Académique Documents
Professionnel Documents
Culture Documents
Derivatives
Course: TYBBA
S u b je c t C o d e : 3 0 5
B y : M r . D i p a n s h u T a l u ja
Cont
The Merchant banking services was started by foreign
Cont..
In addition to Indian Merchant Bankers, a large
contributory factors in India. They are the Merchant Banking was at its best
during 1985-1992 being when there were many new issues. It is expected
that 2010 that it is going to be party time for merchant banks, as many new
issue are coming up. The foreign investors both in the form of portfolio
investment and through foreign direct investments are venturing in Indian
Economy.
in the government sector in the country gives a big scope to the merchant
banks to function as consultants. New financial instruments are introduced
in the market time and again. This basically provides more and more
opportunity to the merchant banks. The mergers and corporate
restructuring along with MOU and MOA are giving immense opportunity to
the merchant bankers for consultancy jobs
DEFINATION BY SEBI
The merchant banking has been defined as to what a
ROLE IN INDIA
SCOPE IN INDIA:
Economic development requires specialist financial skills: savings banks to marshal individual
savings; finance companies for consumer lending and mortgage finance; insurance companies
for life and property cover; agricultural banks for rural development; and a range of specialized
government or government sponsored institutions. As new units have been set up and business
is expanding, they require additional financial services. A public equity or debt issue is the
logical source of fund in this situation and merchant banks can tap this opportunity of growth.
The areas of great scope could be,
1) Growth of Primary market:
If the primary market grows and number of issues increases, the scope of merchant banking will
be enhanced.
2) Entry of Foreign Investors:
Now India capital market directly taps foreign capital through euro issues.FDI is increased in
capital market. So Merchant bankers are required to advice them for their investment in India.
The increasing number of joint ventures also requires expert services of Merchant Bankers. If
more and more NRIs participate in capital market, there will be great demand for merchant
banker services.
If the debt market is enhanced, there will be tremendous scope for Merchant
bankers. Now NSE and OTCEI are planned to raise their fund through debt
instruments.
5) Corporate restructuring:
Due to liberalization and globalization Companies are facing lot of competition.
The scope could be extended to:1. Advising the company on designing of its Capital Structure.
2. Advising the company on the instrument to be offered to the public.
3. Pricing of the instrument.
4. Advising the company on Legal/ regulatory matters and interaction with
function of the merchant banker. He assists the companies in raising funds from
the market. The main areas of work in this regard include: instrument
designing, pricing the issue, registration of the offer document, underwriting
support, and marketing of the issue, allotment and refund, listing on stock
exchanges.
2) Placement and distribution- The merchant banker helps in distributing
various securities like equity shares, debt instruments, mutual fund products,
fixed deposits, insurance products, 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. The size of such a network represents the wholesale reach of the
merchant banker. The retail network depends on networking with investors.
Cont...
3) Issue Management:
Management of issue involves marketing of corporate securities viz. equity shares,
preference shares and debentures or bonds by offering them to public. Merchant banks
act as an intermediary whose main job is to transfer capital from those who own it to
those who need it. After taking action as per SEBI guidelines, the merchant banker
arranges a meeting with company representatives and advertising agents to finalize
Arrangements relating to date of opening and closing of issue, registration of
prospectus, launching publicity campaign and fixing date of board meeting to approve
and sign prospectus and pass the necessary resolutions. Pricing of issues is done by the
companies in consultant with the merchant bankers.
4) Underwriting of Public Issue:
Underwriting is a guarantee given by the underwriter that in the event of under
5) Financial structuring
includes determining the right debt-equity ratio and
CONT
6)Project Counseling: Project counseling includes preparation of
project reports, deciding upon the financing pattern to finance the cost
of the project and appraising the project report with the financial
institutions or banks. It also includes filling up of application forms
with relevant information for obtaining funds from financial
Institutions and obtaining government approval.
7) Loan syndication- Merchant bankers arrange to tie up loans for
their clients. This takes place in a series of steps. Firstly they analyses
the pattern of the clients cash flows, based on which the terms of
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.
companies in obtaining venture capital financing for financing their new and innovative
strategies.
9) Portfolio Management: Portfolio refers to investment in different kinds of
currency.
(a) Long term foreign currency loans
(b) Joint Ventures abroad
(c) Financing exports and imports
(d) Foreign collaboration arrangements
Organizational set up
Organizations can be categorized into 4 group on the basis of their linkage
Cont..
c) Broker Base :In the recent past there has been an inflow of Qualified and professionally skilled
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 Sectors merchant banking firms
have come up either as sole proprietorship, partnership, private limited or public
limited companies. Many of these firms were in existence for quite some time before
they added a new activity in the form of merchant banking services by opening new
division on the lines of commercial banks and All India Financial Institution (AIFI).
Cont
However, the above structure has undergone a
industries and trade, thus leaving a widening gap unabridged between the supply
and demand of invisible funds. All financial institutions had experienced constrain of
resources to meet ever increasing demands for demands for funds frame corporate
sector enterprises.
Growth of Capital Market: In such circumstances corporate sector had the only
alternative to avail of the capital market service for meeting their long term financial
requirement through capital issue of equity shares and debentures.
Growing demand for funds put pressure on capital market that enthused commercial
banks, share brokers and financial consultancy firms to enter into the field of
merchant banking and share the growing capital market.
As a result all the commercial banks in nationalized and public sector as well as in
private sector including foreign banks in India have opened their merchant banking
windows and competing in this field.
Cont..
Government Regulations : In view of multitude of enactment, rules and regulation 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.
Specialisation and Skilled: 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.
Counselling : 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 banker 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.
Public Savings: 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
banking.
The following are some of the reasons why specialist merchant bank have a
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.
Where merchant banks function as an independent wing or as subsidiary of
various private/central governments/ state government financial institution.
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.
ACTIVITIES
NETWORTH
Category I
Category II
Underwriter,
portfolio
management.
Category III
Category IV
Morgan Stanley Indian co. Pvt. Ltd., Barclays Security Indian Pvt.
Ltd., Bank of America, Deutsche Bank, Citi Group Global Market
Indian Pvt. Ltd., Fedex Security Ltd.,
banks, so they are into trouble without any fault of their own.
3) The net worth requirement is very high in categories I and II
merchant bankers.
SEBI GUIDELINES
Obligations and Responsibilities of Merchant Bankers
In the conduct of his business, a merchant banker is supposed to observe certain
codes of conduct. SEBI has issued some guidelines for regulating the merchant
banking activities and the code of conduct for the merchant banks is specified in
the Schedule III of the SEBI (Merchant Bankers) Regulations 1992.
High standards:
Due diligence:
Dealing with competing merchant bankers:
No tall claims:
Cost-effective service:
Confidentially:
Disclosure of information:
Avoid market manipulative practices:
Restrain on advisory role:
Merchant Bankers:
1. Submission of Offer Document:
2. Dispatch of issue material
3. Underwriting:
4. Compliance Obligations:
5) Redressed of investor grievances:
6) The concerned lead merchant banker
7) Issue of No objection Certificate (NOC):
8) Registration of Merchant Bankers:
9) Renewal of Registration:
10) Impositions of Penalty Points: