M ea ning :

T h e wo r d me r c h a n t b a n k d o e s n o t h a v e a f i x e d d e f i n i t i o n a s t h i s t e r m i s u s e d d i f f e r e n t l y i n d i f f e r e n t c o u n t r i e s . I n Un i t e d S t a t e s t h e s e a r e c a l l e d a s I n v e s tme n t B a n k s a n d i n U K t h e y a r e c a l l e d a s a c c e p t i n g a n d i s s u i n g h o u s e s . The notification of Ministry Of Finance in India defines M e r c h a n t B a n k e r a s a n y p e r s o n w h o i s e n g a g e d i n t h e b u s i n e s s o f i s s u e ma n a g e me n t e i t h e r b y ma k i n g a r r a n g e me n t s r e g a r d i n g s e l l i n g , b u yi n g , o r s u b sc r i b i n g t o t h e s e c u r i t i e s a s ma n a g e r , c o n s u l ta n t , a d v i s e r i n r e l a t i o n t o s u c h a n i s s u e ma n a g e me n t . I n g e n e r a l t h e me r c h a n t b a n k s a r e t he f i n a n c i a l i n s t i t u t i o n wh i c h p r o v i d e s f i n a n c i a l s e r v i c e s , s o l u ti o n s , & a d v i c e t o c o r p o r a t e h o u s e s . S o me o f t h e wo r l d f a mo u s me r c h a n t b a n k s a r e Go l d ma n S a c h s , C r e d i t S u i s s e & M o r g a n S t a n l e y e t c . I n I n d i a t h e r e a r e ma n y b a n k s wh i c h a r e i n t o t h e f i e l d o f me r c h a n t b a n k i n g s o me o f t h e b a n k s a r e I C I C I , S t a t e B a n k Of I n d i a , P u n ja b Na t i o n a l B a n k e t c .

M ercha nt ba nking a n ov erv iew : C o mp a n y r a i s e s c a p i t a l b y i s s u i n g s e c u r i t i e s i n ma r k e t . M e r c h a n t b a n k e r s a t a s i n t e r me d i a r i e s b e t we e n t h e i s s u e r o f c a p i t a l a n d t h e u l t i ma t e i n v e s t o r w h o p u r c h a s e t h e s e s e c u r i t i e s . M e r c h a n t b a n k i n g . i s t h e f i n a n c i a l i n t e r me d i a t i o n t h a t ma t c h e s t h e e n t i t i e s t h a t n e e d c a p i t a l a n d t ho s e t h a t h a v e capital? It is function that facilitates the flow of capital in the ma r k e t .

DEFINITION:
In banking, a me r c h a n t bank is a financial institution p r i ma r i l y e n g a g e d i n o f f e r i n g f i na n c i a l s e r v i c e s a n d a d v i c e t o c o r p o r a t i o n s a nd we a l t h y i n d i vi d u a l s o n h o w t o u s e t h e i r mo n e y. Th e t e r m c a n a l s o b e u s e d t o d e s c r i b e t h e p r i v a t e e q u i t y activities of banking.

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s p e c i a l i s t s e r v i c e s wh i c h g e n e r a l l y i n c l u d e t h e a c c e p t a n c e o f b i l l s o f e x c h a n g e , c o r p o r a t e f i n a n c e , p o r t f o l i o ma n a g e me n t a n d other banking services.

T h e No t i f i c a t i o n o f t h e M i n i s t r y o f F i n a n c e d e f i ne s a me r c h a n t banker as, any person who is engaged in the business of i s s u e ma n a g e me n t e i t h e r b y ma ki n g a r r a n g e me n t s r e g a r d i n g s e l l i n g , b u y i n g o r s u b s c r i b i n g t o s e c u r i t i e s a s ma n a g e r , consultant, advisor or rendering corporate advisory service i n r e l a t i o n t o s u c h i s s u e ma n a g e me n t . I n s h o r t , me r c h a n t b a n k e r s a s s i s t i n r a i s i n g c a p i ta l a n d a d v i c e on related issues.

Histo ry a nd Orig in o f Me rcha nt Ba nking In India

ORIGIN
Merchant banking originated through the entering of L o n d o n me r c h a n t s i n f o r e i g n t r a d e t h r o u g h a c c e p t a n c e o f b i l l . La t e r , t h e me r c h a n t s a s s i s t e d t h e Go v e r n me n t o f u n d e r d e v e l o p e d c o u n t r i e s i n r a i s i n g l o n g t e r ms t h r o u g h f l o a t a t i on o f b o n d s i n Lo n d o n mo n e y m a r k e t . O v e r a p e r i o d t he y e x t e n d e d t h e i r a c t i v i t i e s t o d o me s t i c b u s i n e s s o f s yn d i c a t i o n o f l o n g t e r m a n d s h o r t t e r m f i n a n c e , u n d e r wr i t i n g o f n e w i s s u e s , a c t i n g a s r e g is t r a r s and share transfer agents, debenture trustees, po rtfolio ma n a g e r s , n e g o ti a t i n g a g e n t s f o r me r g e r s , t a k e o v e r s etc.

M ercha nt Ba nking in India Histo rica l Perspectiv e:

Till 18th c e n tu r y mo n e yl e n d e r s , mo n e yc h a n g e r s , village

me r c h a n t s ( ma h a r a n i s ) , & s a u c e r s p e r f o r me d t h e f u n c t i o n o f b a n k s & me r c h a n t b a n k s . Th e y a l s o i s s u e d & d i sc o u n t e d b i l l s o f e x c h a n g e ( h a n d i e s t ) & b a n k d r a f t . Th e y g a v e l o a n s o n mu t u a l trust, on mo r t g a g e of lands, o r n a me n t s & other

p r o p e r t y. J A G A T S H ET H ( 1 7 2 0 - 1 7 7 3 A D , B E N G AL ) HA B I B & S O NS wh i c h i s n o w H AB I B B A NK ( f o u n d e d i n 1 9 4 1 , n o w i s i n P A KI S T A N) . Th e s e we r e t h e o r g a n i z e d me r c h a n t b a n k e r s i n r e c e n t h i s t o r y o f I N DI A .

Merchant Banking is an activity that includes corporate f i n a n c e a c t i v i t i e s , s u c h a s a d v i c e o n c o mp l e x f i n a n c i n g s , me r g e r a n d a c q u i s i t i o n a d v i c e ( i n t e r n a t i o n a l or d o me s t i c ) , a n d a t t i me s d i r e c t e q u i t y i n v e s t me n t s i n c o r p o r a t i o n s b y t h e b a n ks .

M e r c h a n t b a n k s a r e p r i v a t e f i n a n c i a l i n s t i t u t i o n . T h e i r p r i ma r y s o u r c e s o f i n c o me a r e P I P E f i n a nc i n g s a n d i n t e r n a t i o n a l t r a d e . T h e i r s e c o n d a r y i n c o me s o u r c e s a r e c o n s u l t i n g, M e r g e r s & A c q u i s i t i o n s h e lp a n d f i n a n c i a l ma r k e t s p e c u l a t i o n . B e c a u s e they do not invest against collateral, they take far greater risks than traditional banks. Because they are private, do not take mo n e y f r o m t h e p u b l i c a n d a r e i n t e r n a t i o n a l i n s c o p e , t h e y a r e not regulated. A n y o n e c o n s i d e r i n g d e a l i n g w i th a n y me r c h a n t b a n k s h o u l d i n v e s t i g a t e t h e b a n k a n d i t s ma n a g e r s b e f o r e s e e ki n g t h e i r help.

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r e l a t i o n s h i p wi t h a me r c h a n t ba n k i s t h a t t h e y h a v e mo r e mo n e y t h a n v e n t u r e c a p i t a l i s t s . T h e i r a d v i c e t e n d s t o b e mo r e p r a g ma t i c t h a n v e n t u r e c a p i t a l i s t s . I t i s r a r e f o r a me r c h a n t b a n k t o f a i l . Th e l a s t ma j o r f a i l u r e w a s B a r i n g s B a n k ( 1 9 9 2 ) . I t failed because of unsupervised t r a d i n g o f c op p e r f u t u r e s

c o n t r a c t s a n d b u yb a c k s . Wh e n th e Do t C o m B u b b l e b u r s t i n 2 0 0 1 , s c o r e s o f v e n t u r e c a p i t a l f i r ms f a i l e d . T h e g r e a t e s t me r c h a n t b a n k f a i l u r e i n h i s t o r y w a s t h e Kn i g h t s Te mp l a r . A f t e r t h e C r u s a d e s , t h e Or d e r b e c a me i mme n s e l y w e a l t h y controlling and funding the trade be tween the Middle East and

We s t e r n Eu r o p e . T h e y f o o l i s h l y l o a n e d mo n e y t o t h e F r e n c h G o v e r n me n t . To a v o i d r e p a yi n g t h e mo n e y, Ki n g L o u i e h a d t h e P o p e d e c l a r e t h e O r d e r h e r e t i c s . T h o u s a n d s o f mo n k s l o s t t h e i r lives, but France balanced its budget.

T o u n d e r s t a n d M e r c h a n t B a n k s , yo u s h o u l d k n o w s o me t h i n g o f t h e i r h i s t o r y. M o d e r n me r c h a n t ba n k i n g s t a r t e d i n I t a l y d u r i n g t h e 7 t h C e n t u r y. Th e b a n k i n g p r a c t i c e s e v o l v e d f r o m t h e financing structure of the Silk Road Trading that predates the R o ma n E mp i r e .

T h e b a s i c f i n a nc i n g s t r u c t u r e w a s t h e a d v a n c e p a yme n t f o r g o o d s b y me r c h a n t b a n k e r s a t a g r e a t d i s c o u n t t o t h e d e l i v e r y v a l u e o f t h o s e go o d s . I n t h e c a s e o f I t a l y a n d t h e n Ge r ma n y, w h e a t w a s t h e p r o d u c t . Th e m e r c h a n t b a n k s p u r c h a s e d t h e w h e a t s o o n a f t e r p l a n t i n g . Th e y a c c e p t e d t h e r i s k o f c r o p failure.

T h e y p r o f i t e d wh e n t h e y s o l d t h e wh e a t . I n m o s t c o u n t r i e s t o d a y, the national g o v e r n me n t crop accepts the risk through

g o v e r n me n t

insurance.

A s t h e B r i t i s h Emp i r e e x p a n d e d in t h e 1 8 t h a n d 1 9 t h C e n t u r i e s , me r c h a n t b a n k s p r o s p e r e d i n Lo n d o n . F o r i n s t a n c e , me r c h a n t b a n k e r s f u n d e d C a n a d a s Hu d s on B a y C o mp a n y. Th i s p e r i o d s a w t h e r i s e o f s u c h me r c h a n t b a n k s a s S c h r o d e r s , Wa r b u r g s o r R o t h s c h i l d s . A ms t e r d a m b e n e f i t e d f r o m t h e t r a d e c r e a t e d b y t h e Du t c h Ea s t I n d i a n C o mp a n y. S i n c e t h e 1 8 t h c e n t u r y, t h e

r o l e o f t h e me r c h a n t b a n k e r h a s b e e n c o n s i d e r a b l y b r o a d e n e d t o i n c l u d e a c o mp o s i t e o f mo d e r n d a y s k i l l s . S u c h s k i l l s a r e inherently transactional. T o d a y, No r t h Ame r i c a n me r c h a nt b a n k s h a v e t a k e n t h e f o r m o f " b o u t i q u e s " - wh e r e b y, e a c h o f f e r s i t s o wn s p e c i a l i z e d s e r v i c e s . T h e h a l l ma r k s of t h e s e me r c h a n t b a n k b o u t i q u e s a r e t h a t t h e y t yp i c a l l y c h a r g e f e e s p a ya b l e i n c a s h a n d / o r t h e c l i e n t ' s s t o c k f o r e a c h s e r v i c e r e n d e r e d . Yo u c a n f i n d a me r c h a n t b a n k t h a t me e t s a n y r e a s o na b l e s e t o f n e e d s . e n tr e p r e n e u r i a l , ma n a g e r i a l , financial and

M ercha nt Ba nking in India Post Independence:

I n 1 9 6 7 , R B I i s su e d i t s f i r s t me r c h a n t b a n k i n g l ic e n s e t o g r i n d l a ys s t a r t e d wi t h ma n a g e me n t o f c a p i t a l i s s u e s , p r o d u c t i o n p l a n n i n g , s ys t e m d e s i g n a n d a l s o ma r k e t r e s e a r c h . I t p r o v i d e s ma n a g e me n t c o n s u l t i n g s e r v i c e s a s we l l . C i t i b a n k s e t u p i t s me r c h a n t b a n k i n g d i v i s i o n i n 1 9 70 . i t s s c o p e i n c l u d e s a s s i s t i n g new entrepreneur, evaluating new projects, raising funds

t h r o u g h b o r r o win g a n d i s s u i n g e q u i t y. I n d i a n ba n k s s t a r t e d b a n k i n g s e r v i c e s a s a p a r t o f mu l t i p l e s e r v i c e s t h e y o f f e r e d t o c l i e n t s f r o m 1 9 7 2 . S t a t e b a n k o f I n d i a s t a r t e d t h e me r c h a n t b a n ki n g d i v i s i on i n 1 9 7 2 . I n t h e i n i t i a l ye a r s t h e o b je c t i v e wa s t o r e n d e r c o r p o r a t e a d v i c e a n d a s s i s t a n c e t o s ma l l a n d me d i u m entrepreneurs. Merchant banking activities are

o r g a n i z e d a n d u n d e r t a k e n i n s e v e r a l f o r ms . C o m me r c i a l b a n k s a n d f o r e i g n d e v e l o p me n t f i n a n c e i n s t i t u t i o n s h a v e o r g a n i z e d t h e m t h r o u g h f o r ma t i o n o f d i v i si o n ; n a t i o n a l i z e d b a n k s h a v e f o r me d s u b s i d ia r i e s c o mp a n i e s and share brokers and

c o n s u l t a n c i e s c o n s t i t u t e d t h e ms e l v e s i n t o p u b l i c l t d . C o . o r r e g i s t e r e d t h e ms e l v e s a s p r i v a t e l t d . c o mp a n i e s . S o me o f t h e m h a v e e q u i t y s t a k e o f f o r e i g n me r c h a n t b a n k e r s .

M ain Objectives Of M ercha nt Ba nkers

M e r c h a n t b a n ke r s r e n d e r t h e i r s p e c i a l i z e d a s s i s t a n c e i n a c h i e v i n g t h e ma i n o b j e c t i v e s w h i c h a r e p r e s e n t e d b e l o w : 1. T o c a r r y o n t h e b u s i n e s s o f me r c h a n t b a n k i n g , a s s i s t i n

t h e c a p i t a l f o r ma t i o n , ma n a g e a d v i c e , u n d e r w r i t e , p r o v i d e s t a n d b y a s s i s t a n c e , s e c u r i t i e s a n d a l l k i n d s o f i n v e s t me n t s issued, to be issued or f i r m, guaranteed trust by any c o mp a n y,

corporation,

s o c i e t y,

person,

g o v e r n me n t ,

mu n i c i p a l i t y, c i v i l b o d y, p u b l i c a u t h o r i t y e s t a b l i sh e d i n I n d i a . 2. T h e ma i n o b j e c t o f me r c h a n t b a n k e r i s t o c r e a t e s e c o n d a r y

ma r k e t f o r b i l l s a n d d i s c o u n t o r r e - d i s c o u n t b i l l s a n d a c t s a s a n acceptance house. 3. M e r c h a n t b a n k e r s a n o t h e r o b je c t i v e i s t o s e t u p a n d

provide services for the venture capital technology funds. 4. T h e y a l s o p r o v i de s e r v i c e s t o t h e f i n a n c e h o u s i n g s c h e me s

f o r t h e c o n s t r u c t i o n o f h o u s e s a n d b u yi n g o f l a n d .

5.

They render the services like foreign exchange dea ler,

mo n e y e x c h a n g e , a n d a u t h o r i z e d d e a l e r a n d t o b u y a n d s e l l f o r e i g n e x c h a n g e i n a l l l a w f u l w a ys i n c o mp l i a n c e wi t h t h e r e l e v a n t l a ws o f I n d i a . 6. T h e y wi l l i n v e s t i n b u yi n g a n d s e l l i n g o f t r a n s f e r s , and deal wi t h dispose of shares, stocks,

h yp o t h e c a t e

d e b e n t u r e s , s e c u r i t i e s a n d p r o p e r t i e s o f a n y o t h e r c o mp a n y.

Functions o f a mercha nt banker..

T h e f o l l o wi n g c o mp r i s e t h e ma i n f u n c t i o n s o f a me r c h a n t banker: 1. Ma n a g e me n t o f d e b t a n d e q u i t y o f f e r i n g s : T h i s f o r ms t h e m a i n f u n c t i o n o f t h e me r c h a n t b a n k e r . H e a s s i s t s t h e c o mp a n i e s i n r a i s i n g f u n d s f r o m t h e ma r k e t . The ma i n areas of wo r k in this regard in c l u d e s :

i n s t r u me n t d e s i gn i n g , p r i c i n g t h e i s s u e , r e g i s t r a t i o n o f t h e o f f e r d o c u me n t , u n d e r wr i t i n g s up p o r t , a n d ma r k e t i n g o f the issue, a l l o t me n t and refund, l isting on stock

exchanges. 2. P l a c e me n t a n d d i s t r i b u t i o n : t h e me r c h a n t b a n k e r h e l p s i n d i s t r i b u t i n g v a r i o u s s e c u r i t i e s l i k e e qu i t y s h a r e s ,d e b t i n s t r u me n t , mu t u a l f u n d p r o d u c t , f i x e d d e p o s i t , i n s u r a n c e p r o d u c t s , c o m me r c i a l p a p e r t o n a me a f e w . Th e d i s tr i b u t i o n n e t wo r k o f t h e me r c h a n t b a n k e r c a n b e c l a s s i f i e d a s i n s t i t u t i on a l a n d r e t a i l i n n a t u r e . t h e i n s t i t u t i on a l n e t wo r k c o n s i s t o f mu t u a l f u n d , f o r e i g n i n s t i t u t i o n al i n v e s t o r , p r i v a t e e q u i t y f u n d s , p e n s i o n f u n d , f i n a n c i a l i ns t i t u t i o n e t c . t h e s i z e o f s u c h a n e t wo r k r e p r e s e n t s t h e w h o l e s a l e r e a c h o f t h e me r c h a n t banker. Th e retail n e t wo r k depends on

n e t wo r k i n g wi t h i n v e s t o r s .

3. C o r p o r a t e a d v i so r y s e r v i c e s : M e r c h a n t b a n k e r s o f f e r c u s t o mi z e d s o l u t i o n s t o t h e i r c l i e n t s f i n a n c i a l p r o b l e ms . Th e f o l l o wi n g a r e t h e ma i n a r e a s i n wh i c h t he i r a d v i c e i s s o ug h t . 4. F i n a n c i a l s t r u c t u r i n g : Includes gearing ratio d e t e r mi n i n g for the the debt -equity the ratio and

client:

appropriate

capital

s t r u c t u r e t h e o r y i s a l s o f r a me d . M e r c h a n t b a n k e r a l s o explores the refinancing al ternatives of the client and evaluate cheaper source of fund. Another area of advice is h a b i l i t a t i o n a n d t u r n a r o u n d ma n a g e me n t . I n c a s e o f s i c k u n i t s , me r c h a n t b a n k e r ma y d e s i g n a r e v i v a l p a c k a g e i n c o o r d i n a t i o n wi t h b a n k s a n d f i na n c i a l i n s t i t u t i on . R i s k ma n a g e me n t i s a n o t h e r a r e a wh e r e a d v i c e f r o m a me r c h a n t b a n k e r i s s o u g h t . He a d v i c e t h e c l i e n t o n d i f f e r e n t h e d g i n g s t r a t e g i e s a n d s u g g e s t t h e a p p r o p r i a t e s t r a te g y. 5. P r o j e c t a d v i s o r y s e r v i c e : Merchant banker help their clients in various stage o f p r o je c t u n d e r t a k e n b y t h e c l i e n t s . Th e y a s s i s t t h e m i n c o n c e p t u a l i z i n g t h e p r o je c t i d e a i n t h e i n i t i a l s t a ge . On c e t h e i d e a i s f o r me d , t h e y c o n du c t f e a s i b i l i t y s t u d i e s t o e x a mi n e t h e v i a b i l i t y o f t h e p r op o s e d p r o je c t . Th e y a l s o a s s i s t t h e c l i e n t i n p r e p a r i n g d i f f e r e n t d o c u me n t l i k e t h e d e t a i l p r o je c t r e po r t .

6. L o a n s y n d i c a t i o n : Merchant banker arranges to tie up loans for their c l i e n t s . Th i s t a k e p l a c e i n a s e r i e s o f s t e p . F i r s t l y t h e y a n a l yz e t h e p a t te r n o f t h e c l i e n t s c a s h f l o ws , b a s e d o n w h i c h t h e t e r ms o f b o r r o wi n g c a n b e d e f i n e d . T h e n t h e me r c h a n t b a n k e r p r e p a r e s a d e t a i l e d l o a n me m o r a n d u m, which is c i r c ul a t e to various banks and financial

institution and they are invited to participate in the s yn d i c a t e . Th e b a n k s t h e n n e g o t i a t e t h e t e r ms o f l e n d i n g o n t h e b a s i s o f wi t c h t h e f i n a l a l lo c a t i o n i s d o n e .

Impo rtance and Need o f merchant banking

I mp o r t a n t r e a s o n f o r t h e g r o wt h o f me r c h a n t b a n k i n g h a s b e e n d e v e l o p me n t a l a c t i v i t y t h r o u g h ou t t h e c o u n t r y, e x e r t i n g e x c e s s d e ma n d on the trade, sources thus, of funds a for ever expanding gap under

industry and

leaving

wi d e n i n g

b r i d g e d b e t w e e n t h e s u p p l y a n d d e ma n d o f i n ve n t i b l e f u n d s . A l l I n d i a n f i n a n c i a l i n s t i t u t i o ns a n d e x p e r i e n c e d r e s o u r c e s c o n s t r a i n t t o me e t t h e e v e r i n c r e a s i n g d e ma n d s f o r f u n d s f r o m t h e c o r p o r a t e s e c t o r e n t e r p r i s e s . I n t h e c i r c u ms t a n c e s c o r p o r a t e s e c t o r h a d t h e o n l y a l t e r n a t i v e t o a v a i l o f t h e c a p i t a l ma r k e t s e r v i c e s f o r me e t i n g t h e i r l o n g - t e r m f i n a n c i a l r e q u i r e me n t s t h r o u g h c a p i t a l i s s u e s o f e q u it y a n d d e b e n t u r e s . Wi t h t h e g r o wi n g d e ma n d f o r f u n d s t h e r e wa s p r e s s u r e o n c a p i t a l ma r k e t that enthused the c o mme r c i a l banks, share brokers and

f i n a n c i a l c o n s u l ta n t f i r ms t o e n t e r i n t o t h e f i e l d o f me r c h a n t b a n k i n g a n d s h a r e t h e g r o wi n g c a p i t a l ma r k e t s . Wi t h t h e r e s u l t , a l l t h e c o mme r c i a l b a n k s i n n a t io n a l i z e d a n d p ub l i c s e c t o r a s w e l l a s i n p r i v a te s e c t o r i n c l u d i ng t h e f o r e i g n b a n k s i n I n d i a have opened their me r c h a n t banking wi n do ws and are

c o mp e t i n g i n t h i s f i e l d . Th e r e h a s b e e n a mu s h r o o m g r o wt h o f f i n a n c i a l c o n s u l t a n c y f i r ms a n d b r o k e r f i r ms d o i n g a d v i s o r y f u n c t i o n s a s w e l l a s ma n a g i n g p ub l i c i s s u e s i n s yn d i c a t i o n wi t h o t h e r me r c h a n t ba n k e r s . N o t wi t h s t a n d i n g t h e a b o v e f a c t s , t h e n e e d o f me r c h a n t b a n k i n g i n s t i t u t i o n s i s f e l t i n t h e wa k e o f h u g e p u b l i c s a v i n g s l yi n g s t i l l u n t a p p e d . M e r c h a n t b a n k s c a n p l a y h i g h l y s i gn i f i c a n t r o l e i n mo b i l i z i n g f u n d s o f s a v e r s t o i n v e s t i b l e c h a nn e l s a s s u r i n g

p r o mi s i n g r e t u r n o n i n v e s t me n t s a n d t h u s c a n h e l p i n me e t i n g the wi d e n i n g de ma n d for investible funds for e c o n o mi c

a c t i v i t y.

Wi t h t h e g r o wt h o f me r c h a n t b a n k i n g p r o f e s s i o n c o r p o r a t e e n t e r p r i s e s i n b o t h p u b l i c a n d p r i v a t e s e c t o r s wo u l d b e a b l e t o r a i s e r e q u i r e d a mo u n t o f f u n ds a n n u a l l y f r om t h e c a p i t a l ma r k e t to me e t the new g r o wi n g r e q u i r e me n t s enterprises, of for funds for

establishing

undertaking the existing

e x p a n s i o n / mo d e r n i z a t i o n / d i v e r s i f i c a t i o n

e n t e r p r i s e s . Th i s r e i n f o r c e s t h e ne e d f o r a v i g o r o u s r o l e t o b e p l a ye d b y me r c h a n t b a n k s . M e r c h a n t b a n ks h a v e b e e n p r o c u r i n g i mp r e s s i v e s u p p o r t f r o m c a p i t a l ma r ke t f o r t h e c o r p o r a t e s e c t o r f o r f i n a n c i n g t h e i r p r o j e c t s . T h i s i s e v i d e n c e d f r o m t h e i n c r e a s i n g a mo u n t r a i s e d f o r m t h e c a p i t a l ma r k e t b y t h e c o r p o r a t e e n t e r p r i s e s ye a r a f t e r ye a r . I n v i e w o f mu l t i t u d e o f e n a c t me n t s , r u l e s a n d r e g u l a t i o n s , guidelines and offshoot press release instr uctions brought out b y t h e g o v e r n me n t f r o m t i me t o t i me i mp o s i n g s t a t u t o r y o b l i g a t i o n s u p o n t h e c o r p o r a t e s e c t o r t o c o mp l y w i t h a l l t h o s e r e q u i r e me n t s p r e s c r i b e d t h e r e i n , t h e n e e d o f s k i l l e d a g e n c y e x i s t e d wh i c h c o u l d p r o v i d e c o u n s e l i n g i n t h e s e ma t t e r s i n a p a c k a g e f o r m. M e r c h a n t b a n k e r s , wi t h t h e i r s k i l l s , u p d a t e d i n f o r ma t i o n and k n o wl e d g e , provide this service to the

c o r p o r a t e u n i t s a n d a d v i s e t h e m o n s u c h r e q u i r e me n t s t o b e c o mp l i e d wi t h f o r r a i s i n g f u n d s f r o m t h e c a p i t a l ma r k e t u n d e r d i f f e r e n t e n a c t me n t s v i z . C o mp a n i e s Ac t , I n c o me - t a x A c t ,

Foreign

Ex c h a n g e Ac t

Regulation and various

Act, other

Securities corporate

Contracts l a ws and

(Regulation)

regulations. Merchant bankers advise the investors of the i n c e n t i v e s a v a i l a b l e i n t h e f o r m o f t a x r e l i e f s , o t h e r s t a t u t o r y r e l a x a t i o n s , g o o d r e t u r n o n i n v e s t me n t a n d c a p i t a l a p p r e c i a t i o n i n s u c h i n v e s t me n t t o mo t i v a t e t he m t o i n v e s t t h e i r s a v i n g s i n securities of the corporate sector.

Scope for merchant banking in India : S c o p e f o r me r c h a n t b a n ki n g d e p e n d s u p o n s i z e o f t h e ma r ke t , r e s t r i c t i o n - l i b e r a t i o n , b a n ki n g p o l i c i e s , c o r p o r a t e c u l t u r e , a n d c o r p o r a t e d y n a mi c s .

1 . S i z e a n d d y n a mi c s o f t h e ma r ke t : I n d i a n ma r k e t i s g r o wi n g . I n f a c t I n d i a i s o n e o f t h e l a r g e s t e me r g i n g ma r k e t s . Ob v i o u s l y, p u b l i c i s s u e s , F DI , d e b t r a i s i n g a r e o n r i s e . Lo t s o f n e w a n d g r e e n f r i e d p r o je c t s a r e h a p p e n i n g . Merchant bankers have lots space to contribute.

2 . R e s t r i c t i o n s - l i b e r a l i z a t i o n : mo r e l i b e r a l t h e ma r k e t i s , mo r e t h e t h i n g s l e f t t o b e d e c i d e d b y t h e c or p o r a t e . M e r c h a n t b a n k e r s a s s i s t i n d e c i s i o n ma k i n g a n d h e n c e t h e i r s c o p e i n c r e a s e s . Wi t h s i g n i f i c a n t ma r k e t f r e e d o m, me r c h a n t b a n k e r s wo r k h a s i n c r e a s e d ma n y f o l d s .

3 . B a n ki n g p o l i c i e s : R B I p r e f e r s th a t c o mme r c i a l b a n k s d o n o t i n d u l g e i n me r c h a n t b a n k i n g b u s i n e s s d i r e c t l y. Th e y s h o u l d s e t u p a s u b s i d i a r y f o r t h e p u r p o s e . Th i s l i mi t s s c o p e o f c o m me r c i a l b a n k s a n d g i v e s s p a c e t o me r c h a n t bankers. Th i s policy also results in fair business

p r a c t i c e s . S o me c o u n t r i e s a l l o w c o mme r c i a l b a n k e r s t o g e t i n v o l v e d i n I P O s , p l a c e me n t o f d e b e n t u r e s , e t c . I n d i a n s c e n a r i o i s f a v o r a b l e t o me r c h a n t b a n k e r s .

