final merchant banking project

8/3/2019 Final Merchant Banking Project

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M E R C H A N T B A N K

Bachelor of Commerce (Banking & Insurance)

SEMESTER-V

Submitted in Partial Fulfillment of the requirement for the award of the Degree of

Bachelor of Commerce

(Banking & Insurance)

By

BHARATI .N. SAH

PROJECT GUIDE

MR. NAVIN SARAF

SHREE SHANKAR NARAYAN EDUCATION TRUST’S

SHANKAR NARAYAN COLLEGE OF ARTS,

COMMERCE-BMS, BSCIT, BBI, BAF



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Shree Shankar Narayan Education Trust’s

SHANKAR NARAYAN COLLEGE OF ARTS, COMMERCE.

B.M.S., B.Sc.IT. , B.Com. (Banking & Insurance) &

B.Com. (Accounting & Finance)

ACKNOWLEDGEMENT

We would like to thank “MR. VIVEK”who provided us invaluable advice &

guidance for the “MERCHANT BANK”. We would also like thank to all

them who helps me for completing the project work.

Special thank to the librarian of our college for helping us in

finding out the relevant reference material for our project.

We would like to thanks our parents, family members & all our

college friendswho gave us all the support and always came forward

whenever helping hand was needed.

Once again, we thanking all to them who directly & indirectly help us

for completing this project.



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EXECUTIVESUMMARY

Although merchant banking activity was ushered in two decades ago, it was only

in 1992 after the formation of Securities and Exchange Board of India that it is

defined and a set of rules and regulations in place. Today a merchant banker is

who has the ability to merchandise that is, create or expand a need and fulfill

capital requirements.

I have given an overview about the financial markets and the role of merchant

bankers in the growth of these markets. My project covers how the merchant banks

works, rules & regulations laid by SEBI & its impact on the merchant banking

activities. Their importance in the economy is expected to grow even further in the

coming years with an increasing proportion of household savings getting invested

in corporate & other securities. Hence, my project covers the challenges and

advantages, which India will get and is getting by merchant banking activities. I

have covered several services provided by Merchant Bankers & the role of

Merchant bankers in providing those services to the business world.

Finally, the top players, which exist in merchant banking, are also covered; their

services are also been focused. To get the practical knowledge about merchant

banking activities I have interviewed visited State bank of India, Kotakmahindra

bank and SPA Merchant bankers ltd.



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DEFINITION OF BANKING

The Oxford Dictionary defines bank as ―an establishment for the custody of

money, which it pays out on a customer‘s order‖

Banking Company of India has been defined in the Banking Companies Act,1949

as, ―one which transacts the business of banking which means the accepting for the

purpose of lending or investment of deposits of money from the public, repayable

on demand or otherwise and withdraw by cheque, draft, order or otherwise‖

WHAT IS MERCHANT BANKING?

The term merchant banking is used differently in different countries and so there is

no precise definition for it. In London, merchant banker refers to those who are

members of British Merchant Banking and Securities House Association who carry

on consultation, leasing, portfolio services, assets management, Euro credit, loan

syndication etc. In America, merchant banking is concerned with mobilizing

savings of people and directing the funds to business enterprise.

The poet war period witnessed the rapid growth of merchant banking through the

innovative instrument like Euro dollar and the growth of various financial centers

like Singapore, Hong Kong, Bahrain, Kuwait, Dubai etc.



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MERCHANT BANKING IN INDIA

In India prior to the enactment of Indian Companies Act, 1956, managing agents

acted as issue houses for securities, evaluated project reports, planned capital

structure and to some extent provided venture capital for new firms. Few share

broking firms also functioned as merchant bankers.

The need for specialized merchant banking service was felt in India with the rapid

growth in the number and size of the issues made in the primary market. The

merchant banking services were started by foreign banks, namely the NationalGrindlays Bank in 1967 and the City Bank in 1970. The Banking Commission in

its report in 1972 recommended the setting up of merchant banking institutions.

This marked the beginning of specialized merchant banking in India.

To begin with, merchant banking services were offered along with other traditional

banking services. In the mid-eighties, the Banking Regulation Act was amended

permitting commercial banks to offer a wide range of financial services through

the subsidiary rule. The State Bank of India was the first Indian Bank to set-up

Merchant Banking Division followed by Bank of India, Bank of Baroda, Canara

bank, Punjab National Bank and UCO Bank. The merchant banking gained

prominence during 1983-84 due to new issue boom.



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NEED & IMPORTANCE IN INDIA

Important reason for the growth of merchant banking is due to exerting excess

demand on the sources of funds forever expanding industry and trade.

Corporate sector had the only alternative to avail of the capital market services

for meeting their long-term financial requirements through capital issues of

equity and debentures

Merchant banks can play highly significant role in mobilizing funds of savers to

investible channels assuring promising return on investments activity.

With the growth of merchant banking profession corporate enterprises in both

public and private, sectors would be able to meet the growing requirements for

the funds for establishing new enterprises, undertaking

expansion/modernization/diversification of the existing enterprises.

Merchant banks have been procuring impressive support from capital market

for the corporate sector for financing their projects.

Merchant bankers advise the investors of the incentives available in the form of

tax relief‘s, other statutory relaxations, good return on investment and capitalappreciation in such investment to motivate them to invest their savings in

securities.

Thus, the merchant bankers help industry and trade to raise funds, and the

investors to invest their saved money in sound and healthy concerns with

confidence, safety and organizations for higher yields.



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CLASSIFICATION OF MERCHANT BANKER

Category I – Merchant Banker:

The capital adequacy requirement for category I, merchant banker is that the net

worth should not be less than Rs.1 crore.

The banker would be allowed for:

Carry on any activity of the issue management which will inter-alia consist of

preparation of prospectus and other information relating to the issue, determining

financial structure tie-up of financiers and final allotment and refund of

subscription and act as Advisor, Consultant, Manager, underwriter or portfolio

manager.

