Merchant Banking - basics by saylee

8/14/2019 Merchant Banking - basics by saylee

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Merchant

Banking


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INTRODUCTION

Refers toBritishMerchantbanking .

Concernedwith mobilising

savings of


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DEFINITION

MERCHANT BANKING is defined asan institution which covers a widerange of activities such as

management of customer services,portfolio mgmt, credit syndication,acceptance credit, counselling,

insurance etc.


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ORIGIN Originated through

London merchants.

Extension ofactivities to

domestic businessof syndication oflong-term & short-term finance, share

transfer agents,


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Merchant

Banking

In India?


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Merchant banking in

IndiaNeed for merchant banking was

felt with rapid growth in number& size of issues made in primarymarket.

Merchant banking services werestarted by foreign banks, namelyNational Grindlays in 1967 &Cit bank in 1970 .


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Merchant banking services wereoffered along with othertraditional banking services.

SBI was first Indian bank to setup Merchant banking division in1972.


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DIFFERENCE BETWEENCOMMERCIAL BANKING &

MERCHANT BANKING Deals with Debt

& Debt related

finance.

Asset oriented.

Generally avoidrisks.

Deals withEquity & Equity

related finance.

Management

oriented.

Willing to

accepts risks.


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Merchant

Banking

Services?


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SERVICES OF MERCHANT

BANKThe financial institutions in India

could not meet the demand forlong-term fund required by theever expanding industry andtrade.

Corporate sectors enterprise

meet their demand through


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Preparing projectreport for govt.approval , financialassistance

ProjectCounseling

2

Covers the entirefield of merchantbanking, Ltd togiving suggestions

CorporateCounseling1

SummaryParticularsSrNo

Services of Merchant

Banks


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Drafting, completion of

formalities, appoint

Managers to

Issue

6

Guarantee given by theunderwriter, make raisingof external resource easy

Underwriting5

Marketing corporate

securities, intermediary intransfer of capital fromone who owns to needy

Issue

Management

4

Assistance rendered toget term loan for project,

help client makeappraisal, designingcapital structure etc

LoanSyndication

3


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Provide help in betterand smooth trade toNRIs

Non-ResidentInvestment

10

Help in areas involvingforeign currency

Off ShoreFinance

9

Middlemen in setting

negotiation

Mergers

andtakeovers

8

Investment in different

kind of securities

Portfolio

Management

7


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Merchant Banker asManagers, Consultants or

Advisors Companies are free to appoint one or

more agencies as managers to the

issue. Sebi guidelines prescribe that issue

should be managed atleast by oneauthorised merchant banker.

Not more than two M.B. should beappointed as lead managers to a

public issue.

In issue over Rs.100 crores,


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Merchant Banker As lead

ManagerAppointment of a lead manager

by a companyS.

No

Size of the issue Maximum

Number Of

Lead Manager

1. Less than Rs.50 crores 2

2. Rs.50 crores to Rs.100 crores 33. Rs.100 crores to Rs.200 crores 4

4. Rs.200 crores to Rs.400 crores 5

5. Above Rs.400 crores 5 or more as

prescribed by

SEBI


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Duties & Responsibilities

Of LM To enter into anagreement

Certificate of registrationwith SEBI

Work of issuemanagement

Clearly defined

responsibility


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Due care & diligenceSubmitting due diligence

certificates

Submit all particulars to SEBI

Suggestions or modifications

Collections of the amountEnsuring refund

Inform depository participants


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Qualities Required of

Merchant Bankers

Ability to analyse

Abundantknowledge

Ability to built up

relationship Innovative

approach

Integrity

(left) Rashesh Shah

Chairman & CEO, Edelweiss

(right)Nimesh Kampani

Chairman & MD, JM Financial

(Best merchant bankers)


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CATEGORY OF MERCHANT

BANKER CATEGORY

1st :-

2nd :-

3rd :-

4th :-

MINIMUMNETWORTH

1 crore

50 lacs

20 lacsNIL


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The M.B.registered with SEBIclassified according to the

category :-MERCHANT

BANKER

PUBLIC SECTOR PRIVATE SECTOR

COMMERCIAL

BANKS :- 24

INTERNATIONALBANKER :- 10

FINANCIAL

INSTITUTION :- 6

STATE

INSTITUTION :- 4

BANKS :- 10

FINANCE &

INVESTMENT :- 231

LEASING


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Merchant

banking

Problems.?


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Restriction of merchant

banking activities

SEBI guidelines have authorisedmerchant bankers to undertakeissue related activities and madethem restrict their activities orthink of separating theseactivities from present one and

float new subsidiary and enlarge


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Minimum net worth of

Rs.1 crore SEBI guidelines

stipulate that a

minimum networth of Rs.1crore for

authorisation ofmerchantbankers.


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MERCHANT BANKERS

COMMISSIONMaximum 0.5%

Project appraisal fees

Lead Manager :-

- 0.5% upto Rs.25 crores

- 0.2% more in excess ofRs.25 crores


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Underwriting fees Brokerage commission

1.5% Other expenses :-

- Advertising

- Printing- Registrars

expenses

- t m t


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Merchant

banking

Scope in India?


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1) Growth of new issues

market Indian market largest emerging

market

Domestic and foreign investorssetting up their biz here.

Many public and private issuescoming up

Growth in new issues market

Sco e for M.Bs. have risen


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2) Entry of FII

Indian capital market is globalised

Indian Cos. are permitted to invest ineuro issues. Similarly, FII arepermitted to invest in India.

Hence they need M.Bs to advisethem for their invt in India.

Increasing no. of JVs also require


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3) Changing policy of FI

Liberalisation of policies

FI would require expert servicesof M.Bs for project appraisal,

financial management, financialrestructuring etc.


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4) Development of debt

market Good portion of

capital can be

raised throughdebt instruments.

Tremendousopportunities toM.Bs.


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5) Innovations in Financial

InstrumentsNew financial instruments have

come up.

M.Bs are market makers for

these instruments.

)


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6) CorporateRestructuring Liberalisation and globalisation

Competition in corporate sector

becoming intense.

Cos. reviewing their strategies,

structure and functioning etc. leadingto corporate restructuring.

Good opportunity to M.Bs to extend


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7) Disinvestment It means reduction

of some kind of

asset of a firm forachieving eitherfinancial or ethicalobjectives.

Motive ofdisinvestment is to


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Conclusion

Inspite of problems popping up,merchant banking in India has

vast scope to develop because oflot of domestic as well as foreignbusinesses booming here. Indianeconomy provides an amicableenvironment for these firms toset up, flourish and expand here.


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Thank

you...

Documents

Merchant Banking - basics by saylee