4. Corporate culture: corporate can do project appraisal, s t r a t e g i c r e s t r u c tu r i n g i n h o u s e a s we l l . I f t h e c o r p o r a t e p r e f e r t h i r d - p a r ty i n d e p e n d e n t a s s e s s me n t , t h e n o n l y t h e y will engage me r c h a n t bankers. Ot h e r wi s e me r c h a n t b a n k e r s r o l e i s o n l y s t a t u t o r y a s i n i s s u e ma n a g e me n t . I n d i a i n c . a p p a r e n t l y p r e f e r s a n d i s h a p p y wi t h me r c h a n t b a n k e r s wo r k .

5 . C o r p o r a t e d y n a mi c s : mo r e h a p pe n i n g i n b u s i n e s s g i v e s mo r e o p p o r t u n it i e s acquisition, to me r c h a n t bankers. Mergers, fund

takeover

new

Greenfield

p r o je c t s ,

r a i s i n g f o r g o v e r n me n t i n s t i t u t i on s , a c t i v e mo n e y ma r k e t a r e a l l p r o v i d i n g b e t t e r b u s i n e ss p r o s p e c t u s t o me r c h a n t bankers.

6 . G r ow t h o f Pr i ma r y ma r ke t : I f t h e p r i ma r y ma r k e t g r o ws a n d n u mb e r o f i ss u e s i n c r e a s e s , t h e s c o p e o f me r c h a n t b a n k i n g wi l l b e e n h a n c e d .

7 . E n t r y o f Fo r e i g n I n v e s t o r s : No w I n d i a c a p i t a l ma r k e t d i r e c t l y t a p s f o r e i g n c a p i t a l t h r o u g h e u r o i s s u e s .F D I i s i n c r e a s e d i n c a p it a l ma r k e t . S o M e r c h a n t b a n k e r s a r e r e q u i r e d t o a d v i c e t h e m f o r t h e i r i n v e s t me n t i n I n di a . Th e i n c r e a s i n g n u mb e r o f jo i n t v e n t u r e s a l s o r e q u i r e s e x p e r t s e r v i c e s o f M e r c h a n t B a n k e r s . I f mo r e a n d mo r e NR I s p a r t i c i p a t e i n c a p i t a l ma r k e t , t h e r e wi l l b e g r e a t de ma n d f o r me r c h a n t b a n k e r s e r v i c e s .

8 . C h a n g i n g p o l i c y o f Fi n a n c i a l I n s t i t u t i o n s : No w t h e lending policies of financial institutions are based on p r o je c t o r i e n t a t io n , S o t h e me r c h a n t b a n k e r s e r v i c e s wi l l be needed by corporate enterprise t o provide expert guidance.

9 . D e v e l o p me n t o f d e b t ma r ke t s : I f t h e d e b t ma r k e t i s e n h a n c e d , t h e r e w i l l b e t r e me n d o u s s c o p e f o r M e r c h a n t b a n k e r s . No w N S E a n d O TC EI a r e p l a n n e d t o r a i s e t h e i r f u n d t h r o u g h d e b t i n s t r u me n t s .

REGISTRATION PROCESS OF M ERCHANT BANKI NG

M ER C H A N T B AN K E R wi t h o u t h o l d i n g a c e r t i f i c a t e o f r e g i s t r a t i o n g r a n t e d b y t h e S e c u r i t i e s a n d Ex c h a n g e B o a r d o f I n d i a c a n n o t a c t a s a me r c h a n t b a n k e r . S EB I wi l l g r a n t c e r t i f i c a t e t o M e r c h a n t b a n k e r i f i t f o l l o ws t h e f o l l o w i n g c o n d i t i o n : -

Merchant banker should be a body corporate and should not b e n o n b a n k i n g f i n a n c e c o mp a n y T h e y mu s t h a v e a n e c e s s a r y i n f r a s t r u c t u r e f o r ma i n t a i n i n g a n office

T h e y mu s t h a v e e mp l o ye d a mi n i mu m o f 2 p e r s o n s wi t h e x p e r i e n c e i n me r c h a n t b a n k i n g b u s i n e s s .

T h e y s h o u l d n o t b e c o n n e c t e d wi t h a n y c o mp a n y d i r e c t l y o r i n d i r e c t l y.

P r o c e d u r e f o r ge t t i n g r e g i s t r a t i o n

An application should be submitted to SEBI in Form A of the SEBI (Merchant Bankers) Regulations, 1992.

SEBI shall consider the application and on being satisfied issue a certificate of registration in Form B of the SEBI (Merchant Bankers) Regulations, 1992

Rs. 5 lakhs should be paid within 15 days of date of receipt of intimation regarding grant of certificate

t he certificate is valid only for a period of 3 years

Three months before the expiry period, an application should be submitted to SEBI in Form A of the SEBI (Merchant Bankers) Regulations, 1992. SEBI shall consider the application and on being satisfied renew certificate of registration for a further period of 3 years.

Failing to pay registration fees

Rs. 2.5 lakhs which should be paid within 15 days of date of receipt of intimation regarding renewal of certificate.

Cancellation of certificate

 C A PI T A L S T R UC T U RE D E CI S I O N: Th e c a p i t a l r e q u i r e me n t d e p e n d s u p o n t h e c a t e g o r y. Th e mi n i mu m n e t wo r t h r e q u i r e me n t f o r a c t i n g a s me r c h a n t b a n k e r i s g i v e n b e l o w: Category I Rs. 5 crores Category II Rs, 50 lakhs Category III Rs. 20 lakhs C a t e g o r y I V Ni l

T h e c a t e g o r i e s f o r wh i c h r e g i s t r a t i o n ma y b e g r a n t e d a r e g i v e n below C a t e g o r y I t o c a r r y o n t h e a c t i v i t y o f i s s u e ma n a g e me n t and to act as adviser, u n d e r wr i t e r , p o r t f o l i o ma n a g e r . C a t e g o r y I I - t o a c t a s a d v i s e r , c o n s u l t a n t , c o - ma n a g e r , u n d e r wr i t e r , p o r t f o l i o ma n a g e r . C a t e g o r y I I I - t o a c t a s u n d e r wr i t e r , a d v i s e r o r c o n s u l t a n t to an issue Category IV to act only as adviser or consultant to an issue c o n s u l t a n t , ma n a g e r ,

Obliga tio ns a nd respo nsibilities

Code of conduct:-

Ev e r y me r c h a n t b a n k e r h a s t o a b i d e b y t h e c o d e o f c o n d u c t a s s p e c i f i e d b e l o w . A me r c h a n t b a n k e r i n t h e conduct of his business has to observe standards of integrity a n d f a i r n e s s o f a l l h i s d e a l i n g s wi t h t h e c l i e n t s a n d o t h e r me r c h a n t b a n k e r s . He o u g h t t o r e n d e r a t a l l t i me s h i g h standards of service, exercise due diligence, ensure proper care a n d e x e r c i s e i n d e p e n d e n t p r o f e s s i o n a l ju d g me n t . H e h a s t o , wherever n e c e s s a r y, disclose to his clients, the possible

s o u r c e s o f c o n f l i c t o f d u t i e s a n d i n t e r e s t , wh i l e p r o v i d i n g s e r v i c e s . He c a n n o t ma d e a n y s t a t e me n t o r b e c o me p r i v y t o a n y a c t , p r a c t i c e u n f a i r c o mp e t i t i o n , w h i c h i s l i k e l y t o b e h a r mf u l t o i n t e r e s t o f o t he r me r c h a n t b a n k e r s o r i s l i k e l y t o p l a c e s u c h o t h e r me r c h a n t b a n k e r i n a d i s a d va n t a g e o u s p o s i t i o n i n r e l a t i o n t o h i m, wh i l e c o mp e t i n g f o r , o r e x e c u t i n g , a n y a s s i g n me n t . He s h o u l d n o t ma k e a n y e x a g g e r a t e d s t a t e me n t , wh e t h e r o r a l o r written, to the client either about his qualification or his c a p a b i l i t y t o o th e r c l i e n t s . A me r c h a n t b a n k e r a l wa ys t o endeavors to: 1) Render the best possible advice to the clients regarding c l i e n t s t h e n e e d s a n d r e q u i r e me n t s , a n d h i s o wn p r o f e s s i o n a l skill; and 2) Ensure that all professional dealing are affected in

p r o mp t , e f f i c i e n t a n d c o s t e f f e c t i v e ma n n e r

 He should not:1) Divulge to other clients, press or any other party any

o t h e r p a r t y c o n f i d e n t i a l i n f o r ma t i o n a b o u t h i s c l i e n t , wh i c h h a s c o me t o h i s k n o wl e d g e ; a n d

2)

D e a l i n t h e s e c u r i t i e s o f a n y c l i e n t c o mp a n y wi t h o u t

ma k i n g d i s c l o s ur e t o t h e S EB I a s p e r t h e r e g u la t i o n s a n d a l s o t h e B o a r d o f Di r e c t o r s o f t h e c l i e n t c o mp a n y.

He should endeavor to ensure that: 1) The investors are provided wi t h t r u e a n d a d e q u a t e

i n f o r ma t i o n wi t h o u t ma k i n g a n y mi s g u i d e d o r e x a g g e r a t e d c l a i ms , a n d a r e ma d e a wa r e o f a t t e n d a n t r i s k s b e f o r e a n y i n v e s t me n t d e c i s i o n i s t a k e n b y t h e m;

2 ) T h e c o p i e s o f p r o s p e c t u s , me mo r a n d u m a n d r e l a t e d l i t e r a t u r e a r e ma d e a v a i l a b l e t o t h e i n v e s t o r s

3 ) A d e q u a t e s t e p s a r e t a k e n f o r t h e f a i r a l l o t me n t o f s e c u r i t i e s a n d r e f u n d o f a p p l i c a t i o n mo n e y wi t h o u t d e l a y; and A me r c h a n t b a n k e r s h o u l d n o t g e n e r a l l y a n d p a r t i c u l a r l y i n respect of the issue of any securities be part to a ) C r e a t i o n o f f a l s e ma r k e t ; b ) P r i c e r i g g i n g o r ma n i p u l a t i o n s; a n d c ) P a s s i n g o f p r i c e s e n s i t i v e i n f o r ma t i o n t o b r o k e r s , me mb e r s o f s t o c k e x c h a n g e s a n d o t h e r p l a ye r s i n t h e c a p i t a l

ma r k e t o r t a k e a n y o t h e r a c t i o n w h i c h i s u n e t h i c a l o r u n f a i r to the investors. F i n a l l y, h e h a s t o a v o i d b y t h e p r o v i s i o n s o f t h e S E B I Ac t , i t s r u l e s a n d r e g u l a t i o n s wh ic h ma y b e applicable and relevant to the activities carried on by the me r c h a n t b a n k e r .

Restriction on Business:-

No me r c h a n t b a n k e r , o t h e r t h a n a b a n k / p u b l i c f i n a n c i a l i n s t i t u ti o n ( P F I ) i s p e r mi t t e d t o c a r r yo n b u s i n e s s o t h e r t h a n t h a t ju s t i n t h e s e c u r i t i e s ma r k e t wi t h e f f e c t f r o m D e c e mb e r 9 , 1 9 9 7 . H o w e v e r , a me r c h a n t b a n k e r wh o i s r e g i s t e r e d wi t h R B I a s a P r i ma r y D e a l e r / S a t e l l i t e De a l e r ma y c a r r y o n s u c h b u s i n e s s a s ma y b e p e r mi t t e d b y R B I wi t h e f f e c t f r o m N o v e mb e r 1 9 9 9 .

M a x im um N um be r o f L e a d M a n ag e r s : -

Th e ma x i mu m n u mb e r of l e a d ma n a g e r i s r e l a t e d t o t h e s i z e o f t he i s s u e . F o r a n i s s u e o f s i z e l e s s t h a n R s .5 0 c r o r e , t wo ma n a g e r s a r e a p p o i n te d . F o r s i z e g r o u p s o f R s .5 0 c r o r e t o R s .1 0 0 c r o r e a n d R s .1 0 0 c o r e r t o R s .2 0 0 c r o r e , t h e ma x i mu m p e r mi s s i b l e lead ma n a g e r s are three and four

r e s p e c t i v e l y. A c o mp a n y c a n a p p o i n t f i v e a n d f i v e o r mo r e ( a s a p p r o v e d b y t h e S EB I ) l e a d ma n a g e r s i n c a s e o f i s s u e s b e t we e n R s .2 0 0 c o r e r a n d a b o v e R s .4 0 0 c r o r e r e s p e c t i v e l y.

Responsibilities of Merchant Banker: -

Ev e r y

lead

ma n a g e r

has

to

enter

into

an

a g r e e me n t wi t h t h e i s s u i n g c o mp a n i e s s e t t i n g o u t t h e i r mu t u a l r i g h t s , l i a b i l i t i e s , a n d o b l i g a t io n r e l a t i n g t o i s s u e a n d i n p a r t i c u l a r t o d i s c l o s u r e s , a l l o t me n t a n d r e f u n d . A s t a t e me n t s p e c i f yi n g t h e s e i s t o b e f u r n i s h e d t o S EB I a t l e a s t o n e mo n t h before the opening of the issue for subsc ription. In case of mo r e t h a n o n e - l e a d ma n a g e r / M e r c h a n t b a n k e r , t h e s t a t e me n t o f h a s t o p r o v i d e d e t a i l s a b o u t t h e i r r e s p e c t i v e r e s p on s i b i l i t i e s . A l e a d me r c h a n t b a n k e r c a n n o t ma n a g e a n i s s u e i f t h e i s s u i n g c o mp a n y i s i t s a s s o c i a t e . He c a n a l s o n o t a s s o c i a t e wi t h a me r c h a n t b a n k e r w h o d o e s n o t h o l d a c e r t i f i c a t e o f r e g i s t r a t i o n w i t h t h e S EB I . I t i s n e c e s s a r y f o r a l e a d ma n a g e r t o a c c e p t a mi n i mu m underwriting o b l i g a t io n of 5% of the total

u n d e r wr i t i n g c o m mi t me n t o r R s .2 5 l a k h wh i c h e v e r i s l e s s . I f h e i s u n a b l e t o d o s o , h e h a s t o ma k e a r r a n g e me n t s f o r a n u n d e r wr i t i n g o f a n , e q u a l a mo u n t b y a me r c h a n t b a n k e r

a s s o c i a t e d wi t h t h a t i s s u e u n d e r i n t i ma t i o n t o S EB I .

D u e Di l i g e n c e c e r t i f i c a t e : -

Th e

lead

ma n a g e r

is

responsible

far

the

verification of the content of a prospectus/letter of offer in r e s p e c t o f a n i s s u e a n d t h e r e a s o n a b l e n e s s o f t h e v i e ws e x p r e s s e d i n t h e m. H e h a s t o s ub mi t t o t h e S E B I a t l e a s t t wo w e e k s b e f o r e t h e o p e n i n g o f t h e i s s u e f a r s u b s cr i p t i o n a d u e diligence certificate to the eff ect that

a)

T h e p r o s p e c t u s / l e t t e r o f a f t e r i s i n c o n f o r mi t y w i t h t h e

d o c u me n t s / ma t e r i a l s a n d p a p e r s r e l e v a n t t o t h e i s s u e , b) A l l l e g a l r e q u i r e me n t s c o n n e c t e d wi t h t h e i s s u e h a v e

b e e n f u l l y c o mp l i e d wi t h , a n d c) The disclosure is true, fair and adequate to enable the to ma k e a we l l - i n f o r me d decision as to the

investors

i n v e s t me n t i n t h e p r o p o s e d i s s u e .

