A Project Report on

Merchant Banker

Project submitted to:

Ms. Kiran Kori

(Faculty of Banking Law)

Project Submitted by:

Rohit Dongre

Submitted on:

26.09.2016

Hidayatullah National Law University, Naya Raipur Chhattisgarh.

Declaration
I hereby declare that the project work entitled Elaborate the term Merchant Banker
submitted to Hidayatullah National Law University, Raipur, is record of an original work
done by me under the able guidance of Ms. Kiran Kori , Faculty of Banking Law, HNLU,
Raipur.

Rohit Dongre

Semester- VII

Section B

Roll no-132

2
 Acknowledgements
I feel highly elated to work on the topic Merchant Banker The practical realization of
this project has obligated the assistance of many persons. I express my deepest regard and
gratitude for Ms. Kiran Kori, Faculty of Banking Law. Her consistent supervision,
constant inspiration and invaluable guidance has been of immense help in understanding
and carrying out the nuances of the project report.

I would like to thank my family and friends without whose support and encouragement,
this project would not have been a reality.

I take this opportunity to also thank the University and the Vice Chancellor for providing
extensive database resources in the Library and through Internet.

Some printing errors might have crept in, which are deeply regretted. I would be grateful
to receive comments and suggestions to further improve this project report.

Rohit Dongre

Semester- VII

Section B

Roll no-132

3
 Contents
Declaration
Acknowledgements
Introduction
Objectives
Scope of Study
Research Methodology
Sources of Data
Tools of data collection
Organization of study
PART I Merchant Banking in India
Qualities of a Good Merchant Banker
1) Leadership:-
2) Aggressive action:-
4) Contacts:-
5) Attitude towards problem solving:-
6) Inquisitiveness for acquiring new skills, information and knowledge:-
7) Capital market familiarity:
Difference between Commercial Banking and Merchant Banking
Role of Merchant Banker
Obligations and Responsibilites
Problems and hurdles
PART-II Services Provided by Merchant Banks
Corporate Counseling
Counseling
Credit Syndication
Issue Management and Underwriting
Under writing of public issue
Portfolio Management
Advisory Services Relating To Mergers and Takeovers
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 Venture Capital Financing
Leasing
PART-III CODE OF CONDUCT
PART-IV Registration of Merchant Banker as per SEBI
Application for grant of certificate
Application to conform to the requirements
Consideration of application
Procedure for Registration
Payment of fees and the consequences of failure to pay fees
CONCLUSION
References
Webliography

Introduction

The word merchant bank does not have a fixed definition as this term is used differently
in different countries. In United States these are called as Investment Banks and in UK
they are called as accepting and issuing houses.

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 In India the the term Merchant Banker has been defined in the Rule 2 (cb) of SEBI
(Merchant Bankers) Regulations, 1922. Accordingly, 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, adviser or rendering corporate advisory service in relation to such issue
management;

In general the merchant banks are the financial institution which provides financial
services, solutions, & advice to corporate houses. Some of the world famous merchant
banks are Goldman Sachs, Credit Suisse & Morgan Stanley etc. In India there are many
banks which are into the field of merchant banking some of the banks are ICICI, State
Bank Of India, Punjab National Bank etc.

This Project will deal mainly with activities associated and done by Merchant Bankers,
Code of Conduct, services given by merchant Bankers and their registration will be dealt
and the project is divided into 4 parts for better understanding of the topic.

Objectives
The Specific Objectives of the research work are-

To Understand the Merchant Banking in India, by studying roles, obligations,

responsibilities and problems faced.
To understand Services rendered by Merchant Bankers
To know the Code of Conduct to be followed by Merchant Banker
To study the Registration of Merchant Banker in India

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 Scope of Study
The Research work covers mainly deals with Merchant Bankers

Research Methodology
This Research Project is Descriptive in nature as it uses descriptive language for the
explanation of various topics and subjects discussed in this project.

Sources of Data
Secondary data has been mostly used in the making of this research project, which
includes Web sources, including reports and data analysis and studies carried out by
people in their field work in different states etc.

Tools of data collection

The data so used in the making of this Research work has been collected mainly from
web sources.

Organization of study
The Research Work has been divided into Parts, which are further divided into Sub-parts

PART I Merchant Banking in India

The need for specialized merchant banking services was felt in India with the rapid
growth in the number and size of the issues made in the primary market. The merchant
banking services were started by foreign banks, namely the National Grindlays Bank in
1967 and the City Bank in 1970. The Banking Commission in its report in 1972
recommended the setting up of merchant banking institutions. This marked the beginning
of specialized merchant banking in India.

