Shikha Bhotika GB045

What is merchant banking??

A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters to the firms they lend to In short, merchant bankers assist in raising capital and advice issues.

History of merchant banking

Merchant banking was first started in India in 1967 by Grindlays Bank. It has made rapid progress since 1970. After this, SBI in 1972 and ICICI in 1973 was the first commercial bank and financial institution respectively

Problems and hurdles

Industry compartmentalization Malafide practices regulations

Obligations and responsibilities

Merchant banker should maintain proper books of accounts, records and submit half yearly/annual financial statements to SEBi within stipulated period of time No merchant banker should associate with another merchant banker who is not registered in SEBI Merchant bankers should not enter into any transactions on the basis of unpublished information available to them in the course of their professional assignment Every merchant banker must submit himself to the inspection by SEBI when required for and submit all the records Every merchant banker must disclose information to the SEBI when it requires any information from them All merchant bankers must abide by the code of conduct prescribed for them Every merchant banker who act as lead manager must enter into an agreement with the issuer selling out mutual rights, liabilities, obligations, relating to such issues with particular reference to disclosures allotment, refund etc.

Scope of merchant banking

Size and dynamics of the market Restrictions- liberlization Banking policies Corporate culture Corporate dynamics

Functions of Merchant Banking

Raising Finance for Clients : Merchant Banking helps its clients to raise finance through issue of shares, debentures, bank loans, etc. It helps its clients to raise finance from the domestic and international market. This finance is used for starting a new business or project or for modernization or expansion of the business. Broker in Stock Exchange : Merchant bankers act as brokers in the stock exchange. They buy and sell shares on behalf of their clients. They conduct research on equity shares. They also advise their clients about which shares to buy, when to buy, how much to buy and when to sell. Large brokers, Mutual Funds, Venture capital companies and Investment Banks offer merchant banking services.

Project Management : Merchant bankers help their clients in the many ways. For e.g. Advising about location of a project, preparing a project report, conducting feasibility studies, making a plan for financing the project, finding out sources of finance, advising about concessions and incentives from the government. Advice on Expansion and Modernization : Merchant bankers give advice for expansion and modernization of the business units. They give expert advice on mergers and amalgamations, acquisition and takeovers, diversification of business, foreign collaborations and joint-ventures, technology upgradation, etc.

Managing Public Issue of Companies : Merchant bank advice and manage the public issue of companies. They provide following services:Advise on the timing of the public issue. Advise on the size and price of the issue. Acting as manager to the issue, and helping in accepting applications and allotment of securities. Help in appointing underwriters and brokers to the issue. Listing of shares on the stock exchange, etc.

Handling Government Consent for Industrial Projects : A businessman has to get government permission for starting of the project. Similarly, a company requires permission for expansion or modernization activities. For this, many formalities have to be completed. Merchant banks do all thiswork for their clients. Special Assitance to Small Companies and Entreprenuers : Merchant banks advise small companies about business opportunities, government policies, incentives and concessions available. It also helps them to take advantage of these opportunities, concessions, etc.

Services to Public Sector Units : Merchant banks offer many services to public sector units and public utilities. They help in raising long-term capital, marketing of securities, foreign collaborations and arranging longterm finance from term lending institutions. Revival of Sick Industrial Units : Merchant banks help to revive (cure) sick industrial units. It negotiates with different agencies like banks, term lending institutions, and BIFR (Board for Industrial and Financial Reconstruction). It also plans and executes the full revival package.

Portfolio Management : A merchant bank manages the portfolios (investments) of its clients. This makes investments safe, liquid and profitable for the client. It offers expert guidance to its clients for taking investment decisions. Corporate Restructuring : It includes mergers or acquisitions of existing business units, sale of existing unit or disinvestment. This requires proper negotiations, preparation of documents and completion of legal formalities. Merchant bankers offer all these services to their clients.

Money Market Operation : Merchant bankers deal with and underwrite short-term money market instruments, such as:Government Bonds. Certificate of deposit issued by banks and financila institutions. Commercial paper issued by large corporate firms. Treasury bills issued by the Government (Here in India by RBI).

Leasing Services : Merchant bankers also help in leasing services. Lease is a contract between the lessor and lessee, whereby the lessor allows the use of his specific asset such as equipment by the lessee for a certain period. The lessor charges a fee called rentals. Management of Interest and Dividend : Merchant bankers help their clients in the management of interest on debentures / loans, and dividend on shares. They also advise their client about the timing (interim / yearly) and rate of dividend.

CONCLUSION

The merchant banker plays a vital role in channelising the financial surplus of the society into productive investment avenues. Hence before selecting a merchant banker, one must decide, the services for which he is being approached. Selecting the right intermediary who has the necessary skills to meet the requirements of the client will ensure success. It can be said that this project helped me to understand every details about Merchant Banking and in future how its going to get emerged in the Indian economy. Hence, Merchant Banking can be considered as essential financial body in Indian financial system. Market development is predicted on a sound, fair and transparent regulatory framework. To sustain the growth of the market and crystallize the growing awareness and interest into a committed, discerning and growing awareness and interest into an essential to remove the trading malpractice and structural inadequacies prevailing in the market, and provide the investors an organized, well regulated market.

Thank You