institutional Placements. Open offers, Buyback and Delisting of securities. Equity Mobilisation for infrastructure projects from Private Equity investors. Bulk and Block trades on Exchanges, and off-market transactions (Auction based transactions for Government of India divestments). Offerings of convertible securities. Public offering of Corporate structured bonds. Arranging Private Equity to include growth capital, pre-IPO convertibles, private investments in public equity (PIPES), mezzanine debt and equity, and equity offerings completed as a private placement. Private placement of bonds. Arranging Promoters contribution in new projects, expansion restr ucturing or dilution of stake from Venture Capital or other Private Equity player. Capital restructuring advisory services. Advisory and arrangement services for products such as AIM Listing, Indian Depository Receipts, ADR/GDR and other off-shore equity or bond listing options.

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The Bank has an exclusive and specialized Capital Market Service Branch at New Delhi for providing Merchant Banking Services to the Corporate.

CORPORATE PROFESSIONALS GROUP Corporate Professionals Capital Private Limited is a Merchant Banking arm of Corporate Professionals Group, a fast mounting corporate consultancy group in India. With a humble start in 2003, Corporate Professionals has grown into a multi-disciplinary mega firm of more than 110 professionals devoted to continually pursuing to achieve the excellence. The group is known for its steep growth rate and incessantly carving out inimitable solutions in financial and legal framework. Within a short span of 5 years group has earned laurels of successfully serving more than 800 corporate houses covering more than 1200 Clients for over 2000 diverse corporate transactions. Corporate Professionals Capital Private Limited, a SEBI Registered Category 1 Merchant Banker, provides investment banking solutions to a wide range of corporate houses through highly structured financial transactions that serve as alternatives to traditional financing and provide enduring solutions to help companies maximize their value. Corporate Professionals has been integrally involved in more than 100 M & A deals valued at more than INR 90000 Million and more than 35 funding deals valued at more than INR 50000 Million, up significantly in last year. Their experience in transaction advisory services has reached the milestone of 250 transactions valuing an aggregate of more than INR 75000 Million.

HSBC BANK The Hong Kong and Shanghai Banking Corporation (commonly known as HSBC) is a multinational banking and financial services company headquartered in London, United Kingdom. As of 2012, it was the world's third-largest publicly held bank and sixth-largest public company, according to a composite measure by Forbes magazine. HSBC is a universal bank and is organised within four business groups: Commercial banking; Global-banking and Markets (investment/merchant banking); Retail Banking and Wealth Management; and Global Private Banking. Branches: 60 [in India (2012)] Employees: 30,000 [in India (2012)] Total asset: US$ 2.693 trillion, of which roughly half were in Europe, the Middle East and Africa, and a quarter each in Asia-Pacific and the Americas (2012) HSBC Securities and Capital Markets (India) Private Limited is a member of the HSBC group. 75% of the equity is held by HSBC Investment Bank Holdings BV (which is ultimately owned 100% by HSBC Holdings plc). HSBC Securities and Capital Markets (India) Private Limited is the stock broking and investment/merchant banking arm of the HSBC group in India. HSBC Securities and Capital Markets (India) Pvt. Ltd. is a SEBI Registered Category 1 Merchant banking firm. The firm offers mergers and acquisitions, primary and secondary capital market funding, privatizations, equity research and brokerage, and structured financial solutions. It also provides project and export finance advisory 33

services including project advisory and project debt arranging. The firm is based in Mumbai, with an additional office in New Delhi. HSBC Securities and Capital Markets (India) Private Limited deals in Indian securities for both Indian and international institutions and for select retail clients.

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6 MERCHANT BANKING - RECENT NEWS