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To begin with, merchant banking services were offered along with other traditional
banking services. In the mid-Eighties, the Banking Regulation Act was amended
permitting commercial banks to offer a wide range of financial services through the
subsidy rule. The State Bank of India was the first India Bank to set up merchant Banking
division in 1972. Later ICICI set up its Merchant Banking division followed by Bank of
India, Bank of Baroda, Canada Bank, Punjab National Bank and UCO Bank. The
merchant banking gained prominence during 1983-84 due to new issue boom.

Qualities of a Good Merchant Banker

1) Leadership:-
In order to interact with their clients and communicate effectively merchant bankers
should possess all relevant skills and update knowledge.

2) Aggressive action:-
Merchant bankers always looking for new business opportunities. On locating a business
opportunity and after obtaining the assignment from the clients, a merchant banker has to
be prompt in grasping the clients problems and to provide a better choice amongst
alternative solutions. A good merchant banker is one who does not allow his clients to
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think anything outside except what has been advised and thus holding the clients interest
for the present as well as for the future.

3) Co-operation and Friendliness:-

Co-operation and friendliness coupled with persuasiveness must flow as natural traits in
the merchant banker in order to win over the trust of their clients just like a doctor or a
lawyer who retains their clients permanently. A good merchant banker has to share the
thoughts of his clients with sympathetic gestures and offer suggestions without any greed
or favors.

4) Contacts:-
A merchant banking business mainly depends upon the sociable nature and wider
contacts. The scope of contact of a merchant banker covers:
(a) His own organization
(b) Central and State Government Offices (c) Banks,
(c) Financial Institutions,
(d) Promoters/Directors/Owners/Chief Executives of the public and private enterprises,
(e) Printers,
(f) Advertising Agencies,
(g) Brokers and Stock Exchange Dealers,
(h) Advocates and Solicitors
(i) Members of the press, etc.
Merchant bankers have to widen the contacts and continue to maintain them by meeting
people in personal, in special gatherings and through writing to them.

5) Attitude towards problem solving:-

A good quality of a merchant banker is to be skilled in human relations particularly in the
inter-personal behavior. A merchant banker should have a positive approach to
understand the difficulties, adverse circumstances and the viewpoints of others. Effective
communication and proper feedback are the pre-requisites for creating a positive attitude

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 towards problem solving which could be gained partly through the learning process and
partly as an inborn personality trait.

6) Inquisitiveness for acquiring new skills, information and

knowledge:-
Merchant bankers survive by providing the information required by their needy clients.
Therefore they must keep themselves updated with the latest information in the area of
the service product which they market.

7) Capital market familiarity:

Merchant banker should be well versed with stock markets, their movements. He should
track imp happenings in the market on ongoing basis.

Difference between Commercial Banking and Merchant Banking

For Commercial Banking-

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

For Merchant Banking-

Catering needs of corporate firms.
It cannot be done.

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 More exposed to risk.
Related to Primary markets.
Its management oriented.
Plays different roles like underwriting, portfolio etc

Role of Merchant Banker

The role of merchant banker is dynamic in the wake of diverse nature of merchant
banking services. Merchant bankers dynamism lies in promptly attending to the
corporate problems and suggest ways and means to solve it. The nature of merchant
banking services is development oriented and promotional to help the industry and trade
to grow and survive.

Merchant banker is, therefore, dedicated to achieve this objective through his dynamism.
He is always awake to renew his skills, develop expertise in new areas so as to equip
himself with the knowledge and techniques to deal with emerging new problems of
corporate business world. He has to keep pace with the changing environment where
government rules, regulations and politics affecting business conditions frequently
change; where science and technology create new innovations in production processes of
industries envisaging immediate renovations, diversifications, modernizations or

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replacements of existing plant and machinery or other equipments putting new demands
for finances and necessitating overhauling of the capital structure of the firms.

Merchant banker has to think and devise new instruments of financing industrial projects.
He has to assume wider responsibilities of saving industrial units from going sick and
guiding industries to be setup in industrially backward areas to eliminate regional
imbalances in industrial development of the country.

He has to guide the wider section of the community possessing surplus money to invest
in corporate securities and other productive investment channels. He has to help the
industry in different forms to ensure that it runs risk free and devoid of uncertainty by
assisting the promoters with his knowledge and skills to resolve the problems being faced
by them. He has to watch the interest and win over the confidence of the government, its
agencies, along with the entrepreneurs, the investors and the whole community. He must
bridge the communication gap between different sections and resolve the problem being
faced in different areas concerned with the business world. To discharge the above role, a
merchant banker has to be dynamic.
In the days ahead, merchant bankers have very significant role to play tuning their
activities to the requirements of the growth pattern of the corporate sector, the industry
and the economy as a whole which is, in it, a challenging task and to meet these
challenges merchant bankers will have to be more vigorous and strategic in playing their
role. They will have also to adopt new ways and means in discharging their role.