S u bm i s s io n o f Do c um e n t s : -

Th e l e a d ma n a g e r s ( s ) t o a n i s s u e h a s ( h a v e ) t o . S u b mi t a t l e a s t t wo we e k s b e f o r e t h e d a t e o f f i li n g wi t h t h e registrar of c o mp a n i e s / r e g i o n a l stock exchange or both

particulars of the issue, draft prospectus/letter of offer, other literature to be circulated to the investors/shareholders, and so an to the SEBI. Th e y ma d e have by it to ensure that to the the

mo d i f i c a t i o n s / s ug g e s t i o n

wi t h

r e sp e c t

i n f o r ma t i o n t o b e g i v e n t o t h e i n v e s t o r s i s d u l y i n c o r p o r a t e d . T h e d r a f t p r o s p e c t u s / d r a f t l e t t e r o f o f f e r s h o u l d b e s u b mi t t e d t o t h e S E B I a l o n g wi t h t h e p r e s c r i b e d f e e s p e c i f i e d b e l o w: -

Issue size including p r e mi u m a n d i n t e n d e d retention oversubscription U p t o R s .5 c r o r e R s 1 0 ,0 0 0 F e e p e r d o c u me n t

Rs 5 crore- Rs 10 crore

R s 1 5 ,0 0 0

Rs 50 crore- Rs 50 corer

R s 2 5 ,0 0 0

Rs 10 crore- Rs 100 corer

R s 5 0 ,0 0 0

Rs 100 crore- Rs 500 corer

R s 2 ,5 0 ,0 0 0

More than Rs 500 corer

R s 5 ,0 0 ,0 0 0

Th e y h a v e t o c o n t i n u e t o b e a s s o c i a t e d w i t h t h e i s s u e t i l l t h e s ub s c r i b e r s h a v e r e c e i v e d t h e s h a r e d e b e n t u r e s c e r t i f i c a t e o r t h e r e f u n d o f e x c e s s a p p l i c a t i o n mo n e y.

Ac q u i s i t i o n o f s h a r e s a me r c h a n t b a n k e r i s p r o h i b i t e d f r o m a c q u i r i n g s e c u r i t i e s o f a n y c o mp a n y o n t h e basis o f u n p u bl i s h e d p r i c e s e n s i t i v e i n f o r ma t i o n o b t a i n e d

d u r i n g t h e c o u r s e o f a n y p r o f e s s i o n a l a s s i g n me n t e i t h e r f r o m t h e c l i e n t o r o th e r wi s e . He h a s t o s u b mi t t o t h e S EB I t h e c o mp l e t e p a r t i c u l a r s o f a n y a c q u i s i t i o n o f s e c u r i t i e s o f a

c o mp a n y wh o s e i s s u e i s b e i n g ma n a g e d b y h i m wi t h i n 1 5 d a ys from the date of the transaction.

Disclosures to SEBI:-

As a n d w h e n r e q u i r e d , a me r c h a n t b a n k e r h a s t o disclose to the SEBI: I) H i s r e s p o n s i b i l i ti e s wi t h r e g a r d t o t h e ma n a g e me n t of the issue, II) Any changes in the i n f or ma t i o n / p a r t i c u l a r s

p r e v i o u s l y f u r n i s h e d wh i c h h a v e a b e a r i n g a n d t he certificate of registrations granted to it. I I I ) T h e n a me s o f t h e c o mp a n i e s who s e i s s u e s h e h a s ma n a g e d o r h a s b e e n a s s o c i a t e d wi t h , I V) T h e particulars relating to br e a c h of capital

a d e q u a c y r e q u i r e me n t s a n d V) I n f o r ma t i o n r e l a t i n g t o h i s a c t i vi t i e s a s ma n a g e r , u n d e r wr i t e r , c o n s u l t a n t o r a d v i s e r t o a n i s s u e .

Qua lities o f a Go od M ercha nt Ba nker

M e r c h a n t B a n k e r s a r e i nd i v i d u a l s e x p e r t s wh o o r g a n i z e a n d ma n a g e t h e me r c h a n t b a n k s . Th e o p e r a t i o n o f a me r c h a n t b a n k i s i n f l u e n c e d b y t h e p e r s o n a l i t y, t r a i t s o f i t s me r c h a n t b a n k e r s . Th e i r q u a l i t i e s a r e :

1) Leadership:I n o r d e r t o i n t e r a c t wi t h t h e i r c l i e n t s a n d c o m mu n i c a t e e f f e c t i v e l y me r c h a n t b a n k e r s s h ou l d p o s s e s s a l l r e l e v a n t s k i l l s a n d u p d a t e k n o wl e d g e .

2) Aggressive action:M e r c h a n t b a n k e r s a l wa ys l o o k i n g f o r n e w b u s i n e s s o p p o r t u n i t i e s . On l o c a t i n g a b u s in e s s o p p o r t u n i t y a n d a f t e r o b t a i n i n g t h e a s s i g n me n t f r o m t h e c l i e n t s , a me r c h a n t b a n k e r h a s t o b e p r o mp t i n g r a s p i n g t h e c l i e n t s p r o b l e ms a n d t o p r o v i d e a b e t t e r c h o i c e a mo n g s t a l t e r n a t i v e s o l u t i on s . A g o o d me r c h a n t b a n k e r i s o n e wh o d o e s n o t a l l o w h i s c l i e n t s t o t h i n k a n yt h i n g o u t s i d e e x c e p t wh a t h a s b e e n a d v i s e d a n d t h u s holding the clients interest for the present as well as for the future.

3 ) C o - o p e r a t i o n a n d Fr i e n d l i n e s s : C o - o p e r a t i o n a n d f r i e n d l i n e s s c o u p l e d wi t h p e r s u a s i v e n e s s mu s t f l o w a s n a t u r a l t r a i t s i n t h e me r c h a n t b a n k e r i n o r d e r t o w i n o v e r t h e t r u s t o f t h e i r c l i e n t s j u s t l i k e a d o c t o r o r a l a w ye r w h o r e t a i n s t h e i r c l i e n t s p e r ma n e n t l y. A g o o d me r c h a n t b a n k e r

h a s t o s h a r e t h e t h o u g h t s o f h i s c l i e n t s wi t h s ymp a t h e t i c g e s t u r e s a n d o f f e r s u g g e s t i o n s wi t h o u t a n y g r e e d o r f a v o r s .

4) Contacts:A me r c h a n t b a n k i n g b u s i n e s s ma i n l y d e p e n d s u p o n t h e s o c i a b l e n a t u r e a n d wi d e r c o n t a c t s . Th e s c o p e o f c o n t a c t o f a me r c h a n t banker covers: a . H i s o wn o r g a n i z a t i o n b . C e n t r a l a n d S t a t e Go v e r n me n t O f f i c e s ( c ) B a n k s , c . F i n a n c i a l I n s t i t u ti o n s , d . P r o mo t e r s / Di r e c t o r s / O wn e r s / C h i e f Ex e c u t i v e s o f t h e public and private e. enterprises, f. (e) Printers, g . ( f ) Ad v e r t i s i n g Ag e n c i e s , h . ( g ) B r o k e r s a n d S t o c k Ex c h a n g e D e a l e r s , i . ( h ) Ad v o c a t e s a n d S o l i c i t o r s M e mb e r s o f t h e p r e s s , e t c . j . M e r c h a n t b a n k e r s h a v e t o wi d e n t h e c o n t a c t s a n d c o n t i n u e t o ma i n t a i n t h e m b y me e t i n g p e o p l e i n p e r s o n a l , i n s p e c i a l g a t h e r i n g s a n d t h r o u g h w r i t i ng t o t h e m.

5 ) A t t i t u d e t ow a r d s p r o b l e m s o l v i n g : A g o o d q u a l i t y o f a me r c h a n t b a n k e r i s t o b e s k i l le d i n h u ma n r e l a t i o n s p a r t i c u la r l y i n t h e i n t e r - p e r s o n a l b e h a v io r . A

me r c h a n t b a n k e r s h o u l d h a v e a p os i t i v e a p p r o a c h t o u n d e r s t a n d t h e d i f f i c u l t i e s , a d v e r s e c i r c u ms t a n c e s a n d t h e v i e w p o i n t s o f

o t h e r s . E f f e c t i v e c o mmu n i c a t i o n a n d p r o p e r f e e d ba c k a r e t h e p r e - r e q u i s i t e s f o r c r e a t i n g a p o s i t i v e a t t i t u d e t o wa r d s p r o b l e m solving which could be gained partly through the learning process and partly as an inborn personality trait.

6 ) I n q u i s i t i v e n e s s f o r a c q u i r i n g n e w s ki l l s , i n f o r ma t i o n a n d kn o w l e d g e : M e r c h a n t b a n k e r s s u r v i v e b y p r o vi d i n g t h e i n f o r ma t i o n required by their needy clients. Therefore they must keep t h e ms e l v e s u p d a t e d wi t h t h e l a t e s t i n f o r ma t i o n i n t h e a r e a o f t h e s e r v i c e p r o d u c t wh i c h t h e y ma r k e t .

7 ) K n ow l e d g e : T h o r o u g h u n d e r s t a n d i n g o f t e c h n ic a l i s s u e s r e l a t e d t o b u s i n e s s , u n d e r s t a n d i n g o f l e g a l a n d s t a t u t o r y r e q u i r e me n t s , a p p r e c i a t i o n o f b u s i n e s s a c u me n ; f i n a n c i a l e x p e r t i s e i s a k e y t h i n g a me r c h a n t b a n k e r mu s t k n o w . De l i v e r y o f h i s s e r v i c e s depends on his basic understanding of these issues.

8 ) C a p i t a l ma r ke t f a mi l i a r i t y : M e r c h a n t b a n k e r s h o u l d b e w e l l v e r s e d wi t h s t o c k ma r k e t s , t h e i r mo v e me n t s . H e s h o u l d t r a c k i mp h a p p e n i n g s i n t h e ma r k e t o n o n g o i ng b a s i s .

9) Liasioning ability: M e r c h a n t b a n k e r s a r e r e q u i r e d t o l i a i s o n wi t h S EB I , R B I , t h e s t o c k e x c h a n g e s , d e p o s i t o r i e s a n d o t h e r g o v e r n me n t a u t h o r i t i e s f o r p u b l i c i s s u e r e l a t e d d u t i e s . I t i s i mp e r a t i v e

t h a t a me r c h a n t b a n k ma i n t a i n s e x c e l l e n t r a p p o r t wi t h a l l o f t h e m a n d a l s o c lo s e r e l a t i o n s e v e n a t i n f o r ma l l e v e l s . Th i s only can see speedy and favorable cle arances by the authorities.

10)

Innovation:

C o r p o r a t e ma y a p p r o a c h wi t h u n i q u e r e q u i r e me n t s . S t a n d a r d s o l u t i o n s a n d p r o d u c t s ma y n o t s o l v e p r o b l e ms s ome t i me s . Merchant bankers should do out of box thinking and be able t o d o f i n a n c i a l e n g i n e e r i n g . Th e y c a n d e v i c e n e w f i n a n c i a l i n s t r u me n t s a n d g e t a p p r o v e d f r o m t h e a u t h o r i t i e s . I n n o v a t i o n i s r e q u i r e d e v e n t o a d dr e s s s t r i n g e n t l e g a l r e q u i r e me n t s .

11)

Integrity:

M e r c h a n t b a n k e r h a s v a l u a b l e a n d c o n f i d e n t i a l i n f o r ma t i o n o f i t s c u s t o me r s . M e r c h a n t s b a n k e r s s h o u l d t a k e u t mo s t c a r e t h a t t h e i n f o r ma t i o n i s n o t l e a k e d a n d a l s o n o t c o n su me d f o r t h e p u r p o s e o t h e r t h a n f o r wh i c h i t w a s d i s c l o s e d t o t h e me r c h a n t b a n k e r .

SERVICES PROVIDED BY M ERCHANT BANKS: (in deta il)

T h e d e v e l o p me n t a c t i v i t y t h r o u g h t h e c o u n t r y h a d e x e r t e d e x c e s s d e ma n d o n t h e s o u r c e s o f f u n d s b y t h e e ve r e x p a n d i n g i n d u s t r y a n d t r a d e wh i c h c o u l d n o t b e me t b y t h e Al l I n d i a F i n a n c i a l I n s t i t u t i o n s . I n t h e s e c i r c u ms t a n c e s , t h e c o r p o r a t e s e c t o r e n t e r p r i s e s h a d t h e o n l y a l t e r n a t i v e t o a v a i l t h e ms e l v e s o f t h e c a p i t a l m a r k e t s e r v i c e s f o r me e t i n g t h e l on g - t e r m f u n d r e q u i r e me n t s t h r o u g h c a p i t a l i s su e s o f e q u i t y a n d d e b e n t u r e s . The g r o wi n g d e ma n d for funds from capital ma r k e t has

e n t h u s e d ma n y o r g a n i z a t i o n s t o e n t e r i n t o t h e f i e l d o f me r c h a n t b a n k i n g f o r ma n a g i n g t h e p u b l i c i s s u e s . T h e n e e d o f me r c h a n t b a n k e r i s a l s o f e l t i n t h e w a k e o f h u g e u n t a p p e d p u b l i c s a v i n g s a s me r c h a n t b a n k e r s c a n p l a y a h i g h l y s i g n i f i c a n t r o l e i n mo b i l i z i n g f u n d s f r o m s a v e r s t o i n v e s t i n c h a n n e l s a s s u r i n g p r o mi s i n g r e t u r n o n i n v e s t me n t s a n d t h u s n a r r o w d o wn t h e g a p b e t we e n d e ma n d f o r a n d s u p p l y o f investible funds. M e r c h a n t b a n ke r s n o t o n l y p r o v i d e a d v i s o r y s e r v i c e s t o c o r p o r a t e e n t e r p r i s e s b u t a l s o a d v i s e t h e i n ve s t o r s o f t h e incentives available in the form of tax relief and other s t a t u t o r y o b l i ga t i o n s . T h u s , t h e me r c h a n t b a n ke r s h e l p industry and trade to raise funds, and the investors to i n v e s t t h e i r s a v e d mo n e y i n s o u n d a n d h e a l t h y c o n c e r n s w i t h confidence, safety and expectation of hi gher yields.