BUSINESS STANDARD [March 25, 2013] Suzlon Energy, which recast its loans in January, is hitting the overseas bond markets to raise $ 650 million to prepay its forex debts, making it the first domestic company under CDR to do so, according to company and merchant banking sources. According to a merchant banking source, Suzlon has forex facilities worth $ 650 million with SBI and nearly a dozen other banks across the geographies wherever it operates. The dollar-denominated bonds will have a five-year maturity and are backed by the lenders' consortium, led by State Bank of India, through a letter of credit. SBI has an exposure of Rs 3,500 crore to the Pune-based firm, said the merchant banking source. Its other major lenders include IDBI Bank, which had lent around Rs 1,700 crore to it, Bank of Baroda and Indian Overseas with Rs 1,000 crore each. Axis Bank, ICICI Bank, Punjab National Bank, Central Bank of India, Yes Bank, State Bank of Bikaner & Jaipur, Bank of India, State Bank of Patiala and Oriental Bank of Commerce among others have also lent to the troubled company, which is not facing severe cash crunch. Merchant bankers also feel that despite being the issuing company near bankrupt, the bond sale will go through smoothly as it is being backed by SBI and other major lenders. BUSINESS TODAY [March 25, 2013] According to merchant banking sources, "IDBI Bank is raising over $500 million through a five-year Regulation S bonds note issue. The five-year bond issue, maturing in January 2019, has an initial pricing guidance of 315 basis points over the US treasury bills." The current issue is part of the bank's $3.5 billion medium-term notes programme. It can be noted that more and more domestic companies are accessing overseas markets for funding as the rupee funds are too costly. So far in 2013, over half a dozen companies, including RIL, PowerGrid, Tata Com, ICICI Bank, HDFC Bank, Exim Bank, and Bharti Airtel among others, raised USD 4.25 billion from overseas debt market. MONEYCONTROL.COM [March 13, 2013] Thrissur-based Dhanlaxmi Bank is set to launch its qualified institutional placement (QIP) issue aimed at mopping up Rs 200 crore capital before the month ends. The bank's capital adequacy ratio currently stands at around 11.58%, which will be nearly 14% after the fund raising. Earlier in October, 2012; its board had approved to the decision to dilute 9% or 85 lakh shares. The poor market condition led to the delay in the issue building. "Before March 31, our issue will hit the market, RBI has already permitted us to raise funds. Now, merchant bankers are working on this. We have 35

recruited two merchant bankers including Motilal Oswal and ICICI Securities. We are talking with SBI Cap for the same," P G Jayakumar, MD & CEO, Dhanlaxmi Bank confirmed moneycontrol.com. For Dhanlaxmi Bank, according to merchant banking sources, it may not be the cakewalk to raise Rs 200 crore in a lacklustre market. However, they are confident of attaining the target. They are expected to seek the formal approval from the market regulator - SEBI next week. The issue price is not yet finalised. NDTV PROFIT [February 27, 2013] The country's second largest private lender HDFC Bank hit the foreign debt markets with a $500-million bond issue, according to merchant banking sources. According to a merchant banking source, "HDFC Bank is raising $500 million through a five- year US dollar denominated bonds (senior unsecured notes). The final pricing guidance has been fixed at 235 basis points (2.35 per cent) above the US treasury." On January 7 this year, Exim Bank had raised $750 million in a European bond sale at the cheaper ever rate of 4 per cent for a 10-year money, which got an oversubscription of 8.5 times, within a week. The state-run distribution utility Power Grid had raised $500 million at 3.87 per cent for a 10-year USD issue which received an over-subscription of 19 times. In the same week, the largest private lender ICICI Bank mopped $225 million from a seven-year Singapore bond sale programme on 10th January. The last week of January saw Reliance Industries hitting the market with a $800 million perpetual bond issue, the first by a domestic company. Interestingly more and more domestic companies are raising funds from Asia as investors in the region have high regard for Indian debt, say merchant banking sources. Last year, domestic corporates had raised $8.15 billion from Asian markets, while the rest of Asia mopped up a record debt of over $208 billion through 353 deals.

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7 CONCLUSION
Merchant banking is an area that we need to build and grow in the years to come. As India forms part of the global village, it becomes increasingly necessary for us to look at this business in a more holistic manner. The merchant banker plays a vital role in channelizing the financial surplus of the society into productive investment avenues.

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SELECT BIBLIOGRAPHY

BOOKS Merchant Banking in India K.C. Gupta and Joginder Singh Taxmanns SEBI Manual SEBI (Merchant Bankers) Regulations, 1992 [Volume 1 (2013 Edition)]

WEB LINKS http://www.sebi.gov.in www.sbi.co.in https://www.pnbindia.in www.icicibank.com www.hsbc.co.in www.corporateprofessionals.com www.google.com/news

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