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Hans- Peter Bauer has suggested that merchant bank should
contain some eleven characteristics: high portion of
decision-makers as a percentage of total staff, quick
decision process, high density of information, intense
contact with the environment, loose organizational
structure, concentration of short and medium term
engagements, emphasis on fee and commission income,
innovative instead of repetitive operation, sophisticated
services on national and international level.
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MERCHANT BANKING IN INDIA


In 1857, the Chartered Mercantile Bank of India started its
operations.

During the 19
th
century, the foreign bankers operated in
India through the popular agency house called East India
House.

National Grindlays Bank received license from RBI in 1967.

Citibank started its merchant banking division in 1970.

SBI floated its merchant banking division in 1972.

Some of the banks which started Merchant banking are
Central bank of India, BOI, syndicate bank, BOB, Standard
chartered bank, ICICI, IFCI and IDBI etc.
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Banking commission Report-1972

a) Necessity
b) Distinct from commercial Banks
c) Investment Management and
Advisory services
d) Medium and small savers
e) Manage provident funds, pensions
and trusts.

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The Regulators
Guidelines of SEBI and Ministry of Finance
Companies Act 1956
Listing Guidelines of Stock Echanges and
Securities Contracts (Regulation Act)
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Merchant Banks and Investment Banks
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To act as a merchant banker, a person or firm should
hold a certificate granted by the regulator- the
securities and exchange board of India. SEBI
regulations provide for 4 categories of Merchant
Bankers;

Category I: It Will take up activities associated
with issue management.
Category II: Allowed to carry the roles of advisor,
consultant, co-manager, underwriter and portfolio
manager;
Category III: Allowed to act as underwriter, advisor,
and consultant; and
Category IV: Only allowed to act as advisor or
consultant.

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CAPITAL ADEQUACY NORMS :

Category I : Rs. 5 crores
Category II : Rs.50 lakhs
Category III : Rs.20 lakhs
Category IV : Nil

Category II, III and IV were subsequently abolished and no only
Category I remains.

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Should have knowledge and information about
the capital markets, trends in the stock
exchange, psychology of the investing public,
and technological and economical changes in
the country;

Ability to analyze and evaluate various
technical, financial, and economical aspects
concerning the formation of an industrial
project;

Safeguard the interest of the investing public.
Integrity and maintenance of high professional
standards are necessary for the success;
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Should realize the changing environment of
capital market and keep cordial relationship
with the investors;

They should develop innovative capital market
instruments for satisfying the changing needs of
investors;

Must restrict, concentrate and develop their
strength to keep costs under control.
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As per SEBI guidelines, Merchant Bankers are
authorized to undertake only issue related activities,
which restrict their scope of activities.
Issuing companies do not adhere to the schedule in
allotment and refund of application money thereby
creating trouble for the image of these bankers at the
investors.
Yet merchant banking is vast but should develop
adequate expertise to provide a full range of merchant
banking services

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SOME PROBLEMS OF MERCHANT BANKERS

SEBI stipulates high capital adequacy norms for authorisation
which prevents young,specialised professionals into merchant
banking business
Non co-operation of the issuing companies in timely allotment of
securities and refund of application of money etc.. is another
problem
Yet merchant banking is vast but should develop adequate
expertise to provide a full range of merchant banking services
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Should have qualification in finance, law or
business management;

Should have adequate office space, equipment
and manpower;

At least 2 merchant bank operations qualified
persons to be appointed;

Should be fair in all transactions;

SEBI will supervise the activities of merchant
bankers.
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o SEBI has laid responsibility on merchant banks for the true
disclosures and factual statements made on the prospectus and
the authenticity of such statements;
o SEBI has the power to suspend or cancel the authorization of
merchant bankers in case of any violation of the guidelines;
o Merchant bankers should send quarterly reports on the public
issue and rights issue on hand, the names of the companies,
size of the issue, and other details;
o Should abide by the code of conduct prescribed by SEBI;
o For the issue over Rs. 100 crs, the number of BRLMs should
be 4 to 5;
o Merchant bankers should make an agreement with corporate
bodies about their mutual rights, liabilities and obligations etc.
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Growth of primary market;

Entry of foreign investors;

Changing policy of financial institutions;

Development of debt market;

Corporate restructuring.
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