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INTRODUCTION

  • Merchant banking is an amalgam of banking and consultancy services . In India, a merchant banker is defined as “an individual who is who is involved in the business of issue management either by making arrangements regarding buying, selling or subscribing to the securities as a manager, advisor, consultant in relation to such an issue management”.

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Merchant Banking

Banking Services

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Consultancy services

It helps the businessman to start a business and raise finance

It provide consultancy to clients for financial marketing , managerial and legal matters

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WHAT IS MERCHANT BANKING ?

  • Merchant bank is a financial institution that primarily deals with commercial banking needs of international finance , long term loans for companies provide consultancy services and underwriting of shares.
  • It also act as an intermediary between the issuers and the ultimate purchasers of the securities in the primary market.
  • It has been statutory brought with in the framework of the Securities Exchange Board of India (SEBI).

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WHO IS A MERCHANT BANKER?

  • A merchant banker is one who is a critical link between a company raising fund and the investors.
  • Merchant banker is one who underwrites corporate securities and advices on issues like corporate mergers.
  • The merchant banker may be in the form of a bank, a company, firm or even a proprietary concern.
  • Merchant Banker understands the requirements of the business concern and arranges finance with the help of financial institutions, banks, stock exchanges and money market

FOR EXAMPLE :

Kotak Investment Bank

X Company

Public Issue

Marketing

Legal Compliances

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HISTORY OF MERCHANT BANKING IN INDIA

  • Merchant banking was first initiated in India by National Grindlays Bank in 1967.
  • Then Citibank in 1970 and State Bank of India in 1972 started Merchant banking.
  • Later ICICI setup its merchant banking division followed by Bank of India ,Bank of Baroda etc.

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MERCHANT BANKERS CATEGORIES

Category -1

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    • Issue Management
    • Advisor
    • Consultant
    • Manager
    • Underwriter
    • Portfolio Management

Category -2

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    • Advisor
    • Consultant
    • Co-manager
    • Underwriter
    • Portfolio Manager

Catergory-3

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    • Advisor
    • Consultant
    • Underwriter

Catergory-4

  • Advisor
  • Consultant

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REGISTRATION OF MERCHANT BANKERS

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Registration of Merchant Bankers with SEBI is compulsory to perform their activities. SEBI registers only category-1.

(A)Major Considerations by SEBI for Grant of Certificate of Registration:-

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A BODY CORPORATE OTHER THAN NON BANKING FINANCIAL COMPANY

REQUIRED INFRASTUCTURE SUCH AS PLACE, EQUIOMENT AND MANPOWER

EXPERIENCED STAFF OF ATLEAST 2 PERSONS

CAPITAL ADEQUACY REQUIREDMENT OF MINIMUM ‘NET WORTH’

RECOGNISED PROFESSIONA QUALIFICATION IN FINANCE ,LAW OR BUSINESS MANAGEMENT

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(B) FEES PAYABLE:-

CATEGORY

MINIMUM AMOUNT

CATEGORY-1

5,00,00,000

CATEGORY-2

50,00,000

CATEGORY-3

20,00,000

CATEGORY-4

NIL

CAPITAL ADEQUACY REQUIREMENT

Application fees Rs 25000/-

Registration fees Rs 10 Lakh

Renewal fees Rs 5 Lakh

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ROLE OF MERCHANT BANKER

ROLE OF MERCHANT BANKERS

ACT AS PROMOTER

ACT AS A CORPORATE ADVISOR

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ACT AS A FINANCIAL AND INVESTMENT EXPERT

ACT AS ‘MANAGER’ TO YHE ISSUE

ACT AS REHABILITATOR

ACT AS TRANSFER AGENT AND PAYING AGENT

MASTERS IN ALL TRADING ACTIVITES

Merchant banks play a diversified role in the following fields:

  1. Act Promoter: Merchant banker plays the role of a promoter. He translates the as a ideas into ventures by providing a number of promotional services such as identification of projects, obtaining government approvals, raising funds for the project etc.
  2. Acts as a Corporate Advisor : A merchant banker provides a number of services for the successful functioning of the enterprise. Merchant banker helps to the entrepreneurs by providing expert advice on various issues such as financial planning, issue management, investment management etc.
  3. Acts as a Financial and Investment Expert: The merchant banker also plays the important role of a financial and investment expert. A merchant banker guides the corporate clients in the various areas such as covering financial reporting , working capital management, financial requirements and the sources of finance, evaluating financial alternatives , etc

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4. Acts as 'Manager to the Issue: The merchant banker also plays the role of Manager to the Issue. Merchant banker settles the fee for advocate, accountants certification, commission of underwriters, and co-ordinates with syndicated merchant bankers and principal brokers, stock exchanges etc.

5. Acts as a Rehabilitator: A merchant banker also plays the role of a rehabilitator at the time of acquisition, merger, take over, amalgamation, etc. and help in their successful implementation.

6. Acts as Transfer Agents and Paying Agents: Many merchant banks act as agent for their client companies for maintaining registers of shareholders and debenture holders and to act as transfer agents and paying agents for interest and dividend, etc.

7. Masters in all Trading Activities: Merchant bankers are masters in all trading activities. Merchant bankers' role extends to such services as working capital management, FERA activities, international finance, feasibility expansions, mergers, capital restructuring etc.

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NATURE OF MERCHANT BANKING

Merchant banking requires focused skill base to provide for the requirements of the client.

It involves serving every financial requirement of every client.

SEBI has made the quality of manpower as one of the criteria for registration as the merchant banker.

Merchant bankers can turn to any of the activities depending upon resources such as capital, foreign collaboration for overseas activities and skills.

The services of merchant bank cover project counseling, pre-investment activities, project reports, the design of capital structure, etc.

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FUNCTIONS OF MERCHANT BANKERS

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1. Help raise funds : Merchant banks assist their clients in raising funds from the market by issuing shares, debentures, and bank loans. They help to raise funds from both domestic and international markets.

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ADVICE ON VARIOUS ISSUES

BROKERS IN STOCK EXCHANGE

PROMOTIONL ACTIVITIES

HELP RAISE FUNDS

REVIVAL OF SICK UNITS

HANDLING GOVERNMENT PERMISSION

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2.Revival of sick units: They support the companies in rebuilding the disabled manufacturing units. They meet a lot of long-term financial institutions and the Industrial and Financial Restoration Council for backing them.

3.Handling government permission: All the business needs the consent of government for commencing a fresh project, expansion and modernization; hence merchant banks handle government permissions for their clients.

4.Advice on various issues: Merchant Banking in India is relatively different from other countries as here they also offer advice to their clients on modernization and expansion of business.

5.Brokers in the stock exchange: They also serve as a broker in the stock exchange for their clients, plus they also buy and sell shares on account of them.

6.Promotional Activities: They also play the role of industrial business promoters as well. They enable the developers to build innovations, make feasibility studies, and opportunities permits.

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SERVICES OF MERCHANT BANKING

SERVICES OF MERCHANT BANKING

PORTFOLIO

MANAGEMENT

CORPORATE COUNSELLING

MANAGEMENT OF CAPITAL ISSUES

UNDERWRITING SERVICES

LOAN SYNDICATION

OTHER SERVICES

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    • It refers to decreasing the risk and maximizing the profits . Merchant bankers offer these services to their customers and guide the investors in selecting the right securities as per their needs and updated with the complete market information

Portfolio Management

    • This service comprises selling securities, equity shares, debentures, preference shares, etc., to the investors. The role of the merchant banker here is to make an action plan and budget for expenses for coordinating with underwriters.

Management of Capital Issues

    • The merchant banks offer to industrial units . It includes project counseling, capital restructuring, project management, etc

Corporate Counselling

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Under this the bank gives a guarantee that states that if the agreement is below the specified level, then the bank would have to contribute to the stated expense.