CATEGORY II – MERCHANT BANKER:

The minimum capital adequacy requirement for category II Merchant Banker is anet worth of Rs.50 lakhs. This Merchant Banker is allowed to act only as adviser,

consultant, co-manager, underwriter and portfolio Manager.

CATEGORY III- MERCHANT BANKER:

The category III, Merchant Banker should have a minimum network of Rs.20 lakhsto meet the capital adequacy requirements. The possible activities are to act as

underwriter, adviser and consultant to an issue.



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CATEGORY IV- MERCHANT BANKER:

There is no capital adequacy requirement specified for category IV, Merchant

Banker is only allowed to act as adviser or consultant to an issue.

MERCHANT BANKERS COMMISSION

As determined by the Finance Ministry, Government of India, Merchant Bankers

are eligible to charge commission / fee from their clients as detailed below :

(i) A Merchant Banker can charge 0.5% as the maximum as commission for

whole of the issue.

(ii) They can charge project appraisal fees.

(iii) A lead manager can claim a commission of 0.5% up to Rs.25 crore and 0.2%

in excess of Rs.25 crore.

(iv) Underwriting Commission.

(v) Type of Security

On amount

Devolving on

underwriters

On amount

subscribed by

public

1.Equity shares

2.Preference

share/debentures

(a) UptoRs. 5 lakh

(b) Excess of Rs. 5 lakh

2.50

2.50

2.00

2.50

1.50

1.00



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Non Resident Investment

Working Capital Finance

Acceptance Credit and Bill Discounting

Venture Capital

Lease Financing

Mutual Funds

Relief To Sick Industries

CORPORATE COUNSELING

Corporate Counseling refers to set of activities that is undertaken to ensure

efficient running of a corporate enterprise at its maximum potential through

effective management of finance.

It aims at rejuvenating old-line companies and ailing units, and guiding existing

units in locating areas of growth and diversification. A merchant Banker as

managerial economists guides the client on aspects of organizational goals

locational factors, organization size and operational scale, choice of product and

market survey, forecasting for a product cost reduction and cost analysis allocation

of resources investment decisions capital management and expenditure control

pricing methods and marketing strategy, etc. As a financial and investment expert a

merchant banker guides corporate clients in areas covering financial reporting,

project measurement, working capital management, financial requirements and

sources of finance, evaluating financial alternatives, rate of return and cost of

capital, besides providing basic corporate services such as financial rearrangement,



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reorganization, mergers and acquisitions, etc.

The scope of corporate counseling is limited to giving suggestions and opinions to

the client and help taking actions to solve their problems. It is provided to a

corporate unit with a view to ensure better performance, maintain steady growth

and create better image among investors.

Following are the activities which from part of corporate counseling.

1. Providing guidance in areas of diversification based on the government‘s and

licensing policies.

O

B

J

E

C

T

I

V

ES

Guidance

Project formation

Implementation

Modernization

Diversification

Mobilising Resources

Raising Working

Capital



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6) Assisting in obtaining approvals / licenses / permissions / grants, etc from

government agencies in the form of letter of intent, industrial license, DGTD

registration, and government approval for foreign collaboration.

7) Providing guidance to Indian entrepreneurs for making investment in Indian

projects in India and in Indian joint ventures overseas.

8) Identifying of potential investment avenues.

9) Carrying out precise capital structuring and shaping the pattern of financing.

10) Arranging and negotiating foreign collaboration, amalgamations, mergers, and

takeovers.

11) Undertaking financial study of the project and preparation of viability reports

to advice on framework of institutional guidelines and laws governing corporate

finance.

12) Providing assistance in the preparation of project profiles and feasibility

studies based on preliminary project ideas, covering the technical, financial and

economic aspects of the project from the point of view of their acceptance by

financial institutions, and banks.

13) Advising and assisting clients in preparing applications for financial assistance

to various national financial institutions, state level institutions, banks, etc

14) Assisting clients in making applications for obtaining letters of intent,

industrial license, DGTD registrations, etc.

15) Providing assistance in seeking approvals from the Government of India for

foreign technical and financial collaboration agreements, guidance on investment

opportunities for entrepreneurs coming to India.



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Project counseling Example

Offshore model of projects execution is here to stay and more and more projects

are being staffed by offshore consultants as well as the development of work

products. Most of this work is done in India through a company‘s India operations.

Here are some guidelines that encompass generic as well as India-specific pointers

that can help while managing the offshore efforts in India and elsewhere.

1. Know the partner

The resources are half the globe away in a different culture and time zone with

completely different set of priorities. What is important or even imperative to us

may not be so to a person so far detached.

Therefore its critical to introduce everyone as a person detailing his/her strengths

and capabilities. This provides the human touch and a persona rather than dealing

with a name and a voice.

2. Role Clarity Things are not clear for two people working in the same room unless clear

distinction between responsibilities is made. Detail out expectations and roles of

EVERYONE down to the last resource in detail. For most part people on both

sides have not seen each other‘s face or known each other personally so nothing

should be assumed!

3. Communication

Nothing is more important than regular and sustained communication. It can help

to have a Weekly conference call between different groups at the start of the week

and a complete Project status conference call at the end of the week to check



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status. People need to vent out their feelings and exchange their minds - let them!

Indians, and most Asians, are in general non-confrontational so being extra patient

and sensitive with the offshore resources while eliciting views. More than normal

communication helps catch potential problems early on.

Encourage the team members to create their detailed profile in the Project Portal (if

you have one) along with their pictures. It helps to ―personalize‖ the name people

deal with. Use an IM (maybe Skype?) as the most preferred communication on real

time basis - it can be fast and real-time.