Obligations and Responsibilites

Merchant bankers have the following obligations and responsibilities.

1. Merchant banker should maintain proper books of accounts, records and submit half
yearly/annual financial statements to the SEBI within stipulated period of time.

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2. No merchant banker should associate with another merchant banker who is not
registered in SEBI.
3. Merchant bankers should not enter into any transactions on the basis of unpublished
information available to them in the course of their professional assignment.
4. Every merchant banker must submit himself to the inspection by SEBI when required
for and submit all the records.

5. Every merchant banker must disclose information to the SEBI when it requires any
information from them.
6. All merchant bankers must abide by the code of conduct prescribed for them.
7. Every merchant banker who acts as lead manager must enter into an agreement with
the issuer setting out mutual rights, liabilities, obligations, relating to such issues with
particular reference to disclosures allotment, refund etc.

Problems and hurdles

Not many but some problems are faced by Indian merchant bankers.

I. 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 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.

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II. Malafide practices:
India 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 malafide 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.1

III. 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.

PART-II Services Provided by Merchant Banks

. The growing demand for funds from capital market has enthusied many organizations to
enter into the field of merchant banking for managing the public issues.
The need of merchant banker is also felt in the wake of huge untapped public savings as
merchant bankers can play a highly significant role in mobilizing funds from savers to
invest in channels assuring promising return on investments and thus narrow down the
gap between demand for and supply of investible funds.
Merchant bankers not only provide advisory services to corporate enterprises but also
advise the investors of the incentives available in the form of tax relief and other statutory
1 https://www.scribd.com/doc/28076595/Merchant-Banking-in-India

14
obligations. Thus, the merchant bankers help industry and trade to raise funds, and the
investors to invest their saved money in sound and healthy concerns with confidence,
safety and expectation of higher yields.
Broadly a merchant banker can provide the following services:2

Corporate Counseling

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 counseling, 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
counseling 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.

Counseling
Project counseling 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.
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 counseling. The two sources
of funds available to finance the project cost are internal sources of funds (or owners'
2 https://www.scribd.com/doc/28076595/Merchant-Banking-in-India
15
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 counseling 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.

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

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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

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 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.

Under writing of public issue

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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:
It earns a commission of the commitment given. It earns the right to be appointed as
bankers of that issue. It expands its clientele by underwriting more and more issues.
Bankers to the Issue
The merchant banker can automatically become the banker to the issue in the following
cases:
The bank is a broker to the company It has given underwriting commitments. It acts
as a manger to the issue 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.

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.
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

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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.

Advisory Services Relating To Mergers and Takeovers

A merger is defined as a combination of two or more companies into a single company

where one services and other looses their corporate existence. A merger is also defied as
an amalgamation wherein the shareholders of the combining companies become
substantially the shareholders of the company formed.
A takeover is referred to as an acquisition, which is the purchase, by one company of a
controlling interest in the share capital of another existing company.
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

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Government/ RBI; drafting the scheme of amalgamation; getting approval of company
Board, financial institution, high court if required; arranging for the meeting etc.

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.

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 include
arrangement for lease finance facilities for leasing companies, legal; documents and tax
consultancy.

PART-III CODE OF CONDUCT

According to the 13 Regulation of the SEBI of 1992 (Merchantbankers), every merchant
banker should comply with following codes of conduct.3

1. A merchant banker shall make all efforts to protect the interests of investors.

2. A merchant banker shall maintain high standards of integrity, dignity and fairness in
the conduct of its business.

3 Regulation 13 of SECURITIES AND EXCHANGE BOARD OF INDIA (MERCHANT

BANKERS)REGULATIONS, 1992

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3. A merchant banker shall fulfill its obligations in a prompt, ethical, and professional
Manner
.
4. A merchant banker shall at all times exercise due diligence, ensure proper care and
exercise independent professional judgment.

5. A merchant banker shall endeavour to ensure that

(a) inquiries from investors are adequately dealt with;
(b) grievances of investors are redressed in a timely and appropriate manner;
(c) where a complaint is not remedied promptly, the investor is advised of any further
steps which may be available to the investor under the regulatory system.

6. A merchant banker shall ensure that adequate disclosures are made to the investors in a
timely manner in accordance with the applicable regulations and guidelines so as to
enable them to make a balanced and informed decision.