Broadly services:

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1 . C o r p o r a t e C o u n se l i n g 2 . P r o je c t C o u n s e l i n g An d P r e - I n v e s t me n t S t u d i e s 3 . C r e d i t S yn d i c a t i o n An d P r o je c t F i n a n c e 4 . I s s u e M a n a g e me n t 5 . U n d e r wr i t i n g 6. Bankers 7 . P o r t f o l i o M a n a g e me n t 8. Venture Capital Financing 9. Leasing 10. Non-Resident I n v e s t me n t Counseling An d

M a n a g e me n t 11. 12. A c c e p t a n c e C r e d i t An d B i l l Di s c o u n t i n g Advising On Mergers, A ma l g a ma t i o n s An d

T a k e - Ov e r 13. 14. 15. Arranging Offshore Finance F i x e d De p o s i t B r o k i n g R e l i e f To S i c k I n d u s t r i e s

L e t s t a k e a b r i e f l o o k a t e a c h o f t h e s e f u n c t i o n s :

Co rpo ra te Counseling
C o r p o r a t e c o u n s e l i n g d e n o t e s t h e a d v i c e p r o v i de d b y the Merchant Banking to the corporate unit to ensure better c o r p o r a t e p e r f o r ma n c e i n t e r ms o f i ma g e b u i l di n g a mo n g investors, steady g r o wt h throu gh good wo r k i n g and

a p p r e c i a t i o n i n ma r k e t v a l u e o f i t s e q u i t y s h a r e s . Th e s c o p e o f c o r p o r a t e c o un s e l i n g , c a p i t a l r e s t r u c t u r i n g a n d, p o r t f o l i o ma n a g e me n t a n d t h e f u l l r a n g e o f f i n a n c i a l e n g i n e e r i n g i n c l u d e s v e n t u r e c a p i t a l , p u b l i c i s s u e ma n a g e me n t , a n d l o a n s yn d i c a t i o n , wo r k i n g c a p i t a l , f i xe d d e p o s i t , l e a s e f i n a n c i n g , a c c e p t a n c e c r e d i t , e t c . Ho we v e r c o u n s e l i n g i s l i mi t e d t o o n l y o p i n i o n s a n d s u g g e s t i o n s a n d a n y d e t a i l e d a n a l ys i s wo u l d form part of a specific service. T h e s c o p e o f c o r p o r a t e c o u n s e l in g i s r e s t r i c t e d t o t h e explanations of concepts, procedures and laws to be

o b s e r v e d b y t h e c l i e n t c o mp a n y. R e q u i r e me n t o f a n y a c t i o n t o b e t a k e n o r c o mp l i a n c e o f s t a t u t o r y f o r ma l i t i e s t o b e ma d e f o r i mp l e me n t a t i o n o f t h o s e s u gg e s t i o n s wo u l d me a n t h e d e ma n d f o r a s p e c i f i c t yp e o f s e r v i c e o t h e r t h a n c o r p o r a t e c o u n s e l i n g b e i ng o f f e r e d b y t h e me r c h a n t b a n k e r s . An a c a d e mi c a n a l ys i s of corporate counseling present a

d i f f e r e n t p i c t u r e t h a n t h a t t r a n sp i r e s f r o m t h e l i t e r a t u r e o f t h e me r c h a n t b a n k e r s F i r s t l y c o r p o r a t e c o u n s e l i n g i s t h e b e g i n n i n g o f t h e me r c h a n t b a n k i n g s e r v i c e wh i c h e v e r y c l i e n t s wh e t h e r n e w o r e x i s t i n g h a s g o t t o a v a i l a d i f f e r e n t ma t t e r wh e t h e r a me r c h a n t b a n k c h a r g e s i t s c l i e n t s e p a r a t e l y f o r r e n d e r i n g t h e c o r p o r a t e c o un s e l i n g s e r v i c e o r i n c l u d e s t h e e l e me n t o f f e e i n t h e o t h e r he a d s o f s e r v i c e s b u t f r o t h e

a n g l e o f p r i o r i t y. C o r p o r a t e c o u ns e l i n g i s f i r s t i n l i n e o f t h e s e r v i c e s wh i c h a me r c h a n t b a n k e r o f f e r s a n d t h a n o t h e r services.

Secondly the scope of the corporate counseling is very v a s t . I t s c o v e r a g e r a n g e s f r o m t h e ma n a g e r i a l e c o n o mi e s , i n v e s t me n t s a n d f i n a n c i a l ma n a g e me n t t o C o r p o r a t e La ws and the related legal aspects of the organizational goals, l o c a t i o n s f a c t o r s, o r g a n i z a t i o n a l s i z e a n d o p e r a t io n a l s c a l e , c h o i c e o f p r o d u c t a n d ma r k e t s u r v e y, f o r e c a s t i n g o f p r o d u c t , c o s t r e d u c t i o n a n d c o s t a n a l ys i s , a l l o c a t i o n o f r e s o u r c e s , i n v e s t me n t d e c i s i o n s , c a p i t a l ma n a g e me n t a n d e x p e n d i t u r e c o n t r o l , p r i c i n g me t h o d s a n d ma r k e t i n g s t r a t e g y, e t c . As f i n a n c i a l a n d l i iv e s t me n t e x p e r t s , a me r c h a n t b a n k e r h a s t o g u i d e t h e c o r po r a t e c l i e n t s i n a r e a s c o v e r i n g f i n a n c i a l reporting, project me a s u r e me n t s , r e q u i r e me n t s wo r k i n g capital

ma n a g e me n t , f i n a n c i a l

and the sources of

finance, evaluating financial alternatives, rate of returns and c o s t o f c a p i t a l be s i d e s b a s i c c o r p o r a t e c h a n g e s o f f i n a n c i a l r e a r r a n g e me n t , R e o r g a n i z a t i o n , me r g e r s a n d a c q u i s i t i o ns , etc. are the areas to be covered.

C o r p o r a t e l a ws s h o u l d b a s i c a l l y c o v e r t h e l e g a l a s p e c t s i n c l u d i n g t h e v a r i o u s l e g a l f o r ma l i t i e s i n v o l v e d i n a r e a s o f corporate finance being raised from the financial

i n s t i t u t i o n s , b a nk s a n d t h e g e n e r a l p u b i c i n t h e f o r m o f l o a n , new issues of equity or debentures respectively

Pro ject Counseling

P r o je c t c o u n s el i n g services ma y be rendered i n d e p e n d e n t l y o r ma yb e , i t r e l a t e s t o p r o j e c t f i n a n c e a n d b r o a d l y c o v e r s t h e s t u d y o f t h e p r o je c t a n d o f f e r i n g a d v i s o r y a s s i s t a n c e o n t h e p r o je c t v i a b i l it y a n d p r o c e d u r a l s t e p s f o r i t s i mp l e me n t a t i o n b r o a d l y i n c l u d i n g f o l l o wi n g a s p e c t s : general review of he project ideas/ project profile, advice on p r o c e d u r a l a s p e c t s o f p r o je c t i mp l e me n t a t i o n , r e v i e w o f t e c h n i c a l f e a s i b i l i t y o f t h e p r o je c t o n t h e b a s i s o f t h e r e p o r t p r e p a r e d b y o wn e x p e r t s r b y t h e o u t s i d e c o n s u l t a n t s , s e l e c t i n g T e c h n i c a l c o n s u l t a n c y O r g a n i z a t i o n ( T C O) f o r p r e p a r i n g p r o je c t r e p o r t s a n d ma r k e t s u r v e y, o r r e v i e w o f t h e p r o je c t r e p o r t s o r ma r k e t s u r v e y r e p o r t p r e p a r e d b y t h e T C O, preparing project report form financial angle, and advice and act on v a r i o us procedural steps including obtaining

g o v e r n me n t c o n se n t s f o r i mp l e me n t a t i o n o f p r o je c t s . Th i s assistance can include obtaining of etc the form f o l l o wi n g the govt.

a p p r o v a l s / l i c e n s e s / p e r mi s s i o n / g r a n t s

a g e n c i e s v i z . l e t t e r o f i n t e n t , i n d u s t r i a l l i c e n s e a n d D GTD registration collaboration. I n a d d i t i o n t o a b o v e , t h e f a c i l i t y p r o v i d i n g g u i d a nc e t o I n d i a n e n t r e p r e n e u r s f o r ma k i n g i n v e s t me n t p r o je c t s i n I n d i a a n d i n I n d i a n joi n t v e n t u r e s o v e r s e a s i s a l s o c o ve r e d u n d e r t h i s a c t i v i t y. B e s i d e s t h e a b ov e s e r v i c e s , p r o je c t c o u n s e l i n g ma y include identification of potential i n v e s t me n t s avenues, and g o v e r n me n t approval for foreign

precise capital structuring shaping the pattern of financing,

arranging

and

negotiating

foreign

collaborations,

a ma l g a ma t i o n s , me r g e r s a n d t a k e o v e r , f i n a n c i a l s t u d y o f t h e p r o je c t a n d p r e p a r a t i o n o f v i a b i l it y r e p o r t s , t o a d v i c e o n t h e f r a me wo r k o f i n s t i t u t i o n a l g u i de l i n e s a n d l a ws g o v e r n i n g c o r p o r a t e f i n a n c e , a s s i s t a n c e i n t h e p r e p a r a t i o n o f p r o je c t p r o f i l e s a n d f e a s i b i l i t y s t u d i e s b a s e d o n p r e l i mi n a r y p r o je c t i d e a s i n o r d e r t o i n d i c a t e t h e p o te n t i a l . Th e s e r e p o r t s wo u l d c o v e r t h e t e c h n i c a l , f i n a n c i a l a n d e c o n o mi c a s p e c t s o f t h e p r o je c t f r o m t h e p o i n t o f v i e w o f t h e i r a c c e p t a n c e b y t h e f i n a n c i a l i n s t i t u t i o n s a n d b a n ks ; a d v i s i n g a n d a s s i s t i n g c l i e n t s i n p r e p a r i n g t h e a p p l i c a t i o n s f o r o b t a i n i ng l e t t e r s o f intent, industrial license and DGTD registrations etc,

s e e k i n g a p p r o v a l s f o r m t h e g o v e r n me n t o f I n d i a f o r f o r e i g n t e c h n i c a l a n d f i n a n c i a l c o l l a b o r a t i o n a g r e e me n t s , g u i d a n c e o n i n v e s t me n t o p p o r t u n i t i e s f o r e n t r e p r e n e u r s c o mi n g t o India. P r e - i n v e s t me n t s t u d i e s a r e d i r e c t e d ma i n l y f o r t h e p r o s p e c t i v e i n v e s t o r . Th e s e a r e t h e o b je c t i v e a n d d e t a i l e d f e a s i b i l i t y e x p l a n a t i o n o f wh i c h t h e p r i n c i p a l a im i s t o a r m t h e c l i e n t s wi t h t h e s o u n d f o u n d a t i o n o f f a c t s a n d f i g u r e s t o e v a l u a t e t h e a l t e r n a t i v e a v e n u e s o p e n f o r c a p i t a l i n v e s t me n t s f o r m t h e p i n t o f v i e w o f g r o wt h a n d p r o f i t p r o s pe c t s . S o me o f t h e c r i t i c a l i s s u e s t h a t a s t ud y o f t h i s g e n r e d e a l s wi l l include an in-depth f a c t or s , i n v e s t i g a ti o n of of e n v i r o nme n t ma t e r i a l , and

regulatory

location

raw

supplies,

d e ma n d p r o j e c t i o n s a n d f i n a n c i a l r e q u i r e me n t s . S u c h a s t u d y w o u l d a s s e s s t h e f i n a n c i a l a n d e c o n o mi c v i a b i l i t y o f a g i v e n p r o je c t a n d h e l p t h e c l i e n t s t o i d e n t i f y a n d s h o r t l i s t t h o s e

p r o je c t s t h a t a r e b u i l t u p o n h i s i n h e r e n t s t r e n g t h s o n a s t o a c c e n t u a t e c o r p o r a t e p r o f i t a b i l i t y a n d g r o wt h i n l o n g r u n . G r i n d l a ys b a n k h a s s p e c i a l i z a t i o n i n p r e i n v e s t me n t s t u d i e s a n d i t c o n d u c t s s u c h s t u di e s f o r f o r e i g n c o mp a n i e s w h i s h i n g t o p a r t i c i p a t e i n jo i n t v e n t u r e s i n I n d i a a n d o f f e r s a p a c k a g e o f s e r v i c e s i n c l u d i ng a d v i c e o n t h e e x t e n t o f participation, g o v e r n me n t regulatory factors and an

e n v i r o n me n t a l s c a n o f p a r t i c u l a r i n d u s t r i e s i n I n d i a

Credit Sy ndica tion

C r e d i t s yn d i c a t io n a l s o k n o wn a s c r e d i t p r o c u r e me n t a n d p r o je c t f i n a n c e s e r v i c e s . Th e ma i n t a s k i n v o l v e d i n c r e d i t s yn d i c a t i o n i s t o r a i s e t o r u p e e a n d f o r e i g n c u r r e n c y l o a n s wi t h t h e b a n k s a n d f i n a n c i a l i n s t i t u t i ons b o t h i n I n d i a a n d a b r o a d . I t also arranges the bridge finance and the re sources for cost e s c a l a t i o n s o r c o s t Ov e r r u n s . B r o a d l y, t h e c r e d i t s yn d i c a t i o ns i n c l u d e t h e f o l l o wi n g acts; ( a ) E s t i ma t i n g t h e t o t a l c o s t s ( b ) D r a wi n g a f i n a n c i n g p l a n f o r t h e t o t a l p r o je c t c o s t c o n f o r mi n g t o t h e r e q u i r e me n t s o f t h e p r o mo t e r s a n d t h e i r c o l l a b o r a t o r s . F i n a n c i a l i n s t i t u t io n s a n d b a n k s , g o v e r n me n t a g e n c i e s a n d u n de r w r i t e r s . ( c ) P r e p a r i n g l o a n a p p l i c a t i o n f o r f i n a n c i a l a s s i s t a nc e f r o m t e r m l e n d e r s / f i n a n c i a l i n s t i t u t i o n s/ b a n k s a n d mo n i t o r i n g t h e i r p r o g r e s s i n c l u d i ng t h e p r e - s a n c t i o n n e g o t i a t i o n s . ( d ) S e l e c t i n g t h e i n s t i t u t i o n s a n d b a n k s f o r p a r t i c ip a t i o n i n financing. ( e ) F o l l o w - u p o f t h e t e r m l o a n a p p l i c a t i o n wi t h t h e f i n a n c i a l institutions and banks and obtaining the satisfaction for their respective share of participation. (f) Arranging bridge finance. ( g ) A s s i s t i n g i n c o mp l e t i o n o f f o r ma l i t i e s f o r d r a w l o f t e r m finance sanctioned by i n st i t u t i o n expediting legal

d o c u me n t a t i o n f o r ma l i t i e s d r a wi n g u p i n t e r - s e a g r e e me n t s e t c . prescribed by the participating financial institutions and banks.