4.Onshore Team Buddy/CoachThe Offshore people coming on the project onshore for learning/rotation need

guidance on various issues like team policies, communication expectations, work

expectations on a US project etc. It really helps a new person to interact and

discuss her/his doubts and issues. Something that may not be an issue with an

onshore US resource may be a source for depression for an offshore person coming

to US for the first time.

5. Detailed Tracking

Prepare three or four different metric charts, for example, on number of test cases,

defects opened, rework efforts, number of rebuilds, frequency of defect arrival,

duration of resolution, composite effort logged during the week, etc. Make sure

people fill the metrics and circulate to all stake-holders. People need to appreciate

each other‘s work and know the faulting metrics.

6. Detailed Planning

Provide cushion in schedules and committed dates. There is always some



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unexpected/urgent activity which will hurt the on-going task. We are talking about

a different nation here where a lot of things may happen differently. The vacation

and holiday schedules for the offshore members should be obtained well in

advance and built in into the work plan.

Make sure that the combined team schedule is known to everyone and posted on a

common drive/access area. Have your build schedule ready for the month in

advance. This will help developers plan in advance what code they want to check

in. No last minute rush or hitch.

7. Transition PlanningPlan your transition very meticulously; viz. skills, machines, docs etc. Many

people are not given opportunity to learn what they are expected to do. The out-

going people don‘t like to spend any effort on hand-over, as they have no more

stakes left in the project. Make sure that people who have made sacrifices of

leaving their families and come on a project in a different

culture - most of them for the first time - feel appreciated for the work that was

accomplished.

Any mistakes or underperformance should be communicated when it happens and

in person. Asian cultures avoid being reprimanding/informing about mistakes in

public.

8. It’s a Partnership

Normally, the onshore people tend to take a view that since they are facing the

customer so they should decide what is good for project. Do not let onshore people

dominate or ―boss‖ the off -shore team. If off-shore team looses motivation or

interest, the whole thing falls flat. As it is, off-shore team is working on limitations



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of not seeing the client, give them as much ―light‖ as possible on how things are

here. Do not hide things from them. Let them feel a part of marketing team too. Do

not treat them as back office boys. Bring them in front line as equal partners.

9. Rotation

Have a rotation of people between off-shore and on-site team. They will appreciate

each other. The bottomline, therefore, is prepare and plan well and be tuned into

the cultural differences to use the strengths of the synergies!!

CAPITAL RESTRUCTURING

Activities that are carried out to assist projects in achieving their maximum

potential through effective capital structuring and to suggest various strategies to

widen and restructure the capital base, diversify operations and implement schemes

for amalgamations, merger or change in business status are collectively known as

Capital Restructuring Services‘.

Under the gamut of capital restructuring services merchant bankers provide advice

to companies governed by FERA on disinvestments to their maximum advantage

and restructuring the capital for ailing or sick units. Capital restructuring is

undertaken by analyzing the capital structure ratios and the debt service coverage,

with overall impact on fund-generating capacity of the client corporate unit.

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FOLLOWING ARE THE SERVICES COVERED.

1. Examining the capital structure of the client company to determine the extent

of capitalization required.

2. Preparing a comprehensive memorandum for the controller of capital issues and

securing consent where the capitalization takes place through issue of bonus

shares.

3. Suggesting an alternative capital structure confirming to legal requirements, viz.

extent of capitalization of reiseve and quantum of disinvestments by ‗offer for sale‘

and fresh issues of corporate securities such as equity share, and preference share

in the case of FERA companies.

4. Preparing a memorandum covering valuation of shares and justifying the level

of premium applied for.

5. Critically examining tax implications where the proposal involves offer for sale.

6. Suggesting the ideal capital restructuring for sick units and advising the client

companies on the extent and means of bringing fresh capital into business.

7. Capital restructuring may cover mergers, takeovers and amalgamations,

involving modernization or diversification of the existing production system and

the units.



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CREDIT SYNDICATION

Activities connected with credit procurement and project financing, aimed at

raising Indian and foreign currency loans from banks and financial institutions, arecollectively known as ‗credit syndication‘.

Activities covered under credit syndication are as follows.

1. Estimating the total cost of project to be undertaken.

2. Drawing up a financing plan for the total project cost which conforms to the

requirements of the promoters and their collaborators, financial institutions and

banks, government agencies and underwriters.

3. Preparing loan application for financial assistance from term lenders/ financial

institutions/ banks and monitoring their progress including pre-sanction

negotiations.

4. Selecting institutions and banks for participation in financing.

5. Follow-up of term loan application with the financial institutions and banks and

obtaining the approval for their respective share pf participation.

6. Arranging bridge finance.

7. Assisting in completion of formalities for drawing of term finance sanctioned

by institutions by expediting legal documentation formalities, drawing agreements



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etc prescribed by the participating financial institutions and banks.

Example of Credit Syndication

While CSN is banking on loans from a syndicate including Goldman Sachs,

Barclays Capital, and BNP Paribas for acquiring Corus, Tata Steel has planned to

finance its takeover deal through debt from a consortium of bankers led by ABN

Ambro Bank, Deutsche Bank and Bank of America without disturbing its ongoing

expansion projects either in India or overseas

Mumbai, March 29

RELIANCE Industries Ltd has concluded a loan syndication of $250 million (Rs

1,125 crore). The transaction is the first major syndication since Moody's upgraded

India'sratings to Investment grade.

The lead arrangers for the syndication were ANZ Investment Bank, BA Asia Ltd,

Credit Lyonnais, DBS Bank Ltd, Hong Kong and Shanghai Banking Corporation

Ltd and Mizuho Financial Group, a news release said. The deal was sub-written by

three banks - Arab Investment Company S. A. A., Bank of Tokyo Mitsubishi Ltd

and NORD/LB NordeutscheLandesbankGirozentrale, Singapore Bras risks of

lending increase due to rising interest rates, banks are also looking at loan

syndication as an important contributor to their fee income.