7. A merchant banker shall endeavour to ensure that the investors are provided with true
and adequate information without making any misleading or exaggerated claims or any
misrepresentation and are made aware of the attendant risks before taking any investment
decision.

8. A merchant banker shall endeavour to ensure that copies of the prospectus, offer
document, letter of offer or any other related literature is made available to the investors
at the time of issue or the offer.

9. A merchant banker shall not discriminate amongst its clients, save and except on
ethical and commercial considerations.

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10. A merchant banker shall not make any statement, either oral or written, which would
misrepresent the services that the merchant banker is capable of performing for any client
or has rendered to any client.

11. A merchant banker shall avoid conflict of interest and make adequate disclosure of its
interest.

12. A merchant banker shall put in place a mechanism to resolve any conflict of interest
situation that may arise in the conduct of its business or where any conflict of interest
arises, shall take reasonable steps to resolve the same in an equitable manner.

13. A merchant banker shall make appropriate disclosure to the client of its possible
source or potential areas of conflict of duties and interest while acting as merchant
banker which would impair its ability to render fair, objective and unbiased services.

14. A merchant banker shall always endeavour to render the best possible advice to the
clients having regard to their needs.

15. A merchant banker shall not divulge to anybody either orally or in writing, directly or
indirectly, any confidential information about its clients which has come to its
knowledge, without taking prior permission of its clients, except where such disclosures
are required to be made in compliance with any law for the time being in force.

16. A merchant banker shall ensure that any change in registration status/any penal action
taken by the Board or any material change in the merchant bankers financial status,
which may adversely affect the interests of clients/investors is promptly informed to the
clients and any business remaining outstanding is transferred to another registered
intermediary in accordance with any instructions of the affected clients.

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17. A merchant banker shall not indulge in any unfair competition, such as weaning away
the clients on assurance of higher premium or advantageous offer price or which is likely
to harm the interests of other merchant bankers or investors or is likely to place such
other merchant bankers in a disadvantageous position while competing for or executing
any assignment.

18. A merchant banker shall maintain arms length relationship between its merchant
banking activity and any other activity.

19. A merchant banker shall have internal control procedures and financial and
operational capabilities which can be reasonably expected to protect its operations, its
clients, investors and other registered entities from financial loss arising from theft, fraud,
and other dishonest acts, professional misconduct or omissions.

20. A merchant banker shall not make untrue statement or suppress any material fact in
any documents, reports or information furnished to the Board.

21. A merchant banker shall maintain an appropriate level of knowledge and competence
and abide by the provisions of the Act, regulations made thereunder, circulars and
guidelines, which may be applicable and relevant to the activities carried on by it. The
merchant banker shall also comply with the award of the Ombudsman passed under the
Securities and Exchange Board of India (Ombudsman) Regulations, 2003.

22. A merchant banker shall ensure that the Board is promptly informed about any action,
legal proceedings, etc., initiated against it in respect of material breach or non-
compliance by it, of any law, rules, regulations, directions of the Board or of any other
regulatory body.

23. (a) A merchant banker or any of its employees shall not render, directly or indirectly,
any investment advice about any security in any publicly accessible media, whether real-
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time or non-real-time, unless a disclosure of his interest including a long or short
position, in the said security has been made, while rendering such advice.
(b) In the event of an employee of the merchant banker rendering such advice, the
merchant banker shall ensure that such employee shall also disclose the interests, if any,
of himself, his dependent family members and the employer merchant banker, including
their long or short position in the said security, while rendering such advice.

24. A merchant banker shall demarcate the responsibilities of the various intermediaries
appointed by it clearly so as to avoid any conflict or confusion in their job description.

25. A merchant banker shall provide adequate freedom and powers to its compliance
officer for the effective discharge of the compliance officers duties.

26. A merchant banker shall develop its own internal code of conduct for governing its
internal operations and laying down its standards of appropriate conduct for its
employees and officers in carrying out their duties. Such a code may extend to the
maintenance of professional excellence and standards, integrity, confidentiality,
objectivity, avoidance or resolution of conflict of interests, disclosure of shareholdings
and interests, etc.

27. A merchant banker shall ensure that good corporate policies and corporate
governance are in place.

28. A merchant banker shall ensure that any person it employs or appoints to conduct
business is fit and proper and otherwise qualified to act in the capacity so employed or
appointed (including having relevant professional training or experience).

