Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
MERCHANT BANKING
DEFINITION:A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to. The Notification of the Ministry of Finance defines 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 managerconsultant, advisor or rendering corporate advisory services in relation to such issue management
In the words of Skully A Merchant Bank could be best defined as a financial institution conducting money market activities and lending, underwriting and financial advice, and investment services whose organization is characterized by a high proportion of professional staff able to able to approach problems in an innovative manner and to make and implement decisions rapidly. In BRITAIN merchant bankers & investment bankers are synonymous. In the U.S., 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
MERCHANT BANKING business other than that related to securities market. There is no official category in investment banking.
History
Origin of Merchant Banking
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 during seventeenth and eighteenth centuries. In France a merchant banker (le merchant banquet) was not merely a trader but an entrepreneur par excellence. He invested his accumulated profits in all forms of promising activities. He added banking business to his merchant activities and became a merchant banker.
MERCHANT BANKING as a part of multiple services they offer to their clients from 1972. State bank of India started the merchant banking division in 1972. In the Initial years the SBI's objective was to render corporate advice And Assistance to small and medium entrepreneurs. Merchant banking activities is OF course organized and undertaken in several forms. Commercial banks and foreign development finance institutions have organized them through formation divisions, nationalized banks have formed subsidiaries companies and share brokers and consultancies constituted themselves into public limited companies or registered themselves as private limited companies. Some merchant banking outfits have entered into collaboration with merchant bankers abroad with several branches.
MERCHANT BANKING 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 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. Merchant banks have been procuring impressive support from capital market for the corporate sector for financing their projects. This is evidenced from the increasing amount raised form the capital market by the corporate enterprises year after year. In view of multitude of enactments, rules and regulations, guidelines and offshoot press release instructions brought out by the government from time to time imposing statutory obligations upon the corporate sector to comply with all those requirements prescribed therein, the need of skilled agency existed which could provide counselling in these matters in a package form. Merchant bankers, with their skills, updated information and knowledge, provide this service to the corporate units and advise them on such requirements to be complied with for raising funds from the capital market under different enactments viz. Companies Act, Income-tax Act, Foreign Exchange Regulation Act, Securities Contracts (Regulation) Act and various other corporate laws and regulations. Merchant bankers advise the investors of the incentives available in the form of tax reliefs, other statutory relaxations, good return on investment and capital appreciation in such investment to motivate them to invest their savings in securities of the corporate sector.
MERCHANT BANKING consultancy. Following Grindlays Bank, Citibank set up its merchant banking division in 1970.The division took up the task of assisting new entrepreneurs and existing units in the evaluation of new projects and raising funds through borrowing and equity issues. Management consultancy services were also offered. Merchant bankers are permitted to carry on activities of primary dealers in government securities. Consequent to the recommendations of Banking Commission in 1972, that Indian banks should offer merchant banking services as part of the multiple services they could provide their clients, State Bank of India started the Merchant Banking Division in 1972. In the initial years the SBIs 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 and United Bank of India, United Commercial Bank, Punjab National Bank, Canara Bank and Indian Overseas Bank in late 70s and early 80s. Among the development banks, ICICI started merchant banking activities in 1973 followed by IFCI (1986) and IDBI (1991).
MERCHANT BANKING in India. These organizations have brought professionalism in merchant banking sector and they help their parent organization to make a presence in capital market.
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.
MERCHANT BANKING
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. 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. B.R.C.M COLLEGE OF BUSINESS ADMINISTRATION
7
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 a person directly or indirectly connected with the applicant has not been granted registration by the Board; 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:Category Category I Category II Category III Category IV Minimum Amount Rs. 5, 00, 00, 000 Rs. 50, 00, 000 Rs. 20, 00, 000 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 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 recognized by the Government in finance, law or business management Grant of certificate to the applicant is in the interest of investors.
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. f. 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.
VI.
MERCHANT BANKING
ii)
MERCHANT BANKING
iii)
iv)
v)
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.
vi)
MERCHANT BANKING
SERVICES OF MERCHANT BANKERS:Business planning stage: 1) Project feasibility study 2) Advice on capital structuring Equity raising: 3) Preparation of prospectus and liaison with SEBI 4) Pricing decisions 5) Marketing in the capacity of lead managers 6) Underwriters to the issue 7) Post issue management 8) Assistance in ADR/GDR Debt raising: 9) Management of debenture issue 10) Preparation of bankable proposal and syndication of loan Working capital raising: 11) Assistance in arranging optimal capital finance Strategic advice: 12) Advice on mergers and
MERCHANT BANKING
MERCHANT BANKING
Covers the entire field of merchant banking, Ltd to giving suggestions Preparing project report for govt. approval , financial assistance
Assistance rendered to get term loan for project, help client make appraisal, designing capital structure etc Marketing corporate securities, intermediary in transfer of capital from one who owns to needy Guarantee given by the underwriter, make raising of external resource easy Drafting, completion of formalities, appoint Registrar etc
Managers to Issue Portfolio Management Mergers and takeovers Off Shore Finance Non- Resident Investment
10
Non-Resident
MERCHANT BANKING
2) Minimum net worth of Rs.1 crore: SEBI guidelines stipulate that a minimum net worth of Rs.1 crore for authorization of merchant bankers.
3) 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.
4) Merchant Bankers Commission: Maximum :- 0.5% Project appraisal fees Lead Manager :- 0.5% up to Rs.25 crores - 0.2% more in excess of Rs.25 crores Underwriting fees Brokerage commission :- 1.5% Other expenses :- Advertising Printing Registrars expenses Stamp duty
In spite of problems popping up, merchant banking in India has vast scope to develop because of lot of domestic as well as foreign businesses booming here. Indian economy provides an amicable environment for these firms to set up, flourish and expand here.
MERCHANT BANKING
EXAMPLE
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 your 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. SBI being an Indian entity has no India exposure ceiling. Their Primary focus is On Indian Clients. SBIs seasoned Team of professionals provides you with Insightful credit Information and helps you Maximize the Value from the transaction.
MERCHANT BANKING
OE: Overall Excellence; FSS: Financial Soundness; QPS: Quality Product/Service; QM: Quality Management; INN: Innovativeness.
MERCHANT BANKING
CONCLUSION
The merchant banker plays a vital role in channelizing the financial surplus of the society into productive investment avenues. Hence before selecting a merchant banker, one must decide, the services for which he is being approached. Selecting the right intermediary who has the necessary skills to meet the requirements of the client will ensure success. It can be said that this project helped me to understand every details about Merchant Banking and in future how its going to get emerged in the Indian economy. Hence, Merchant Banking can be considered as essential financial body in Indian financial system. Market development is predicted on a sound, fair and transparent regulatory framework. To sustain the growth of the market and crystallize the growing awareness and interest into a committed, discerning and growing awareness and interest into an essential to remove the trading malpractice and structural inadequacies prevailing in the market, and provide the investors an organized, well regulated market.