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ISSUE MANAGEMENT AND UNDERWRITING

Public limited companies can raise capital by issue of shares and debentures from

the public. For this purpose they have to complete a certain procedure, which islaid down in the Companies Act, 1956 as well as Securities and

Exchange Board of India. The public issue of shares or debentures can be managed

by category I Merchant Bankers and constitute the most important aspect of their

services. The public issue of companies involves marketing of issues.

Various agencies are involved such as brokers, underwriters, bankers, advertising

agencies, printers, auditors, legal advisors, Registrars to the issue and merchant

bankers each providing specialized services to make the issue successful.

However, merchant banker is an apex agency who has to plan, coordinate and

control the entire issue to the successful marketing of securities. The procedure for

managing a public issue by merchant banker is divided into two phases as follows.

Pre-issue management:

The various steps required to be undertaken to manage pre-issue activities are as

follows.

a) Obtaining stock exchange approvals to the Memorandum of Association and

Articles of Association.

b) Taking action as per SEBI guidelines.

c) Finalizing the appointment of the following agencies to compete the public



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issue.

d) Advise to company to appoint auditors and legal advisors.

e) Drafting the prospectus from the company‘s legal advisor, underwriting

financial institutions and bank.

f) Obtaining consents from all parties and agencies acting for the issue to be

enclosed with the prospectus.

g) Approval of prospectus by Board of Directors in the meeting and signing the

same by all directors or power of attorney on behalf of any absentee directors.

h) Approval of prospectus from SEBI.

i) Making an application with the stock exchange for listing of shares.

j) Publicity of issue through advertisement and press conferences.

k) To open subscription for the issue.



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Post issue management:-

The various steps to be taken in the post issue management are as follows.

a) To ensure that the issue is subscribed to the extent of 90% including

evolvement from underwriters in case of under-subscription.

b) To supervise and coordinate the allotment procedure of Registrar to the issue as

per the prescribed stock exchange guidelines.

c)

To ensure that the refund orders, allotment letters are issued within prescribedtime limit.

d) To report periodically to SEBI about the progress in the matters related to

allotment and refunds.

e) To ensure the listing of securities on the stock exchange.

f) To attend the investor grievances regarding the public issue.



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MARKETING

After dispatch of prospectus to SEBI, the merchant bankers arrange a meeting with

company representatives and advertising agents to finalise arrangements relating to

date of opening and closing of issue, registration of prospectus, launching,

publicity campaign and fixing date of board meeting to approve and sign

prospectus and pass the necessary resolutions.

Publicity campaign covers the preparation of all publicity material and brochures,

prospectus, announcement, advertisement in the press, radio, TV, investors

conference etc. The merchant bankers help choosing the media, determining the

size and publications in which the advertisement should appear.

The Merchant Bankers role is limited to deciding the number of copies to be

printed, checking accuracy of statements made and ensure that the size of the

application form and prospectus conform to the standard prescribed by the stock

exchange.



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PRICING OF ISSUES

The SEBI guidelines 1992 for capital issues have opened the capital market to free

pricing of issues. Pricing of issues is done by companies themselves in consultation

with the merchant bankers. Pricing of issue is part of the pre issue management.

An existing listed company and a new company set up by an existing company

with five year track record and existing private closely held company and existing

unlisted company going in for public issues for the first time with two and half

years track record of constant profitability can freely price the issue. The premium

has to be decided after taking into account net asset value, profit earning capacity

and market price. Justification of price has to be stated and included in the

prospectus.



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MANAGERS, CONSULTANTS OR ADVISERS TO THE ISSUE

The managers to the issue assist in the drafting of prospectus, application of forms

and completion of formalities under the Companies Act, appointment of Registrar

for dealing with share applications and transfer and listing of shares of the

company on the stock exchange. Companies are free to appoint one or more

agencies as managers to the issue. SEBI guidelines insist that all issues should be

managed by atleast one authorised merchant banker. Ordinarily, not more than two

merchant bankers should be associated as lead managers, advisers and consultants

to a public issue. In issues of over Rs. 100 crores, upto a maximum of four

merchant bankers could be associated as managers.

PORTFOLIO MANAGEMENT

Making decisions relating to the investment of the cash resources of a corporate

enterprise in marketable securities by deciding quantum, timing and the type of security to be bought is known as ‗portfolio management‘. It involves making the

right choice of investment aimed at obtaining an optimum investment mix taking

into account factors such as the objectives of the investment, tax bracket of the

investor need for maximizing yield and capital appreciation, etc.

Portfolio refers to investment in different kinds of securities such as shares,

debentures or bonds issued by different companies and securities issued by the

government. It is not merely a collection of unrelated assets but a carefully blended

asset combination within a unified framework. Portfolio management refers to

maintaining proper combination of securities in a manner that they give maximum



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return with minimum risk.

Merchant Bankers provide portfolio management service to their clients. Today the

investor is very prudent. Every investor is interested in safety, liquidity and

profitability of his investment. But investors cannot study and choose the

appropriate securities. They need expert guidance. Merchant bankers have a role to

play in this regard. They have to conduct regular market and economics surveys to

know,

1) Monetary and fiscal policies of the government.

2) Financial statements of various corporate sectors in which the investments have

to be made by the investments.

3) Secondary market position, i.e., how the share market is moving

4) Changing pattern of the industry.

5) The competition faced by the industry with similar type of industries.

The merchant bankers have to analyse the surveys and help the prospective

investors in choosing the shares. The portfolio managers generally will have to

classify the investors based on capacity and risk they can take and arrange

appropriate investment. Thus, portfolio management plans successful investment

strategies for investors.

The services covered are as follows.

Undertaking investments in securities.