( h ) A s s e s s i n g t h e wo r k i n g c a p i t a l r e q u i r e me n t s . P r e p a r i n g t h e ne c e s s a r y a p p l i c a t i o n f o r a s u c c e s s f u l i s s u e ma n a g e me n t t h e c l o s e l i a i s o n a n d c o o r d i n a t i o n wi t h t h e v a r i o u s constituents of the public issue is an essential condition that w a r r a n t s f u l l c oo p e r a t i o n o f a l l t h e p a r t i e s a f f e c t i n g t h e c o s t and prospects f the issue. Merchant banks, acting as Manager t o t h e i s s u e h a s t o s e t t l e t h e f e e f o r Ad v o ca t e / s o l i c i t o r s a d v i c e , a c c o u n t an t s c e r t i f i c a t i o n , b r o k e r s a n d b a n k s c h a r g e s , u n d e r wr i t e r s c o m mi s s i o n , p r i n t e r s c h a r g e s a n d a d v e r t i s i n g and publicity expenses and coordinates wi t h s yn d i c a t e d

me r c h a n t b a n k e r s a n d p r i n c i p a l b r o k e r s , s t o c k e x c h a n g e s , e t c . T h e r e s p o n s i b i l i ty f o r a l l t h i s r e s t s u p o n t h e me r c h a n t b a n k e r . I f p r o p e r c o o r d i na t i o n i s n o t d o n e , t h e s u c c e s s o f t h e i s s u e ma y be rendered unassured.

M ana gement OF Ca pita l ISSUES: T h e c a p i t a l i s s u e a r e ma n a g e d a r e c a t e g o r y - 1 me r c h a n t b a n k e r a n d c o n st i t u t e s t h e mo s t i mp o r t a n t a s p e c t s o f t h e i r s e r v i c e s . Th e p ub l i c i s s u e o f c o r p o r a t e s e c u r i t i e s i n v o l v e s ma r k e t i n g o f c a p i t a l i s s u e s o f n e w a n d e x i s t i n g c o mp a n i e s , a d d i t i o n a l i s s u es o f e x i s t i n g c o mp a n i e s i n c l u d i n g r i g h t s i s s u e a n d d i l u t i on o f s h a r e s b y l e t t e r o f o f f e r , . T h e p u b l i c i s s u e s a r e ma n a g e d b y t h e i n v o lv e me n t o f v a r i o u s a g e n c i e s i .e . underwriters, brokers, b a nk e r s , a d v e r t i s i ng a g e n c y,

printers, auditors, legal advisers, registrar t o the issue and me r c h a n t b a n k e r s p r o v i d i n g s p e c i a l i z e d s e r v i c e s t o ma k e t h e i s s u e o f t h e s u c c e s s . Ho we v e r me r c h a n t b a n k e r i s t h e a g e n c y at the apex level than that plan, coordinate and control the entire issue activity and direct different agencies to

c o n t r i b u t e t o t he s u c c e s s f u l ma r k e t i n g o f s e c u r i t i e s . Th e p r o c e d u r e o f t he ma n a g i n g a p u b l i c i s s u e b y a me r c h a n t b a n k e r i s d i v i d e d i n t o t wo p h a s e s , v i z ; ( A) P r e - i s s u e ma n a g e me n t (B) P o s t - i s s u e ma n a ge me n t

( A) P r e - I s s u e Ma n ag e me n t : -

S t e p s r e q u i r e d t o b e t a k e n t o ma n a g e p r e - i s s u e a c t i v i t y i s a s f o l l o ws : (1) O b t a i n i n g s t o c k e x c h a n g e a p p r o v a l s t o me mo r a n d u m and articles of associations. (2) Taking action as per SEBI guide lines

(3)

F i n a l i z i n g t h e a p p o i n t me n t s o f t h e f o l l o wi n g a g e n c i e s : C o - ma n a g e r / Ad v i s e r s t o t h e i s s u e U n d e r wr i t e r s t o t h e i s s u e Brokers to the issue B a n k e r s t o t h e i ss u e a n d r e f u n d B a n k e r Advertising agency Printers and Registrar to the issue

(4)

A d v i s e t h e c o mp a n y t o a p p o i n t a u d i t o r s , l e g a l a d v i s e r s a n d b r o a d b a s e B o a r d o f Di r e c t o r s

(5) (6)

Drafting of prospectus Obtaining c o mp a n ys approvals legal of draft prospectus from the advisers, underwriting financial

i n s t i t u t i o n s / B a n ks (7) Obtaining consent from parties and agencies acting for t h e i s s u e t o b e e n c l o s e d wi t h t h e p r o s p e c t u s . (8) A p p r o v a l o f p r o s p e c t u s f r o m S e c u r i t i e s a n d Ex c h a n g e Board of India. (9) F i l i n g o f t h e p r o s p e c t u s wi t h R e g i s t r a r o f C o mp a n i e s . an a p pl i c a t i o n for e n l i s t me n t wi t h Stock

(10) Making

Exchange along, with copy of the prospectus. (11) Publicity of the issue wi t h a d v e r t i s e me n t and

conferences. ( 1 2 ) O p e n s u b s c r i p t i on l i s t .

(B)

P o s t - i s s u e Ma n a g e me n t : S t e p s i n v o l v e d i n p o s t - i s s u e ma n a g e me n t a r e : -

(1)

T o v e r i f y a n d c on f i r m t h a t t h e i s s u e i s s u b s c r i b e d t o the extent of 90% including d e v o l v e me n t from

u n d e r wr i t e r s i n c a s e o f u n d e r s u b sc r i p t i o n (2) T o s u p e r v i s e a n d c o - o r d i n a t e t he a l l o t me n t p r o c e d u r e of registrar to the issue as per prescribed Stock E x c h a n g e g u i d e l in e s (3) T o e n s u r e i s s u e o f r e f u n d o r d e r , a l l o t me n t l e t t e r s / c e r t i f i c a t e s wi t hi n t h e p r e s c r i b e d t i me l i mi t o f 1 0 weeks after the closure of subscription list (4) T o r e p o r t p e r i o di c a l l y t o S EB I a b o u t t h e p r o g r e s s i n t h e ma t t e r s r e l a t e d t o a l l o t me n t a n d r e f u n d s (5) (6) T o e n s u r e h e l i s t i n g o f s e c u r i t i e s a t S t o c k Ex c h a n g e s . To attend the investors grievances regarding the

public issue

The Merchant

Bankers

for

ma n a g i n g

public issue can

n e g o t i a t e a f e e s u b je c t t o a c e i l i n g . Th i s f e e i s t o b e s h a r e d b y a l l l e a d ma n a g e r s , a d v i s e r s e t c . 0 .5 % o f t h e a mo u n t o f p u b l i c i s s u e s u p t o R s .2 5 c r o r e s 0 .2 % o f t h e a mo u n t e x c e e d i n g R s .2 5 c r o r e s , i f mo r e t h a n o n e M e r c h a n t b a n k e r s a r e ma n a g i n g t h e i s s u e .

Under w riting o f public i ssue

A f u l l y u n d e r wr i t t e n p u b l i c i s s u e s p e l l s c o n f i d e n c e t o t h e investing public, which ensures a good response to the issue. K e e p i n g t h i s i n v i e w c o mp a n i e s , wh i c h f l o a t a p u b l i c i s s u e u s u a l l y, d e s i r e a f u l l u n d e r wr i t i n g o f t h e i s s u e . U n d e r wr i t i n g i s o n l y t h e g u a r a n t e e g i v e n b y t h e u n d e r wr i t e r that in the event wo u l d of be under subscription, in the a mo u n t by the

u n d e r wr i t t e n

subscribed

proportion

u n d e r wr i t e r . An u n d e r wr i t e r o f t h e i s s u e g e t s t h e f o l l o wi n g benefits:

I t e a r n s a c o mmi s s i o n o f t h e c o mmi t me n t g i v e n . It earns the right to be appointed as bankers of that issue. I t e x p a n d s i t s c l i e n t e l e b y u n d e r wr i t i n g mo r e a n d mo r e

issues.

B a n ke r s t o t h e I s s u e T h e me r c h a n t b a n k e r c a n a u t o ma t i c a l l y b e c o me t h e b a n k e r t o t h e i s s u e i n t h e f o l l o wi n g c a s e s :

T h e b a n k i s a b r o k e r t o t h e c o mp a n y I t h a s g i v e n u n d e r wr i t i n g c o mmi t me n t s . I t a c t s a s a ma n g e r t o t h e i s s u e The function of a banker to the issue is to accept

a p p l i c a t i o n f o r ms f r o m t h e p u b li c t o g e t h e r wi t h s u b s c r i p t i o n mo n e y a n d t r a n s f e r t h e m t o t h e a c c o u n t o f t h e c o n t r o l l i n g branch.

Po rtfolio Ma nag ement

P o r t f o l i o r e f e r s t o i n v e s t me n t i n d i f f e r e n t t yp e s o f ma r k e t a b l e s e c u r i t i e s o r i n v e s t me n t p a p e r s l i k e s h a r e d , d e b e n t u r e s a n d d e b e n t u r e s t o c ks , b o n d s e t c . f r o m d i f f e r e n t c o mp a n i e s o r institutions held by individuals firm or corporate units. Portfolio ma n a g e me n t refers to ma n a g i n g efficiently the

i n v e s t me n t i n t h e s e c u r i t i e s h e l d by p r o f e s s i o n a l s t o o t h e r s . M e r c h a n t b a n k e r s t a k e u p ma n a g e me n t o f a p o r t f o l i o o f s e c u r i t i e s o n b e h a l f o f t h e i r c l i e nt s , p r o v i d i n g s p e c i a l s e r v i c e s w i t h a v i e w t o e n s u r e ma x i mu m r e t u r n b y s u c h i n v e s t me n t s w i t h a mi n i mu m r i s k o f l o s s o f r e t u r n o n t h e mo n e y i n v e s t e d i n securities. A me r c h a n t b a n k e r wh i l e p e r f o r mi n g t h e s e r v i c e s o f p o r t f o l i o ma n a g e me n t h a s t o e n q u i r e o f t h e i n v e s t me n t n e e d s o f t h e client, the tax bracket, a b i l it y to bare risk, liquidity

r e q u i r e me n t s , e t c . t h e y s h o u l d s t ud y t h e e c o n o mi c e n v i r o n me n t a f f e c t i n g t h e c a p i t a l ma r k e t , s t u d y t h e s e c u r i t i e s ma r k e t a n d i d e n t i f y b l u e c h i p c o mp a n i e s i n w h i c h m o n e y c a n b e i n v e s t e d . T h e y s h o u l d k e e p r e c o r d o f l a t e s t a me n d me n t i n g o v e r n me n t guidelines, stock exchange regulations, RBI regulations, etc.

Advisory Services Rela ting To M erg ers and Ta keov ers

A me r g e r is defined as a c o mb i n a t i o n of two or mo r e c o mp a n i e s i n t o a s i n g l e c o mp a n y w h e r e o n e s e r v i c e s a n d o t h e r l o o s e s t h e i r c o r p o r a t e e x i s t e n c e . A me r g e r i s a l s o d e f i e d a s a n a ma l g a ma t i o n c o mp a n i e s wh e r e i n the shareholders the of the c o mb i n i n g of the

b e c o me

substantially

s h a r e h o ld e r s

c o mp a n y f o r me d . A takeover is referred to as an acquisition, which is the p u r c h a s e , b y o n e c o mp a n y o f a c o n t r o l l i n g i n t e r e s t i n t h e s h a r e c a p i t a l o f a n o t h e r e x i s t i n g c o mp a n y. M e r c h a n t b a n k e r s a r e t h e mi d d l e me n s e t t l i n g n e g o t i a t i o n s b e t we e n t h e o f f e r e d a n d t h e o f f e r o r . Th e i r r o l e i s s p e c i f i c a n d specialized in handling the me r g e r s and taker over

a s s i g n me n t s . B e i n g a p r o f e s s i o n a l e x p e r t , t h e me r c h a n t b a n k e r i s a p t t o s a f e g u a r d t h e i n t e r e s t of t h e s h a r e h o l d e r s i n b o t h t h e c o mp a n i e s a n d a s s u c h h i s a s s i s t a n c e i s u s e f u l f o r b o t h t h e c o mp a n i e s , i . e . t h e a c q u i r e r a s we l l a s t h e a c q u i r e d c o mp a n y. B a s e d o n t h e p ur p o s e o f b u s i n e ss o b je c t i v e , t h e s e a r c h o f t h e a c q u i r e r c o mp a n y w i l l s t a r t f o r a me r g e r p a r t n e r c o mp a n y. I f the o b je c t i v e of me r g e r is g r o wt h oriented i .e . seeking

e x p a n s i o n i n p r o d u c t i o n a n d ma r k e t s e g me n t s , u t i l i z a t i o n o f e x i s t i n g c o mp a n i e s o r o p t i mu m u t i l i z a t i o n o f r e s o u r c e s , t h e n t h e a c q u i r e r c o mp a n y wi l l s e l e c t a b u s i n e s s r e l a t e d c o mp a n y a s a me r g e r p a r t n e r .

If the objective is diversification in production line or business a c t i v i t i e s , t h e n i t w i l l s e l e c t a n o n - r e l a t e d c o mp a n y a s a me r g e r partner. O n c e t h e me r g e r p a r t n e r i s p r o p o s e d t h e me r c h a n t b a n k e r h a s t o a p p r a i s e t h e me r g e r / t a k e o v e r p r o p o s a l wi t h r e s p e c t t o f i n a n c i a l v i a b i l i t y a n d t e c h n i c a l f e a s i b i l i t y. He h a s t o n e g o t i a t e wi t h t h e p a r t i e s a n d d e c i d e t h e p u r c h a s e c o n s i d e r a t i o n a n d mo d e o f p a yme n t . H e h a s t o c o mp l y wi t h t h e l e g a l f o r ma l i t i e s l i k e g e t t i n g a p p r o v a l f r o m t h e Go v e r n me n t / R B I ; d r a f t i n g t h e s c h e me o f a ma l g a ma t i o n ; g e t t i n g a p p r o v a l o f c o mp a n y B o a r d , financial institution, high court if required; arranging for the me e t i n g e t c .

Venture Ca pita l Fina ncing

F i n a n c i n g a n e me r g i n g h i g h - r i s k p r o je c t i s c a l l e d v e n t u r e c a p i t a l f i n a n c i n g. M a n y me r c h a n t b a n k e r s a r e e n t e r i n g i n t o t h i s a r e a b y a l s o f i n a n c i n g v i a b l e u p c o mi n g p r o je c t s . T h e f i n a n c i n g i s b y s u b s c r i p t i o n t o t h e e q u i t y c a p i t a l , wh i l e r e p a yme n t i s b y s e l l i n g t h e e q u i ty t h r o u g h s t o c k ma r k e t wh e n th e s h a r e s a r e listed.

Lea sing
I s t h e r e a n o t h e r l u c r a t i v e a r e a o f f i n a n c i n g whe r e me r c h a n t b a n k e r s a r e t u r n i n g ? Le a s i n g i s a v i a b l e s o u r c e o f f i n a n c i n g while a c q u i r i ng capital assets. Th e services include

a r r a n g e me n t f o r l e a s e f i n a n c e f a c i l i t i e s f o r l e a s i ng c o mp a n i e s , l e g a l ; d o c u me n t s a n d t a x c o n s u l t a n c y.

No n Resident Inv estment

T o a t t r a c t N R I i n v e s t me n t s i n t h e p r i ma r y a n d s e c o n d a r y ma r k e t s , t h e me r c h a n t b a n k e r s p r o v i d e i n v e s t me n t a d v i s o r y s e r v i c e s t o t h e N R I s i n t e r ms o f i d e n t i f i c a t i o n o f i n v e s t me n t o p p o r t u n i t i e s , s e l e c t i o n o f s e c u r i t i e s , p o r t f o l i o ma n a g e me n t , e t c . t h e y a l s o t a ke c a r e o f o p e r a t io n a l d e t a i l s l i k e p u r c h a s e a n d sale of securities securing the necessary clearance from RBI u n d e r F ER A f o r r e p a t r i a t i o n o f d i v i d e n d s a n d i n t e r e s t , e t c .

