Merchant Banking

CMA Mrudula Risbud

 Definition
Any person who is engaged in the business of
issue management either by making
arrangement regarding selling, buying or
subscribing to securities as manager,
consultant, advisor or rendering corporate
advisory services in relation to such issue
management.
 Origin and other description
Italian Origin
Fee based working
In India we have ICICI, Standard Chartered
etc.
Regulated by Capital Issue (Control) Act, 1947
Can be termed as
Merchant Bank OR
Lead managers
 Types of Merchant Banking

Category 1 Relating to issue management

Category 2 Advisors, consultants, Portfolio
managers, underwriters
Category 3 consultants and underwriters
Category 4- only act as advisor
 Registration of merchant banks
Registration with SEBI
Have status of body corporate with necessary
infrastructure such as place, equipment and
manpower
Minimum reserves should be Rs.5 Crores
Should have professional qualification in law
and business management
 Summary of function
Corporate Counselling
Project Counselling
Pre investment studies
Capital Restructuring
Credit Syndication and Project Finance
Issue Management and underwriting
Portfolio Management
Working Capital Finance
Acceptance of credit and bill discounting
Merger, Amalgamation and Takeover
Venture capital
Lease Financing
 Role of Merchant Banking
Pre issue management
Obtaining approval from SEBI
Drafting prospectus , Getting approvals from ROC
Underwriting
Drafting legal documents like application form,
advertisement
Selection of registrant, advertising agencies,
brokers
Selection of center for collecting the application
money
Listing of securities on stock exchnage
 Role of Merchant Banking
Post Issue management
Collection of application forms
Screening and scrutinizing the application
Deciding the application share
Issue of shares (Now in DEMAT format)
Refund of application money if shares not allotted
to applicant
 Advisory Services and offshore
services
Advisory services
Acts as Liasoning officer for merger &
acquisition
Managing the portfolio of the company

Offshore financing
To help client offshore in terms of foreign
currency loans, JVs, collaborations
Identification of the opprtunities for the client in
abroad
 Functions..
Capital Restructuring :Determination of optimum
capital structure conforming to legal requirements.
Credit syndication : Estimating the total cost of the
project and drawing up a financing plan for the total
project cost
Preparing loan application for financial assistance from
the lenders/financial institutions/banks, and
monitoring their progress including pre-sanction
negotiations.
Selecting institutions and banks for participation for
financing.
 Functions.
Portfolio management : making investment
decisions in marketable securities for maximizing
returns with minimum risk
Working Capital Finance : Assessment of working
capital requirements. Facilitating sanction of
credit facilities speedy disbursements.
Mergers & Acquisitions: SWOT analysis, obtaining
approvals, monitoring and implementation of
Merger & Acquisition
 Functions.
Venture capital financing : equity financing for
high-risk and high-reward projects
Lease financing : Providing advice on the
choice of a favourable rental structure.
procurement of fund in the form of deposits
from the public
 Factoring and Forfeiting Services
arrangement between financial institution and
a business concern
activity of selling the firms receivables to a
factoring organization.
acts as a collection agent or representative of
a firm
charges commission or gets discount on the
book debts (Vary from 5% to 20%)
Normal period of factoring varies from 90- 150
days
Work Flow
 Functions of Factoring
Maintenance of the clients sales ledgers
Sending periodical reports to the client on the
current status of receivables
Maintenance of payment schedule
The factor may pay in advance up to 80% of
assigned book debts.
 Bills Discounting
promissory note and it can be negotiable. It
contains the promise to pay the amount
mentioned in it to the drawer/payee on the
date of maturity.
Parties involved
Drawer
Acceptor
Banks
 Steps in bill discounting
Examination of bill
Crediting customer account
Control over accounts
Sending bills for collection
Action for branch
Honor / Dishonor
 Comparative analysis Factoring &
Discounting of Bills
Area covered
No of parties involved
Cost of service
Formalities
Grace days policy
Documents involved
Time of charging