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Merchant Banking 35889

Merchant banking provides advisory and financial services to corporations but does not provide regular banking services to the public. They advise on corporate matters like mergers and acquisitions. In India, merchant banking activities are regulated by SEBI and include corporate advisory, issue management, and portfolio management. Popular Indian merchant banks include JP Morgan, JM Financial, and Goldman. Merchant banking plays an important role in helping companies grow and raising funds through the capital markets.

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21 views

Merchant Banking 35889

Merchant banking provides advisory and financial services to corporations but does not provide regular banking services to the public. They advise on corporate matters like mergers and acquisitions. In India, merchant banking activities are regulated by SEBI and include corporate advisory, issue management, and portfolio management. Popular Indian merchant banks include JP Morgan, JM Financial, and Goldman. Merchant banking plays an important role in helping companies grow and raising funds through the capital markets.

Uploaded by

nfitnesshub
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Merchant Banking

Introduction
• Merchant banking is an entity that performs different
types of financial activities for its clients. It does not
provide an regular banking services to regular public.
• Merchant bank provides advisory services on
corporate matters to the firms in which they invest.
• They are also experts in international trade, which
make them specialists in dealing with multinational
corporations.
• They also give expert advice on mergers and
acquisition, and, Project counseling.
• In the USA, the historical term Merchant bank
refers to an ‘Investment Bank’.
• Their activities are regulated by SEBI.
• Popular merchant banks of India are:
1. JP Morgan
2. JM Financial
3. Goldman
4. Citi
Definition
• Rule 2(E) of SEBI rules 1992, defines Merchant
Banking as, “any person who is engaged in the
business of issue management either by
making arrangements regarding selling,
buying, or subscribing to securities as
manager-consultant, advisor or rendering
corporate advisory services in relation to such
issue management.
Features
• Providing consultancy services is the key
feature of merchant banking in India
• Acts as an financial engineer.
• Promotion of financial surplus.
• A variety of services are offered to help in the
growth of capital markets.
Objectives
• Channelizing the financial surplus of the
general public into productive investment
avenues.
• Providing long term funds to projects or
companies.
• Portfolio management
• Corporate advisory and issue management
History

• Merchant banking started in Italy in late medieval


times
• Reached in France during the seventeenth century
• Italian merchant bankers introduced merchant
banking in England in eighteenth century
• European bankers developed merchant banking in
USA
• In 1972, merchant banking started in south Africa
• In 1967, National Grindlays bank started merchant
banking in India
Merchant banking in India
• Till early 1960s, there was no merchant banking in Indian banking
system.
• It was the Grindlays Bank which started merchant banking services in
1967. In 1967, the Reserve Bank of India(RBI) granted license to ‘The
National Grindlays Bank’ to perform the services relating to issue
management.
• On the recommendation of Banking commission, State Bank of
India(SBI) became the first Indian Bank to start with the merchant
banking activities in 1972-73.
• The other banks that followed the SBI were Central Bank of India, Bank
of India, Syndicate Bank started merchant banking services in 1977.
• Among the development banks, ICICI Bank started merchant banking
in 1973, followed by IFCI(1986) and IDBI(1991).
Merchant bankers Commission
• Merchant banking activities are regulated by
1. Guidelines of SEBI and ministry of finance.
2. Companies Act 1956
• Merchant bankers are eligible to charge commission
from their clients as detailed below:
1. A merchant banker can charge 0.5% as the maximum
commission for the whole issue.
2. They can charge project appraisal fees.
3. Brokerage commission 1.5%.
4. Underwriting commission.
Underwriting Commission
Types of securities On amount devolving on On amount subscribed by
underwriters public
Equity shares 2.50% 2.50%
Preference
Shares/Debentures
Up to Rs. 5,00,000 2.50% 1.50%
More than Rs. 5,00,000 2.00% 1.50%
Services of merchant banker
• It is the intermediary between the company
and the issue of capital
• Various stages are:
1 Business planning stage 1. Project Feasibility study
2. Advise on capital structuring
2 Equity raising stage 1. Pricing decision
2. Underwriting to the issue
3. Post issue management
4. Assistance in ADR/GDR
3 Debt raising stage 1. Management of debenture issue
2. Loan syndication
4 Strategic advice stages 1. Advise on expansion program
2. Advise on mergers and acquisition
3. Corporate structuring advise.
Qualities of good merchant bankers

LEADERSHIP

AGGRESSIVE
ATTITUDE
ACTION TOWARDS
PROBLEM
SOLVING

CO-OPERATION
AND
FRIENDLINESS
Responsibilities of merchant bankers

Investor Pricing of
protection the issue

Legal Project
aspect evaluation
Guidelines for merchant bankers
• The merchant banker should have a
professional qualification
• Should comply with the SEBI regulations and
submit reports accordingly
• Proper fees should be collected by SEBI
• Proper information should be given when
inspected by SEBI
• The Merchant banker will be suspended if
found violation of guidelines
Scope of merchant banking in India
• Entry of foreign investors.
• Corporate restructuring.
• Growth of new issue market.
• Innovation in financial investments.
Main merchant banking companies
• Public sector
1. Bank of Maharashtra
2. Punjab national bank
3. IFCI financial services LTD
• Private sector
1. Axis bank LTD
2. Kotak Mahindra capital
3. Yes bank LTD
Key foreign players
Conclusion
• Merchant banking plays a very important role. It
helps the corporate companies to develop in
various fields of business.
• Function of merchant bankers varies from country
to country
• In india merchant bankers are allowed to
undertake those activities which are related to
securities market including issue management and
are prohibited from carrying on fund based
activities.
Thank you

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