Acceptance Credit and Bill Discounting

T h o u g h me r c h a n t b a n k e r s wo r l d o v e r s p e c i a l i z e i n a c c e p t a n c e credit and bill discounting, these services are not currently p r o v i d e d b y me r c h a n t b a n k e r s i n I n d i a t h e p r i n c i p a l r e a s o n i n g b e i n g t h e l a c k o f a n a c t i v e ma r k e t f o r c o m me r c i a l b i l l s .

Arra ng ing Offsho re Finance

T h e me r c h a n t b a n k e r s a l s o h e l p t h e i r c l i e n t s i n t h e f o l l o wi n g areas involving foreign currency financing: 1. 2. 3. 4. F i n a n c i n g Of Ex p o r t s An d I mp o r t s L o n g Te r m F o r e i g n C u r r e n c y Lo a n s J o i n t Ve n t u r e s Ab r o a d F o r e i g n C o l l a b o r a t i o n A r r a n g e me n t s

T h e a s s i s t a n c e r e n d e r e d a s i n th e c a s e o f f i n a n c i a l s e r v i c e s c o v e r s a p p r a i s a l s , n e g o t i a t i o n s , c o mp l i a n c e wi t h p r o c e d u r a l and legal aspects etc.

M ana gement of Fix ed Deposits o f Co mpa nies

R e c e n t l y, me r c h a n t s b a n k e r s h a v e b e g u n t o s t r u c t u r e a n d mo b i l i z e f i x e d d e p o s i t s f o r t h e i r c o r p o r a t e c l i e n t s . Th e y t a k e c a r e o f t h e p r o c e d u r a l a n d l e g a l a s p e c t s , a n d a l s o ma n g e t h e c o l l e c t i o n a n d s u b s e q u e n t s e r v i c i n g o f t h e d e p o s i t s . Ad v i c e w i t h r e g a r d t o t h e a mo u n t t o b e r a i s e d , i n t e r e s t c h a r g e s , t e r ms o f d e p o s i t s a n d o t h e r r e l a t e d i s s u e s a r e a l s o of f e r e d t o t h e client.

Relief to Sick Industries

T h e s e r v i c e s o f f e r e d b y me r c h a n t b a n ke r s t o s i c k i n d u s t r i e s c a n b e s u mma r i z e d a s f o l l o w s : 1. A s s e s s me n t o f c a p i t a l r e q u i r e m e n t s a n d c o u n s e l i n g o n

capital restructuring; 2. A p p r a i s a l o f t e c h n o l o g i c a l , e n v ir o n me n t a l , f i n a n c i a l a n d

other factors causing sickness; 3. P r e p a r a t i o n s o f p r o g r a ms a n d p a c k a g e s f o r r e h a b i l i t a t i o n

of sick units; 4. Providing necessary assistance where the rehabilitation

p a c k a g e i n v o l v e s me r g e r s o r a ma l g a ma t i o n ; 5. Obtaining necessary approval for i mp l e me n t a t io n the

r e h a b i l i t a t i o n p a c k a g e f r o m t h e s t a t u t o r y a u t h o r i t ie s ; 6. Monitoring the i mp l e me n t a t i on of the s c h e me of

rehabilitation.

REGULATORY AUTHORITY

Guidelines o f SEBI
A f t e r t h e o b l i g a t i o n s o f t h e C C I , t h e p l a c e wa s o c c u p i e d b y a l e g a l o r g a n c a l l e d a s S e c u r i t i e s a n d Ex c h a n g e B o a r d o f I n d i a . T h e i s s u e o f c a p i t a l a n d p r i c i n g o f i s s u e s b y c o mp a n i e s h a s b e c o me f r e e o f p r i o r a p p r o v a l . Th e S EB I h a s i s s u e d g u i d e l i n e s f o r t h e i s s u e o f c a p i t a l b y t h e c o mp a n i e s . Th e g u i d e l i n e s b r o a d l y c o v e r s t h e r e q u i r e me n t o f t h e f i r s t i s s ue b y a n e w o r t h e f i r s t i s s u e o f a n e w c o mp a n y s e t u p b y t h e e x i s t i n g c o mp a n y, t h e f i r s t i s s u e b y t h e e x i s t i n g p r i v a t e c o mp a n i e s a n d

p u b l i c i s s u e s b y t h e e x i s t i n g l i s t i n g c o mp a n i e s . T h e S EB I i s t h e mo s t p o w e r f u l o r g a n i z a t i o n t o c o n t r o l a n d le a d b o t h t h e p r i ma r y ma r k e t a n d s e c o n d a r y ma r k e t . The SEBI has by announced the the new g u i d e l in e s to the for the

disclosures

Co mp a n i e s

leading

investor

protection. They are presented below: a) I f a n y C o mp a n y s o t h e r i n c o me e x c e e d s 1 0 p e r c e n t o f t h e

t o t a l i n c o me , t h e d e t a i l s s h o u l d b e d i s c l o s e d . b) T h e C o mp a n y s h o u l d d i s c l o s e a n y a d v e r s e s i t u a t i o n wh i c h

a f f e c t s t h e o p e r a t i o n s o f t h e C omp a n y a n d o c c u r s wi t h i n o n e ye a r p r i o r t o t he d a t e f i l i n g o f t h e o f f e r d o c u me n t wi t h t h e R e g i s t r a r o f C o mp a n i e s o r S t o c k E x c h a n g e . c) The C o mp a n y should also d is c l o s e the i n f o r ma t i o n

regarding the capacity utilization of the plant for the last 3 ye a r s . d) The P r o mo t e r s of the C o mp a n y mu s t ma i n t a i n their

holding at least at 20 per cent of the expanded capital.

e)

T h e mi n i mu m a p p l i c a t i o n mo n e y p a ya b l e s h o u l d n o t b e

less than 25 per cent of the issue price. f) T h e c o mp a n y s h o u l d d i s c l o s e t h e t i me n o r ma l l y t a k e n f o r t h e d i s p o s a l o f v a r i o u s t yp e s o f i n v e s t o r s g r i e v a n c e s . g) T h e C o mp a n y c a n ma k e f i r m a l l o t me n t s i n p u b l i c i s s u e s a s

f o l l o ws : I n d i a n mu t u a l f u n d s ( 2 0 % ) ,

F I I S ( 2 4 %) , R e g u l a r e mp l o ye e s o f t h e c o mp a n y ( 1 0 % ) , F i n a n c i a l i n s t i t u t i o n ( 2 0 %) . h) T h e C o mp a n y s h o u l d d i s c l o s e t h e s a f e t y n e t s c h e me o r

b u y b a c k a r r a n ge me n t s o f t h e s h a r e s p r o p o s e d i n p u b l i c i s s u e . T h i s s c h e me i s a p p l i c a b l e t o a l i mi t e d n u mb e r o f 5 0 0 s h a r e s p e r a l l o t t e e a n d t h e o f f e r s h o u ld b e v a l i d f o r a p e r i o d o f a t l e a s t 6 mo n t h s f r o m t h e d a t e o f d i s p a t c h o f s e c u r i t i e s . i) According to the guidelines, in case of the public issues,

a t l e a s t 3 0 ma n da t o r y c o l l e c t i o n c e n t r e s s h o u l d b e e s t a b l i s h e d . j) A c c o r d i n g t o t h e S E B I g u i d e l i n es r e g a r d i n g r i g h ts i s s u e ,

t h e C o mp a n y s h o u l d g i v e a d v e r ti s e me n t s i n n o t l e s s t h a n t wo n e ws - p a p e r s about the dispatch of letters of offer. No

p r e f e r e n t i a l a l l o tme n t ma y b e ma d e a l o n g wi t h a n y r i g h t s i s s u e . k) T h e C o mp a n y s h o u l d a l s o d i s c l o s e a b o u t t h e f e e a g r e e d the lead ma n a g e r s and the C o mp a n y in the

b e t we e n

me mo r a n d u m o f u n d e r s t a n d i n g .

About AM BI:
I n t h e e a r l y 1 9 9 0 s , t h e me r c h a n t b a n k i n g i n d us t r y i n I n d i a w i t n e s s e d a p h e n o me n a l g r o wt h wi t h o v e r 1 ,5 0 0 me r c h a n t b a n k e r s r e g i s t e r e d wi t h S EB I . I n o r d e r t o e n s u r e t h e we l l b e i n g o f t h e i n d u s t r y a n d f o r p r o mo t i n g h e a l t h y b u s i n e s s p r a c t i c e s , i t b e c a me n e c e s s a r y t o s e t u p a S e l f R e g u l a t o r y O r g a n i z a t i o n w i t h i n t h e i n d u s t r y. Th i s l e d t o t h e b i r t h o f t h e As s o c i a t i o n o f Merchant Bankers of I n d i a ( AM B I ) . It wa s p r o mo t e d to

e x e r c i s e o v e r a l l s u p e r v i s i o n o v e r i t s me mb e r s i n t h e ma t t e r s o f c o mp l i a n c e wi t h s t a t u t o r y r u l e s a n d r e g u l a t i o n s p e r t a i n i n g t o me r c h a n t banking and other activities.

A M B I w a s g r a n te d r e c o g n i t i o n by S E B I t o s e t u p p r o f e s s i o n a l standards, for providing efficient services and to establish s t a n d a r d p r a c t i c e s i n me r c h a n t b a n k i n g a n d f i n a n c i a l s e r v i c e s . AMBI, in consultation the wi t h of SEBI, is wo r k i n g t o wa r d s in a

i mp r o v i n g

c o mp l i a n c e

statutory

r e q u i r e me n t

s ys t e ma t i c ma n n e r . AM B I ' s p r i ma r y o b je c t i v e i s t o e n s u r e t h a t i t s me mb e r s r e n d e r s e r v i c e s t o a l l i t s c o n s t i t u e n t s wi t h i n a n a g r e e d f r a me wo r k o f e t h i c a l p r i n c i p l e s a n d p r a c t i c e s . I t a l s o w o r k s a s a t r a d e b o d y p r o mo t i n g t h e i n t e r e s t s o f t h e i n d u s t r y and of its me mb e r s .

T h e s p e c t r u m o f A M B I ' s a c t i v i t i e s i s wi d e . I t i s t h e n o d a l p o i n t f o r t h e a s s i mi l a ti o n a n d d i s s e mi n a t i o n o f i n f o r ma t i o n r e l a t i n g t o t h e me r c h a n t b a n k i n g i n d u s t r y. Th u s AM B I e ns u r e s t h a t i t s me mb e r s a r e a wa r e o f t h e l a t e s t r u l e s / g u i d e l i n e s i s s u e d b y v a r i o u s s t a t u t o r y a u t h o r i t i e s , a s a l s o o t h e r ma t t e r s o f i n t e r e s t .

A M B I i s t h e me r c h a n t b a n k i n g i n d u s t r y' s s o l e r e p r e s e n t a t i v e t o a l l s t a t u t o r y a u t h o r i t i e s , i n p a r t i c u l a r , S EB I . Th e C h a i r ma n o f A M B I i s o n t h e P r i ma r y M a r k e t A d v i s o r y C o m mi t t e e o f S EB I .

T o e n s u r e h e a l t h y c o mp e t i t i o n wi t h i n t h e i n d u s t ry, A M B I h a s p u b l i s h e d i t s C o d e o f C o n d u c t f o r M e r c h a n t B a n k e r s . Th i s d o c u me n t s e t s o u t t h e b r o a d p a r a me t e r s a n d t h e s p i r i t i n wh i c h t h e me mb e r s o f A M B I s h o u l d c o n d u c t b u s i n e s s . A M B I h a s a l s o p r o d u c e d a Du e D i l i g e n c e Ha n d b o o k , wh i c h h a s p r o v e d t o b e a u s e f u l t o o l f o r me r c h a n t b a n k e r s . Th i s h a n d b o o k i s c u r r e n t l y u n d e r r e v i s i o n . F o r t h e b e n e f i t o f i n v e s t o r s , AM B I h a s b r o u g h t out an Investor's Ed u c a t i o n Ha n d b o o k

C o n c u r r e n t wi t h t h e a c t i v i t y o f e d u c a t i n g i n v e s t o r s , AM B I r e g u l a r l y c o n d u c t s / s p o n s o r s t a l k s a n d s e mi n a r s o n f i n a n c i a l ma t t e r s . A M B I r e g u l a r l y s u b mi t s a P r e - B u d g e t M e mo r a n d u m t o t h e F i n a n c e M i n i s t r y. T h i s me mo r a n d u m e x p r e s s e s t h e c o n c e r n s of the industry and requests specific changes in various f i n a n c i a l l e g i s l at i o n s t h a t wo u ld h e l p b e t t e r t h e r a n g e o f services and opportunities provided by the i n d u s t r y.

A M B I i s a l s o t h e i n t r a - i n d u s t r y a r b i t r a t o r o n a l l ma t t e r s a r i s i n g b e t we e n i t s me m b e r s .

EXAM PLE: -

S T A T E B A NK O F I N DI A S B I s M e r c h a n t B a n k i n g Gr o u p i s s t r o n g l y p o s i t i o n e d t o o f f e r p e r f e c t f i n a n c i a l s o l u t i o n s t o yo u r b u s i n e s s . Th e y s p e c i a l i z e i n t h e a r r a n g e me n t o f v a r i o u s f o r ms o f F o r e i g n C u r r e n c y C r e d i t s for Corporate. T h e y p r o v i d e t h e r e s o u r c e s , c o n v e n i e n c e a n d s e r v i c e s t o me e t yo u r n e e d s b y a r r a n g i n g F o r e i g n C u r r e n c y c r e d i t s t h r o u g h : C o m me r c i a l l o a n s S yn d i c a t e d l o a n s Li n e s o f C r e d i t f r o m F o r e i g n B a n k s a n d F i n a n c i a l I n s t i t u t i o n s FCNR loans Lo a n s f r o m Ex p o r t C r e d i t Ag e n c i e s F i n a n c i n g o f I mp o r t s . T h e y a r e i n t e r n a t i o n a l l y t h e mo s t P r e f e r r e d B a nk b y Ex p o r t C r e d i t Ag e n c i e s f o r Gu a r a n t e e s i n c a s e o f t h e I n d i a n C l i e n t s o r P r o je c t s .

S B I b e i n g a n I n d i a n e n t i t y h a s n o I n d i a e x p o s u r e c e i l i n g . Th e i r P r i ma r y f o c u s i s O n I n d i a n C l i e n t s . S B I s s e a s o n e d Te a m o f p r o f e s s i o n a l s p r o v i d e s yo u wi t h I n s i g h t f u l c r e d i t I n f o r ma t i o n a n d h e l p s yo u M a x i mi z e t h e Va l u e f r o m t h e t r a n s a c t i o n .

