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Sunday 9 October 2011

Merchant Banking

Basic concepts
       Merchant banking involves financial advice and services.
        The person who performs merchant banking services are called as Merchant Banker.
        They act as the intermediaries.
        The term Merchant Banking is originated from London.
        In India, NATIONAL GRINDLAYS BANK initiated this service in 1969.
        CITIBANK followed it in 1970.
        SBI is the first Indian commercial bank to set up separate Merchant Banking Division in 1973.
        It was followed by ICICI in 1974.
Scope
¨  To channelize the financial surplus of general public.
¨   To co-ordinate the activities of various intermediaries.
¨   To ensure the compliance with rules and regulations governing the securities market.
Definitions
The dictionary meaning of Merchant Bank is:
 An organization that underwrites corporate securities and   advises clients on issues like corporate mergers, etc. involves  in the ownership of commercial ventures.
Securities and Exchange Board of India, Merchant Bankers Rules, 1992 defines merchant banker 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 or advisor or in relation to   issue management.
Funtions
  1. Stock Underwriting.
  2.  Issue Management.
  3.  Portfolio Services.
  4.  Placement and Distribution.
  5.  Loan Syndication.
  6.  Project Counseling.
Objectives
  Following are the objectives of merchant banking:-
   to regulate the raising of fund in primary market.
   it assures the issuer a market for rising resource at low cost. Effectively and easily.
   it ensures a high degree of protection to the interest of the investors.
   to provide with a dynamic and competitive market with high standard of professional competence, integrity and solvency.
   to ensure fair , efficient  and flexible primary market.


MB in India
PUBLIC SECTOR MERCHANT BANKERS:
   SBI Capital Market Ltd.
   Punjab National Bank.
   Bank of Maharashtra.
   IFCI Financial Services Ltd.
 PRIVATE SECTOR MERCHANT BANKER:
   ICICI Securities Ltd.
   Axis Bank
   Bajaj Capital Ltd.
   Reliance Securities Ltd.
   Tata Capital Markets Ltd.
Regulation
NEED FOR REGULATION:-
       to ensure high degree of protection of investors interest.
       The regulations provide for the merchant bankers a dynamic and competitive market.
       The regulations promote a primary market, which is fair, efficient and flexible and inspire confidence.
  Certificate from SEBI is must. There are four types of categories of Merchant Bank:
ž   Category I :  Can act as Issue Managers.
ž   Category II:  Can act only as Co-Managers.
ž   Category III: Can act as co-managers but cannot undertake portfolio management.
ž   Category IV: Can act merely as consultant / Advisor.
Capital adequacy norms:
  The Capital Adequacy Norms shall not be less than the Net   Worth of the person making the application for grant of   registration. For the purposes of this regulation “net worth” means in the case of an applicant which is a partnership firm or a body corporate, the value of the capital contributed to the business of such firm or the paid up capital of such body corporate plus free reserves as the case may be at the time of making application.
Net Worth shall be as follows, namely:
 CATEGORY I : Rs. 5,00,000,00.
 CATEGORY II : Rs. 50,00,000.
 CATEGORY III : Rs. 20,00,000.
 CATEGORY IV : Rs. Nil
Services
  1. Preparation of Prospectus and Licensing with SEBI.
  2.  Pricing Decision.
  3.  Marketing in capacity of Lead Managers.
  4.  Management of Debentures issue.
  5.  Assistants in ADR/GDR and other international instrument
  6.  Advice on Mergers and Acquisitions.
  7.  Corporate Structuring advice.
ADVANTAGES AND DISADVANTAGES OF MERCHANT BANKING
ADVANTAGES:
  1.  Account Management.
  2.  Transactions on Credit Cards.
  3.  Easy Purchasing.
  4.  Security.
 DISADVANTAGES:
  1.  Large corporate customers.
  2.  Deals sometimes meet with unqualified success.
  3.  Risk is attached.
  4.  Less flexibility.
  5.  Risk loss of assets.

¢  Merchant Bank and Investment Banks sound the same but are totally different.
¢   Provide advice and guidance to its various clients.
¢   All Merchant Banks are under the check of SEBI.
¢   Merchant Banks has evolved through the ages.



1 comment:

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