Merchant Banking

MANOJ VERMA MAIMS

Merchant Banking
Merchant Banking is an organization that

acts as an intermediary between the issuers and the ultimate purchaser of securities in the primary security market. Their focus is on issue management. It is now obligatory that all public issues are managed by Merchant Banker(s) who function as Lead Manager(s).

Merchant banking in India

Merchant Banking activity was formally initiated

into the Indian capital markets when Grindlays Bank received the license from RBI in 1967. Following Grindlays Bank, Citibank set up its merchant banking unit in 1970. State Bank started its MB division in 1972 following the recommendations of Banking Commission in 1972.

Role & Functions

Issue Management Portfolio management Project Feasibility Advice Financial Counseling Credit Syndication Venture Financing Lease Financing Foreign Currency Financing

Issue Management:
Design the capital structure Timing of issue selection of Brokers, Bankers and underwriters Hire issue houses & advertising agencies prepare Prospectus & application form arrange for listing of securities Filing of prospectus with SEBI

Portfolio management
Help their customer to make correct choice of

investments,
Takes decision regarding type & quantity of

securities to be invested,

Project feasibility advice

Service relates to project counseling and guiding the

company in identifying a potential project, Assists in getting approvals, grants, licenses and permission from govt. agencies Also helps in preparing technical, economic and financial feasibility studies.

Financial Counseling
Provides advisory services in investment decisions,

capital management and marketing strategies etc. Assists in taking over sick companies and in revitalizing them. Evaluates industrial products through financial appraisals. Also advises in capital restructuring.

Credit Syndication
Undertakes the service of credit procurement and

raising loans in India and abroad. Prepare loan application form and follow-up the loan procedure with financial institutions and banks.

Venture financing
Advises companies on obtaining venture capital. Also interacts between venture capitalists and

company requiring funds. Also give every possible help on obtaining capiyal.

Lease Financing
Gives advice on leasing of equipment. Assist in identifying the right product useful for the

requirements of the project.

Prepare proposals and acquire capital equipment

through leasing for companies.

Foreign currency financing

Provide services for foreign currency loans and

export-import trading financing.

Arrange for different kinds of loans through

negotiations with other parties.

Arrange for pre-shipment & post shipment credit.

Major Responsibilities
Determination of Security Mix to be issued; Drafting of Prospectus; Application forms; Allotment letters; Appointment of Registrar for handling share applications and transfer; Making arrangements for underwriting; Placement of shares; Selection & appointment of Brokers and bankers to an issue, publicity to an issue etc.

Categories
Category I- the MBs who can conduct all above mentioned
activities, relating to management of issues. They may act as an advisor/consultat or as Co-managers, Underwriters or as Portfolio managers.

Category II- who can act as consultants, advisers, Portfolio

managers and Co-managers.

Category III- who can act as underwriters, advisers and

consultants.

Category IV- who can act as l consultants, advisers to an issue.

SEBI abolished all categories of MBs below Category I on Sep 5,1997

Dos for Merchant Banker

Observe high standards of Integrity and fairness in its

dealings. Disclose to the client possible sources of conflict of duties and interest. Render the best possible advice to the client having due regard to the clients needs. True & adequate information relating to issue Information about all kind of risks relating to issue before final decision is taken, Adequate steps for fair allotment of securities and refund of application money without any delay. Adequately deal with the complaints from the investors.

Donts for Merchant Banker

Do not practice unfair competition, Do not make any exaggerated statement or claims, Do not divulge to other clients, press or any other party any

confidential information about his client, which has come to his knowledge. Do not deal in securities of any client company wiyhout disclosing it to SEBI, Do not pass price sensitive information to Brokers, member of stock exchanges and others, Do not take any action which is unethical or unfair to the investors.

Registration
MBs are to be compulsorily registered with SEBI. They should satisfy the following conditions on their registration:

Satisfy prescribed minimum capital adequacy norms,

(Rs. 5 lakh since 1999) Necessary infrastructure, Employ at least two competent persons, Are not involved in any litigation pending, Professional qualifications, Registration is in the interest of investors, Payment of prescribed fees, Undertaking to fulfill obligations & responsibilities, Undertaking to adhere to the prescribed code of conduct.

Any Questions
Thank You