Undertaking investment for non-resident Indians on both repatriation and

non-repatriation basis.

Undertaking review of provident fund investment, trust investment etc.

Safe custody of securities in India and overseas.



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Collection of return on investment and re-investment of the same in

profitable avenues, investment advisory services to the investors and other related

services.

Providing advice on selection of investments.

Carrying out a critical evaluation of investment portfolio.

Securing approval from RBI for purchase / sale of securities.

Maintaining investment records and complying with ceiling.

Collecting and remitting interest and dividend on investment.

Providing tax counseling and filing tax returns through tax consultants.

Example of portfolio management

Portfolio Management Services (PMS) is a sophisticated investment vehicle that

offers a range of specialised investment strategies to capitalise on opportunities in

the market. Deutsche Bank offers its professional services to recommend Portfolio

Management Services from seven reputed third party providers (fund houses /

financial institutions), who, for a fee, invest your money after scientifically

analyzing the pros and cons of the various options.

Portfolio management by SBI

SBI offers an integrated end to end customized asset management solution

for institutions by: Understanding the client needs and requirements in terms

of risk and returns.



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ADVISORY SERVIC E RELATING TO MERGERS AND

TAKEOVERS

A merger is a combination of two or more companies into a single company

where one survives and others lose their corporate existence. A takeover is the

purchase by one company acquiring controlling interest in the share capital of

another existing company. Merchant Bankers are the middleman in selling

negotiation between the offeree and offereor. Being a professional expert they are

apt to safeguard the interest of the shareholders in both the companies. Once the

merger partner is proposed, the merchant banker appraises merger/takeover

proposal with respect to financial viability and technical feasibility. He negotiates

purchase consideration and mode of payment. He gets approval from the

government/ RBI, drafts scheme of amalgamation and obtains approval from

financial Institutions.

This is a specialized service provided by merchant banker who arranges fornegotiating acquisitions and mergers by offering expert valuation regarding the

quantum and the nature of consideration and other related matters.

The various functions that form part of this activity are as follows.

1) Undertaking management audits to identify areas of corporate strength and

weakness in order to help formulate guidelines and directions for future growth.

2) Conducting exploratory studies on a global basis to locate overseas markets

foreign collaborations and prospective joint venture associates.

3) Examining the pros and cons of proposals and formulating schemes for

financial reconstruction, merger and acquisition.



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4) Obtaining approvals from shareholders, depositors, creditors, government, and

other authorities.

5) Monitoring the implementation of merger and amalgamation schemes.

6) Identifying organizations with matching characteristics.

7) Assisting in the compliance of legal requirements, obtaining consent from

various authorities, etc by coordinating with solicitors, accountants, valuator and

other professional experts involved in the task.

8) Advising on capital reorganization of business enterprises.

Merchant bankers provide advice on acquisition propositions after careful

examination of all aspects, viz. financial statements, articles of associations,

provisions of companies act, rules and guidance of trade chambers the issuing

house associations, etc.

There are many reasons for recent trend towards mergers and amalgamations, such

as

Existence of excess unused manufacturing capacity of the purchasing company,

which can be utilized efficiently by taking over other units.

Lack of manufacturing space with the purchase company. The best solution

may be to buy the controlling interest in another company having excessive

manufacturing space or capacity.

Advantage of economies of scale, viz., bulk buying and joint-selling,

particularly the possibility of reduced sales promotion expenses may cause a

takeover bid in a horizontal merger of enterprises in a similar trade.

Benefit of vertical integration attracts a takeover bid by company which is a

supplier to customers who are making large profits, so that the group as whole can

reap the benefits.



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Example of Mergers and Acquisition

ICICI securities Limited was amongst the first Indian investment banks to form a

dedicated M& A practice and continues to be a leader by providing innovative and

unique solutions to achieve varied objectives of the client.

Mergers, acquisitions, divestitures, spins-off and leveraged buyouts. Team

members bring a wide range of skills from diverse backgrounds, including

accounting, industry, law, and management counseling.



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FOREIGN CURRENCY FINANCING (OFF SHORE FINANCE)

The Finance provided to fund foreign trade transactions is called ‗Foreign

Currency Finance‘. The provisions of foreign currency finance take the form of

export-import trade finance, euro currency loans, Indian joint ventures abroad and

foreign collaborations. The main areas that are covered in this type of merchant

activity are as follows.

1) Providing assistance for carrying out the study of turnkey and construction

contract projects.

2) Providing assistance in applications to working groups, liaison with RBI,

ECGD and other institutions.

3) Arranging for the syndication of various types of guarantees, letters of credit,

pre-shipment credit, bridge loans, and other credit facilities.

4) Providing assistance in opening and operating banks accounts abroad.

5) Arranging foreign currency loans under buyer‘s credit scheme for importing

goods.

6) Arranging deferred payment guarantees under suppliers credit scheme for

importing capital goods.

7) Providing assistance in obtaining export credit facilities from EXIM bank for



Merchant Banking

38

export of capital goods, and arranging for the necessary government approvals and

clearance.

8) Undertaking negotiations for deferred payment, export finance, buyers credits,

documentary credits, and other foreign exchanges services like packing credit etc.

9) Providing guidance on forward cover for exchange risk.

10) Assisting in arranging foreign currency guarantees and performance bonds

for exporters.



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40

involved.

4. Assisting co-coordinating and expediting documentation and other formalities

for disbursement.

5. Advising on the issue of debentures for augmenting long-term requirements of

working capital.

Example of Working Capital

SBI is a one shop providing financial products / services of a wide range for large,medium and small customers both domestic and international.

Working Capital Financing

· Assistance extended both as Fund based and Non-Fund based facilities to

Corporate, Partnership firms, Proprietary concerns.

· Working Capital finance extended to all segments of industries and services

sector such as IT.