The merchant banks arrange a loan for a borrower who can be a big company, a government department after checking and analyze the cost of the project, then they design the capital structure, see how much the promoter is contributing, and then decides on the amount of loan and approaches the financial institution for a loan.

Other services that merchant banks offer are Project Counseling , Issue Management , Advisory Services to Mergers and Takeovers , consultancy to Sick Industrial Units

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GROWTH OF MERCHANT BANKERS IN INDIA

There are more than 130 banks registered with SEBI. Some of them are;

Public Sector Merchant Bankers

Private Sector Merchant Banks

Foreign Players in Merchant Banks

    • SBI Capital Market Ltd
    • Bank of Maharashtra
    • Axis Bank Ltd
    • Kotak Mahindra Capital Company Ltd
    • Barclays Securities Pvt. Ltd
    • FEDEX Securities Ltd

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MERCHANT BANKING SERVICES BY INDUSIND BANK

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CURRENT SENERIO IN MERCHANT BANKING

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    • There are approximately 1450 merchant bankers in India. Out of 1450, around 930 are registered with SEBI.

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    • In Public Sector– Commercial Banks (24), Financial Institutions (6), State Institutions (4).

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    • In Private Sector– International Bankers (10), Banks (10), finance and investment (231).

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SWOT ANALYSIS OF MERCHANT BANKS IN INDIA

    • Public sector undertaking
    • Very high investments in SLR securities
    • High connectivity to common man in some parts of the country
    • Over 1500 branches in 23 states and 2 union territories

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STRENGTH

    • Risk averse
    • Low profitability
    • Increasing NPAs

WEAKNESSES

    • Rural Areas
    • Increasing Non-SLR investments to increase profits
    • Making their credit cards profitable

OPPORTUNITIES

    • Competitors
    • New bank licenses
    • Dis-investments by the government

THREATS

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*Barclays was the First Bank to launch website in 1995�*Large international network with good brand visibility

*More than 145,000 employees �*Operations in over 50 countries and around 48 million customers

*Controversies like funding of government in Zimbabwe affected the brand images of Barclays�*Cases like accusations of money laundering etc have affected the brand image

*Stringent economic policies world over

*Highly competitive environment from other banks can affect market share of Barclays bank

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*Growth and expansion opportunities in emerging economies is a huge opportunity for Barclays bank.

*Venturing into online banking is a huge untapped area

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*Innovative financial products of diverse categories

*Kotak Mahindra Finance Ltd. is the first company in the Indian banking history to convert to a bank

*Has over 20,000 employees

*Customer account base of over 2.7 million

*Lesser penetration as being late entrants

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*Low publicity and marketing as compared to other premium banks in the urban areas

*Increase in Industry banking�*Explore opportunities abroad by International banking

*Economic slowdown�*Highly competitive environment�*Stringent Banking Norms

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STRENGTH

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    • -SBI is the largest bank in India in terms of market share, revenue and assets and branch network also.
    • -First public sector Bank move to CBS.
    • -Strong Capital Position .

WEAKNESSES

    • -Lack of proper technology driven services.
    • -Huge staff
    • -Still image of Old Government Bank
    • -Reduction in asset Quality.
    • -Political intervention

OPPORTUNITIS

    • SBI’s merger with five more banks .Its good for it’s awareness.
    • -Expantion to Rural Areas.
    • -SBI is expanding their business to Asian Market.
    • -Modernization of some banking operation.

THREATS

    • Close Competition with Private sector Banks.
    • -New licence of banks given to others also.
    • -Global economic slowdown.

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CONCLUSION

  • Merchant Banking in India has enhanced the ease of doing business, because of which they have gained a considerable position in the market . Furthermore, the involvement of SEBI as a watchdog for all their activities has helped people gain confidence in merchant banks.

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