29. A merchant banker shall ensure that it has adequate resources to supervise diligently
and does supervise diligently persons employed or appointed by it in the conduct of its
business, in respect of dealings in securities market.
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 30. A merchant banker shall be responsible for the Acts or omissions of its employees and
agents in respect of the conduct of its busines

PART-IV Registration of Merchant Banker as per SEBI

For registration as a Merchant Banker, an applicant is required to pay a non refundable

application fee of Rs.50,000/- by way of demand draft drawn in favour of Securities and
Exchange Board of India, payable at Mumbai. The application in Form A along with
Additional Information Sheet.
The fees to be paid by merchant banker Application fee (Initial and permanent
Registration) - Rs 50,000. Initial Registration - Rs 20,00,000. Permanent Registration
Rs 9,00,000.
A Merchant Banker is required to have a minimum networth of not less than Rs. Five
Crore.
Every Merchant Banker is required to pay Rs. Twenty Lakh as registration fees (as per
SEBI (Payment of Fees) (Amendment) Regulations, 2014) at the time of grant of
Certificate of Initial Registration by SEBI.4
The Certificate of Initial Registration remains valid for five years. The Merchant Banker
has to apply for grant of Certificate of Permanent Registration to SEBI, three months

4 http://www.sebi.gov.in/cms/sebi_data/attachdocs/1437019326923.pdf
25
 before the expiry of the validity of the Certificate of Initial Registration, if it wishes to
continue as a registered Merchant Banker.
The Merchant Banker is required to pay fee of Rs. Nine Lakh (as per SEBI (Payment of
Fees) (Amendment) Regulations, 2014) for the first block of three years towards
permanent registration, payable in terms of Schedule II of the SEBI (Merchant Bankers)
Regulations, 1992. In order to keep Certificate of Permanent Registration in force, a
Merchant Banker has to pay the fees as per Schedule II of the SEBI (Merchant Bankers)
Regulations, 1992 every three years, 3 months before expiry of the previous fee block.

Application for grant of certificate

An application for grant of a certificate needs to be made to SEBI .
The application can be made for any one of the following categories of the merchant
banker namely:
Category I, that is
(i) 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
(ii) 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.
To carry on the activity as underwriter or portfolio manager a separate certificate of
registration needs to be obtained from SEBI.

Application to conform to the requirements

The application should conform to all the requirements under the SEBI guidelines,
otherwise it may be rejected.

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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.

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.

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

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 networth shall be as follows,
Category Minimum Amount Category I Rs. 5, 00, 00, 000 Category II Rs. 50, 00, 000
Category III Rs. 20, 00, 000 Category IV Nil
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

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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.

Procedure for Registration

The Board on being satisfied that the applicant is eligible shall grant a certificate. On the
grant of a certificate the applicant shall be liable to pay the fees as prescribed.

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.

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 CONCLUSION

The merchant banking business has increased over a short period of time and with
continued economic reforms. However, a stiff competition exists in this line and survival
will depend upon the financial skills and spectrum of financial services and instruments
offered by the Merchant Banker. Hence, Merchant Banking Service is taking shape for
turbulent times.

Merchant banking is an activity initially undertaken by a few large commercial banks in

India, and it is now being adopted or undertaken by a few large commercial banks in
India, and it is now being adopted or undertaken by practically every commercial bank
through its Merchant Banking Department. The range of activities covered under
merchant banking very wide indeed. The merchant banks offer a package of financial
services. Unlike in the past, their activities are now primarily non-fund based. Therefore,
they do not require much capital. One of the basic requirements of merchant banking is a
highly professional staff and worldwide contacts. Merchant banking is usually
international in character.

In this project we have discussed the qualities, the role and responsibilities and problems
faced, services offered by merchant bankers, code of conduct and their registration as per
SEBI guidelines.

Merchant banking is an area that we need to build and grow in the years to come

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 References
Webliography
https://www.reference.com/business-finance/merchant-banker-e9e52c04927e9e23#
http://www.sebi.gov.in/cms/sebi_data/commondocs/mbreguamendmarch2012_p.pdf
http://www.sebi.gov.in/cms/sebi_data/attachdocs/1437019326923.pdf
http://www.investopedia.com/terms/m/merchantbank.asp
\http://www.slideshare.net/JigarGogri/merchant-banker-17113418
https://www.scribd.com/doc/31189944/Merchant-Banking-in-India-project-Finance
https://www.scribd.com/doc/28076595/Merchant-Banking-in-India
http://indianmoney.com/how/what-is-meant-by--merchant-banking
http://www.preservearticles.com/2014091833564/merchant-banking-meaning-and-
functions-of-merchant-banking.html
http://blog.ipleaders.in/role-merchant-bankers/
http://accountlearning.com/merchant-banking-meaning-sebi-regulations-conditions/
https://www.scribd.com/doc/19695663/Merchant-Banking

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