Term Loans

To support capital expenditures for setting up new ventures as also for expansion,

renovation etc.

Deferred Payment Guarantees

To support purchase of capital equipments.



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41

Corporate Loans

For a variety of business related purposes to corporates.

Export Credit

To Corporates / Non Corporates

ACCEPTANCE CREDIT AND BILL DISCOUNTING

Activities relating to the acceptance and the discounting of bill of exchange,

besides the advancement of loans to business concerns on the strength of such

instruments, are collectively known as ‗Acceptance Credit and Bill discounting are

an integral part of a developed money market.

In order that the bill accepting and discounting takes place on sound lines it is

imperative that the firms involved command a good reputation and financialstanding. Further collecting credit information and rating the credit-worthiness of

the parties concerned are very much part of this function. In developed money

market like London and New york, there are specialized agencies such as discount

houses and acceptance houses, that play an active role in promotion of this

function. In India, RBI takes special care in developing the bill market.



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42

VENTURE CAPITAL

A specially designed capital as form of equity financing for funding high-risk and

high-reward projects, is known as ―venture capital.‖ Originated in the USA in the

1950s, when business magnates like Rockefeller financed new technology

companies. The concept became more popular during the sixties and seventies,

when several private enterprises undertook the financing of high-risk and high

reward projects in India. Venture capital companies have largely contributed to the

technological and industrial revolution.

A large number of Indian and international companies are engaged in venture

capital funding for high technology and high-risk projects. A number of leading

national development financial institutions such as IDBI

and ICICI are managed in venture capital financing, and the developed a number

of special schemes for this purpose.

Example of Some important Venture Capital Funds in India.

APIDC Venture Capital Limited ,1102, Babukhan Estate, Hyderabad 500001

Canbank Venture Capital Fund Limited, IInd Floor, Kareem Towers, Bangalore

Gujarat Venture Capital Fund 1997, Ashram Road, Ahmedabad 380 009.

Industrial Venture Capital Limited, Thyagaraya Road, Chennai 600 017. Auto

Ancillary Fund Opp. Signals Enclave, New Delhi 110 010

Gujarat Venture Capital Fund 1995 Ashram Road Ahmedabad 380 009

Karnataka Information Technology Venture Capital Fund Cunningham Rd

Bangalor.



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44

MUTUAL FUNDS

Institutions and agencies that are engaged in the mobilization of the savings of

innumerable investors for the purpose of channeling them into productive

investments of a wide variety of corporate and other securities are called ‗Mutual

Funds‘. UTI is the first and the largest mutual fund in the country. The mutual

funds industry has a large number of players, both in the public as well as the

private sector.

Commercial banks are also making rapid strides in the realm of mutual funds

business.Some of the services rendered by mutual funds are as follows.

1) Mopping up public savings.

2) Investing the funds in a diversified portfolio of shares and debentures belonging

to well managed and growing companies.

3) Earning investors a steady return on investments with an assurance of capital

appreciation.

4) Engaging in the business of acquisition, holding or disposal of securities.

5) Making investment in any commercial paper floated by the Central

Government, RBI any local authority, any foreign Government, foreign bank or

any other authority outside India and approved by RBI

Example of Mutual fund ICICI prudential

Prudential ICICI Mutual Fund is the largest private sector mutual fund in India

with assets of over Rs.34,119 crore under management as of Aug 2006. The asset

management company, Prudential ICICI Asset Management Company Limited, is



Merchant Banking

45

a joint venture between Prudential Plc, Europe's leading insurance company and

ICICI Bank, India's premier financial institution.

Prudential Plc holds 55 per cent of the asset management company and the balance

by ICICI Bank. In a span of just over six years, Prudential ICICI Asset

Management Company has emerged as one of the largest asset management

companies in the country.

The Company manages a comprehensive range of schemes to meet the varying

investment needs of its investors spread across 68 cities in the country. The

management is headed by PankajRazdan, managing director and the fund

management team is headed by Nilesh Shah, chief investment officer.



Merchant Banking

46

Relief to sick industries

Merchant bankers extend the following services as part of providing relief to sick

industries.

1) Rejuvenating old-lines and ailing units by appraising their technology and

process, assessing their requirements and restructuring their capital base.

2) Evolving rehabilitation packages which are acceptable to financial institutions

and banks.

3) Exploring the possibilities of mergers/ amalgamations, wherever called for

4) Assisting in obtaining approvals from the Board for Industrial and Financial

Reconstruction and other authorities under the Sick Industrial Companies Act,

1985.

5) Monitoring the implementation of rehabilitation schemes mergers and / or

amalgamations.



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47

DISTINGUISH BETWEEN MERCHANT BANKS AND

COMMERCIAL BANKS

Merchant Banks and Commercial Banks compare as follows.

Merchant Banks Commercial Banks

Assist in raising capital in

the form of equity,

preference shares,

syndicated loan and

working capital

instruments. Advisors-not

financers.

Provide funds in the form

of term loan and Working

Capital. Financing is the

main business.

Do not accept chequable

deposits

Demand deposit is the key

feature.

Most of work they get is

about management of

equity issues in the capacity

of lead manger,

underwriter, pricing of

issue, book running, and

liasoning with SEBI.

Commercial banks

majority business is of

term lending and bank

deposits.

Mainly fees based business. Mainly fund based

business.



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50

Guidelines For Merchant Bankers As Per SEBI

Merchant Banking in India is governed by Securities and change Board of India

(Merchant Bankers) Regulations, 1992. These were amended 3 to 4 times till 2006.

Highlights of provisions as valid in 2006 are as follows:-

1. To be a merchant banker person should apply to SEBI in prescribed format.

2. Merchant Banking business includes following activities : to carry on any

activity of the issue management, which will inter-alia consist of preparation of

prospectus and other information relating to the issue, determining financial

structure, tie-up of financiers and final allotment and refund of the subscription.