P RO D U CT S A ND S E R VI C E S 1 ] Ar r a n g i n g Ex t e r n a l C o mme r c i a l B o r r o wi n g s ( EC B ) 2 ] Ar r a n g i n g a n d p a r t i c i p a t i n g i n i n t e r n a t i o n a l l o a n s yn d i c a t i o n 3 ] Lo a n s b a c k e d b y Ex p o r t C r e d i t Ag e n c i e s 4 ] F o r e i g n c u r r e n c y l o a n s u n d e r t h e F C N R ( B ) s c h e me 5 ] I mp o r t F i n a n c e f o r I n d i a n c o r p o r a t e s .

Orga niza tio nal setup o f merchant bankers in India

I n I n d i a a c o mm o n o r g a n i z a t i o n al s e t u p o f me r c h a n t b a n k e r s t o o p e r a t e i s i n t h e f o r m o f d i v i s i o ns o f I n d i a n a n d f o r e i g n b a n k s a n d f i n a n c i a l i n st i t u t i o n s , s u b s i d ia r y c o mp a n i e s e s t a b l i s h e d b y b a n k e r s l i k e S B I , C a n a r a B a n k , P u n ja b Na t i o n a l B a n k , B a n k o f I n d i a , e t c . S o m e f i r ms a r e a l s o o r g a n i z e d b y f i n a n c i a l a n d technical c o n s ul t a n t s and professionals. Securities and

E x c h a n g e B o a r d o f I n d i a h a s d i v i d e d t h e me r c h a n t b a n k e r s i n t o f o u r c a t e g o r i e s b a s e d o n t h e i r c a p i t a l a d e q u a c y. E a c h c a t e g o r y is authorized to perform certain functions. From the point of o r g a n i z a t i o n a l s e t u p I n d i a s me r c h a n t b a n k i n g o r g a n i z a t i o n s can be categorized into four groups on the basis of their l i n k a g e wi t h p a r e n t a c t i v i t y. Th e y a r e : ( A) I n s t i t u t i o n a l B a s e Wh e r e me r c h a n t b a n k s f u n c t i o n a s a n i n d e p e n d e n t wi n g o r a s subsidiary G o v e r n me n t s of various financial private/Central i n s t i t u t io n s . Most Go v e r n me n t s / S t a t e of the financial

i n s t i t u t i o n s i n I n d i a a r e i n p u b l i c s e c t o r a n d t he r e f o r e s u c h s e t u p p l a ys a r ol e o n t h e l i n e s o f g o v e r n me n t p r i o r i t i e s a n d policies. ( B ) B a n ke r B a s e T h e s e me r c h a n t b a n k e r s f u n c t i o n a s d i v i s i o n /s u b s i d i a r y o f b a n k i n g o r g a n i z a t i o n . Th e p a r e n t b a n k s a r e e i t h e r n a t i o n a l i z e d c o m me r c i a l b a n k o r t h e f o r e i g n b a n k s o p e r a t i n g i n I n d i a . Th e s e organizations have brought

p r o f e s s i o n a l i s m i n me r c h a n t b a n k i n g s e c t o r a n d t he y h e l p t h e i r p a r e n t o r g a n i z a t i o n t o ma k e a p r e s e n c e i n c a p i t a l ma r k e t . ( C) B r o ke r B a s e In the recent past there has been an inflow of qualified and professionally skilled brokers in various stock exchanges of India. Th e s e brokers like undertake p r o v i d i ng me r c h a n t i n v e s t me n t banking and related portfolio

operations

also

ma n a g e me n t s e r v i c e s . ( D) Pr i v a t e B a s e T h e s e me r c h a n t b a n k i n g f i r ms a r e o r i g i n a t e d i n pr i v a t e s e c t o r . T h e s e o r g a n i z a t i o n s a r e t h e o u t c o me o f o p p o r t u n i ti e s a n d s c o p e i n me r c h a n t b a n k i n g b u s i n e s s a n d t h e y a r e p r o v i d i n g s k i l l o r i e n t e d s p e c i a l i z e d s e r v i c e s t o t h e i r c l i e n t s . S o me f o r e i g n me r c h a n t b a n k e r s a r e a l s o e n t e r i n g e i t h e r i n d ep e n d e n t l y o r t h r o u g h s o me c o l l a b o r a t i o n wi t h t h e i r I n d i a n c o u n t e r p a r t s . P r i v a t e s e c t o r m e r c h a n t b a n k i n g f i r ms h a v e c o me u p e i t h e r a s t h e s o l e p r o p r i e t o r s h i p o r p u b l i c l i mi t e d c o mp a ni e s . M a n y o f t h e s e f i r ms w e r e i n e x i s t e n c e f o r q u i t e s o me t i me s b e f o r e t h e y a d d e d a n e w a c t i v i t y i n t h e f o r m o f me r c h a n t b a n k i n g s e r v i c e s b y o p e n i n g n e w d i v i s i o n s o n t h e l i n e s o f c o mme r c i a l b a n k s a n d All India Financial Institutions.

Develo pment stag es o f M ercha nt Ba nking firms

In the me r c h a n t banking organization in the

f o l l o wi n g c h a r t , t h e f i r m o f me r c h a n t b a n k e r a n d i n d i v i d u a l stock broker have been included as they have been contributing j o i n t l y t o t h e g r o wt h o f t h e p r o f e s s i o n o f me r c h a n t b a n k i n g . B u t mo s t o f t h e s e f i r ms a r e n o t we l l d e v e l o p e d t o s h o w s t a g e o f ma t u r i t y. M o s t o f t h e m a r e s t i l l i n t h e s t a r t - u p a n d e a r l y g r o wt h s t a g e s . T h i s i s e a s i l y d i s s e mb l e f r o m t h e f o l l o wi n g p r o je c t i o n o f t h e d e v e l o p me n t s t a g e s

Stages in Unit development of merchant banking

Principal Organizational setup Very loose organization, financing source

Start-up

founders and associates involved in the management Emerging formal organization,

Own investment

Early growth

founders, or professional manager in management Formal

Individual investment

Firms investment with banks backing in terms of loan Corporate finance from bank plus equity funds from public Matching finance available from all possible sources

Accelerating growth

organization with professional, manager or founder Complex

Sustaining growth

organization with professional manager Multilayer complex

maturity

management organization

Lev el of Co mpetition
Th e r a p i d g r o w t h i n t h e p r i ma r y c a p i t a l ma r k e t h a s l e d t o a n e v e n g r e a t e r p r o l i f e r a t i on o f M e r c h a n t B a n k e r s . Th e n u mb e r o f M e r c ha n t B a n k e r s h a s i n c r e a s e d f r o m o n l y 3 3 i n t h e ye a r 1 9 8 9 - 9 0 t o 4 0 5 i n 1 9 9 3 - 9 4 . P r e s e n t l y, t h e n u mb e r o f M e r c h a n t B a n k e r s i n d i f f e r e n t c a t e g o r i e s r e g i s t e r e d wi t h S EB I i s 5 0 1 ( Au g u s t 1 9 9 4 ) . C o n s i d e r i n g a t o t a l n u mb e r o f p u b l i c i s s u e s i n t h e ye a r 1 9 9 4 - 9 5 , a M e r c h a n t B a n k e r o n a v e r a g e v i e d l o r 3 .5 i s s u es . Th e r e f o r e a t ou g h c o mp e t i t i o n e x i s t s i n t h e l i n e o f f i s s u e m a n a g e me n t . Th e h i g h l e v e l o f c o mp e t i t i o n i n M e r c h a n t B a n k i n g b u s i n e s s e s pe c i a l l y i s s u e ma n a g e me n t i s e v i d e n t f r o m t h e f a c t t h a t o u t o f 1 4 0 C a t e g o r y - I me r c h a n t B a n k e r s i n 1 9 9 2 - 9 3 o n l y 6 6 we r e a b l e t o ma n a g e a n i s s u e . M e r c h a n t B a n k in g b u s i n e s s i s h a n d l e d b y a f e w established p l a ye r s and for the others there is a heavy

c o mp e t i t i o n . Th e r e f o r e , t h e i r s u r v i v a l d e p e n d e n t o n i n n o v a t i v e c a p i t a l i s s u e s t r u c t u r i n g a n d o t h e r i n c o me g e n e r a t i n g a c t i v i t i e s like leasing, high-purchase, i n v e s t me n t s and dealings in

s e c o n d a r y ma r k e t o p e r a t i o n s . As a r e s u l t o f l i b e r a l i z a t i o n a n d g l o b a l i z a t i o n , c o mp e t i t i o n i n c o r p o r a t e s e c t o r i s b e c o mi n g i n t e n s e . F o r t h e i r s u r v i v a l a n d g r o w t h , c o mp a n i e s a r e r e v i e wi n g t h e i r s t r a t e g i e s , structures and functioning. including This had led to corporate splits,

restructuring

me r ge r s ,

a c q u i s i t i on s ,

d i v e s t me n t s a n d f i n a n c i a l r e s t r u c tu r i n g . Th i s a r e a o f c o r p o r a t e a d v i s o r y s e r v i c e s wh i c h i s l a r g e l y i n t h e h a n d s o f p r i v a t e

c o n s u l t a n c y f i r m s , a l s o o f f e r s go o d o p p o r t u n i t y t o M e r c h a n t Bankers to extend the area of operations.

CURRENT AFFAIRS
RBI allows cash withdrawal from merchant banker terminals Besides ATMs, customers can now also withdraw cash up to Rs1000 from terminals at different merchant establishments, the Reserve Bank. As a further step towards enhancing the customer convenience in using the plastic money, it has been decided to permit cash withdrawals at POS (point of sale) terminals. To start with, this facility will be available for all debit cards issued in India, up to Rs1000 per day," RBI said in a statement issued here. The use of debit cards at POS terminals at different merchant establishments has been steadily increasing, it said. This facility is available only against debit cards issued in India.

At present cash withdrawal facility using plastic cards is available only at Automatic Teller Machines (ATMs) with the number of ATMs in the country at 44,857. There are 4,70,237 POS terminals in the country.

This facility may be made available at any merchant establishment designated by the bank and would be available whether the card holder makes a purchase or not. Morgan Stanley makes i-banking comeback The joint venture between JM Financial and Morgan Stanley was inked in 1997 and formalized in 1999. The JV had investment banking operations other than equity broking, research, wealth management and advisory and securities distribution operations. Post the split, JM Financial acquired the investment banking company together with its subsidiaries, which were engaged in fixed income, equity broking, wealth management, advisory and distribution businesses of $ 20 million. The Indian partner sold its 49% holding in JM

Morgan Stanley Securities (JMSPL), the institutional equity broking company to Morgan Stanley for $ 445 million. Bulge bracket investment banking major, Morgan Stanley has re-entered investment banking business on its own, after parting ways with JM Financial its former Indian partner. PNB aims profit of 7,500crore by 2013 The country's second largest public sector lender Punjab National Bank aims to double its profit to Rs7,500 crore in the next four years.

"The bank has set a target to expand total business to Rs10crore and earn net profit of Rs7,500 crore by 2013," said PNB Chairman and Managing Director K C Chakrabarty, who is charge of Deputy Governor of RBI. The growth driver would be better asset liability management, thrust on recovery, focus on customers and financial inclusion, he had said. Besides, the bank plans to open new line of businesses in the current fiscal including merchant banking subsidiary.

PNB Investment Services aims to provide investment consultancy and merchant banking services and would be operational in the next three months. Currently, these operations are run by a division of the bank. ICICI Bank to oversee mergers and acquisitions ICICI bank and its merchant banking arm, ICICI Securities (I-Sec), have entered into an agreement, whereby all M&A deals will be done out of ICICI Bank. The agreement goes on to define an M&A deal as one which involves change in management control.

This arrangement replaces the earlier practice of both I-Sec and ICICI Bank working together on M&A deals. Since a predominant number of people, who wish to be advised on M&A, also look for acquisition finance, it was decided

that the business should be housed in the bank, I-Sec MD Madhabi Puri Buch told ET. Now, if a corporate is seeking a sell mandate or a buy mandate, where the transfer of controlling interest takes place, the deal will be done by ICICI Bank.

ICICI Bank had initially entered the investment banking space in 2006. Over the past couple of years, both the bank and its subsidiary have been vying for deals. The new deal has taken into effect between both the entities from April 1. Birla Capital and Financial Services gets SEBI merchant banking license Birla Capital & Financial Services Ltd has been granted a merchant-banking license by the Securities and Exchange Board of India. The license will enable the company to offer a wide range of on-shore investment banking advisory and underwriting services in the Indian market.

The company, which is a part of the Yash Birla conglomerate, will initially concentrate on regulated services like initial public offerings, takeover, buybacks, delisting and valuations. It also offers non-regulated services like PE Syndication, M&A Advisory and other corporate advisory.

Birla Capital & Financial Services Ltd. is part of the 3,000-crore Yash Birla Group that has diversified interest in sectors like auto & engineering, textiles & chemicals and power & electrical, education & IT.

Primary market slowdown, affects merchant bankers wallet The recent slowdown in the primary market has impacted not only investors but merchant bankers as well, as there has been a significant decline of nearly 60

per

cent

in

their

percentage

fees

so

far

this

year.

"There is a clear drop in the merchant banking fees to Rs 216crore in comparison to Rs. 771crore for the calendar year 2007, indicating a drop of 57.9 per cent on annualized basis," Nexgen Capitals, the merchant-banking arm of brokerage firm SMC Global Securities.

Merchant bankers are those who advise the issuer about the public offer and manage the issue.

The average percentage fees has declined to 1.21 per cent so far this year from 2.24 per cent in 2007, the report added.

Reliance Power IPO of Rs 11,563 crore during this year with the merchant banking fee of Rs 50.6 crore, amounting to 0.44 per cent of the issue size had a great bearing on this trend. Nomura launches its investing banking operations in India

Nomura Financial Advisory and Securities (India) Private limited ('Nomura India'), a wholly-owned subsidiary of Nomura Holdings, Inc. ('Nomura'), has launched its equity sales and trading and investment banking operations in India.

In October 2008, Nomura, a global investment bank, acquired the majority of Lehman Brothers' employees in India, including the equities sales and trading, equity research, fixed income liquid markets sales and trading, and investment banking teams.

By integrating the former Lehman Brothers India franchise and obtaining its merchant banking licence and stock exchange memberships, Nomura India said in a statement it has significantly expanded its capabilities in India through a

wide range of onshore financial solutions spanning securities brokerage, securities underwriting and advisory services.

Conclusion
The merchant banking business has increased over a short period of time and with continued economic reforms. However, a stiff competition exists in this line and survival will depend upon the financial skills and spectrum of financial services and instruments offered by the Merchant Banker. Hence, Merchant Banking Service is taking shape for turbulent times. Merchant banking is an activity initially undertaken by a few large commercial banks in India, and it is now being adopted or undertaken by a few large commercial banks in India, and it is now being adopted or undertaken by practically every commercial bank through its Merchant Banking Department. The range of activities covered under merchant banking very wide indeed. The merchant banks offer a package of financial services. Unlike in the past, their activities are now primarily non-fund based. Therefore, they do not require much capital. One of the basic requirements of merchant banking is a highly professional staff and worldwide contacts. Merchant banking is usually international in character.