Activities also include an act as adviser, consultant, manager.

3. To act as an underwriter and portfolio manager, separate applications are to be

made to SEBI under respective regulations.

4. Applicant has to be a body corporate and should not be an NBFC carrying out

activities other than those of merchant bankers as specified above. It should not

accept or hold public deposits. At least 2 merchant banking experienced persons

should be in employment.

5. Should fulfill capital adequacy criteria as specified by SEBI from time to time.

6. Merchant banker other than a bank or a [ public financial institution] who has



Merchant Banking

51

been granted a certificate of registration under these regulations should not carry

on any business other than that in the securities market.

7. Every merchant banker should furnish to the Board half- yearly unaudited

financial results when required by the Board with a view to monitor the capital

adequacy of the merchant banker.

8. All the issues should be managed by at least one merchant banker functioning

as the lead merchant banker.

9. Merchant banker or any of its directors, partner or managed or principal officer

should not either on their respect accounts or through their associates or relatives

enter into an transaction in securities of bodies corporate on the basis unpublished

price sensitive information obtained by the during the course of any professional

assignment either from the clients or otherwise.

10. Every merchant banker should appoint a compliance officer who shall be

responsible for monitoring the compliance of the Act, rules and regulations,

notification, guidelines, instructions etc., issued by the Board or the Central

Government and for redressal of investor‘s grievances. The compliance

Officer should immediately and independently report to the Board any non-

compliance observed by him.

11. SEBI can suspend / cancel registration of defaulter merchant bankers.



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CURRENT SCENARIO

Merchant banking is an area that we need to build and grow in the years to come.

As India forms part of the global village, it becomes increasingly necessary for us

to look at this business in a more holistic manner.

Obviously, international players with strong domestic partners such as DSP Merrill

Lynch, JM Morgan Stanley, Kotak Mahindra Capital, together with experienced

organizations like Enam and institutional backed investment bankers such as ICICI

Securities, etc., are the ones who have expertise, muscle, and placement power in a

greater measure than relatively new entrants.

The red hot economy is the obvious starting point. India is likely to end the year

with GDP growth in excess of 7 percent. Companies and private equity investors

are sitting on large piles of cash. In 2006 deal activity was largely restricted to the

IT and Telecom sectors.

Thus, while there is a steady flow of deals, there is now a shortage of talent to do

the job.

MERCHANT BANKING: INDIAN SCENARIO

Merchant Banking activity was formally initiated into the Indian capital

markets when Grindlays Bank received the license from Reserve Bank in 1967.

Grindlays which started with management of capital issues, recognized the needs

of emerging class of entrepreneurs for diverse financial services ranging from

production planning and system design to market research. Apart from meeting

specially, the needs of small-scale units it provided management constancy



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54

MERCHANT BANKING: INTERNATIONAL SCENARIO

The Merchant Banking scenario in developed countries like USA and UK are

different from Indian Merchant Banking activities. The Merchant banker is also

called as Investment Bankers. A brief outline of Merchant Banking in USA and

UK has shown in the following paragraphs.

Merchant Banks in UK

In United Kingdom, Merchant Banks came on the scene in the late eighteenth

century and early nineteenth century. Industrial revolution made England into a

powerful trading nation. Rich merchant houses that made their fortunes in a

colonial trade diversified into banking. Their principle activity started with the

acceptance of commercial bills pertaining to domestic as well as international

trade. The acceptance of the trade bills and their discounting gave rise to

acceptance houses, discount houses, and issue houses. Merchant Bankers initially

included acceptance houses, discount houses and issue houses. A Merchant

Banker was primarily a merchant rather than his customers entrusted banker but

him with funds. Merchant Banks in UK:

Finance foreign trade,

Issue capital,

Manage individual funds,

Undertake foreign security business, and

Foreign loan business.



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55

They also used to finance sovereign government through grant of long-term loans.

Since the end of Second World War commercial banks in Western Europe have

been offering multiple services including Merchant Banking services to their

individual and corporate clients. British banks set-up division or subsidiaries to

offer their customers Merchant Banking services.

Merchant Banking in USA

Merchant banks make the primary markets in USA, arrange mergers and

acquisitions, undertake global, custody, proprietary trading and market making,

niche business, fund management and advisory services to governments and firms.

The increased regulation and control of domestic operations gave a fillip to large

US banks to undertake Merchant Banking functions in international capital

markets. The US investments Banks have extended their operations to the

international level. They are largely responsible for the development of the Euro-dollar market in the securities and globalization of capital markets. They have a

prominent presence in London and other European financial centers. Merchant

Banks have today a strong parent, a strong balance sheet and a strong international

network to play a global role.



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56

QUALITIES OF GOOD MERCHANT BANKERS

Merchant bankers are individual experts who organize and manage the merchant

banks. The operations of merchant banks are, therefore, influenced by the

personality trait of these individuals. For the success of merchant bank‘s

operations, the qualities which merchant bankers should have are discussed

below:-

LEADERSHIP: – merchant banker should possess all relevant skills, update

knowledge to interact with the clients and effectively communicate. Leadership is

synonymous with followers who follow the one who leads.

AGGRESSIVE ACTION:-aggressiveness is a personality trait of a good

leader but in merchant banking it has a wider connotation. Aggressive merchant

bankers are always looking for new business. Once a business opportunity hasbeen located, the merchant banker has got to obtain the mandate for the merchant

banking assignment from the clients at once which will depend upon his own

communication skills, persuasiveness and the background of the organization to

which he belongs. A good merchant banker is one who does not allow his client to

think anything outside except what has been advised.

COOPERATION AND FRIENDLINESS:-These two characteristics are

the symbols of good leadership but it hardly needs to be stressed that cooperation

and friendliness coupled with persuasiveness are the main instruments with which



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57

a merchant banker mixes with the people, gathers information, obtains business

mandate and renders satisfactory services to the clients. Friendliness and

cooperation must flow as natural traits in the merchant banker to win the trust of

the clients.

CONTACTS : – success of merchant banker depends upon his sociable nature

and the richness of wider contacts. A merchant banker is supposed to beacquainted deeply with all the constituents of merchant banking. Indian and

foreign banks, financial institutions at Central and State levels,

promoters/directors/owners and chief executives of the private and public

enterprises which would be prospective beneficiaries of merchant banking

services, printers, advertising agencies, brokers and stock exchange dealers,

advocates and solicitors and members of the press whose services are availed of in

executing merchant banking assignments. Merchant bankers should widen

contacts and references and continue to maintain them with goodness, honour and

humour by meeting people.

ATTITUDE TOWARDS PROBLEM SOLVING: – The most important

personality trait of a merchant banker is his attitude towards problem solving. Even

client coming to him has got to return fully satisfied having consulted a merchant

banker. Positive approach to understand the view points of others, their difficulties

and their adverse circumstances is possible only when a person is skilled in human



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58

relations particularly the inter-personal and intra-personal behavior. Effective

communication and proper feedback are the pre-requisite for creating a positive

attitude towards problem solving.

RESPONSIBILITIES OF MERCHANT BANKER

To the Investors

Investor protection is fundamental to a healthy growth of the Capital Maerket.

Protection is not to be conceived as that of compensating for the losses suffered.

The responsibility of the Merchant Banker in ensuring the completeness of the

disclosures is of paramount importance in view of the fact that entire reliance is

based on offer Document either Prospectus or Letter of Offer because anindependent agency like a Merchant Banker has done the scrutiny.

Capital structuring

The Merchant Bankers while designing the capital structure take into account

the various factors such as Leverage effect on earnings per share, the project

cost and the gestation period, cash flow ability of the company, the cost of

capital, the considerations of management control, size of the company, and

general economic factors. These exercise are done mainly in order to meet the

fund requirement of the company taking due cognizance of the investor‘s

preference.



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59

Project Evaluation and due Diligence

Due diligence and project evaluation is another major responsibility of the

Merchant Banker. Where the project has already been appraised by a

bank/financial institution, the Merchant Banker relies on the said appraisal

before accepting an assignment. However, where the project has not been

appraised by as bank/financial instituion, the Merchant Bank undertakes a

detailed evaluation of the project before taking up an assignment for issue

management.

Legal aspect

The factors that are looked into in case of the legal aspects are:

Compliance with the SEBI guidelinesand the various guidelines issued by the

Ministry of Finance and Department of CompanyAffairs.

Pending litigation‘s towards tax liabilities or any criminal/civil prosecution any

of the directors for any offenses.

Fair and adequate disclosures in the prospectus.

Pricing of the Issue

The Merchant Banker looks into the various factors while pricing the issue.

Some of the factors are past financial performance of the company, Book value

per share, stock market performance of the shares. The Merchant Banker has a

vital role to play in pricing of the instrument.



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60

Marketing of the Issue

Marketing of the issue is a vital responsibility of the Merchant Banker. The

first stage is Pre-issue marketing for placement of the issue with the financial

institutions, banks, mutual funds, FII‘s and NRI‘s. The second stage is the

marketing of the issue to the general public through various vehicles such as

press, brokers, etc.

Bought out Deals

The concept of wholesale but out of public offerings by the Merchant Bankers

started off with over the Counter Exchange of India where a Merchant banker

acts also as a sponsor and either takes up the entire issue to be offered wholly of

jointly with other co-investors and off-loads the same to the public at a later

date by an offer for sale. Major amendments were made to the SEBI regulations

regarding Merchant Bankers. The duration of this transaction period has not

officially been announced.



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REGISTRATION OF MERCHANT BANKER

The term ‗Merchant Banking‘ originated in the 18th and early 19th centuries in the

United Kingdom when trade between countries was financed by bills of exchange

drawn on the principal merchant houses. With the increase in international trade,

the established merchants started the practice of lending their names to the new

comers and accepting the bills of exchange on their behalf. They would charge a

commission for the purpose and thus acceptance business became the hallmark of

Merchant Bankers. Once these banks had gained the confidence of the

government, they also entrusted with the job of issuing bonds in the Londonmarket.

An applicant should comply with the following norms:

The applicant should be a body corporate

The applicant should not carry on any business other than those connected with

the securities market

The applicant should have necessary infrastructure like office space, equipment,

manpower etc.

The applicant must have at least two employees with prior experience in

merchant banking

Any associate company, group company, subsidiary or interconnected companyof the applicant should not have been a registered merchant banker

The applicant should not have been involved in any securities scam or proved

guilt for any offence

The applicant should have a minimum net worth of Rs.5 crores



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PLAYERS IN MERCHANT BANKING

1. ENAM

ENAM was founded in1984 to provide knowledge-driven financial services at the

time when Indian economy investors faced a bewildering array of options. ENAM

is the one of the largest underwriters in India. ENAM offers promising & excitingcompanies the opportunity of assessing the public market equity finances.

ENAM‘s long-term association with capital markets & primary markets has

provided it with deep insights of the functioning of Indian financial institutions.

The merchant banking services provided by ENAM are: -

Equity debt/syndication:

Raising capital through a private placement of a company‘s securities is an

effective & timely offering to a public offering. ENAM represents the clients in

the private placement of debt and equity with institutional & high net worth

investors.

Corporate Restructuring: -

ENAM provides client with strategic and practical solutions to financial

challenges. Their restructuring services includes Mergers & Acquisitions,

Takeovers, Debt restructuring, Buyers services etc.



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ENAM also provide the seed stage services, value creation services and IPO‘s

advisory services which are represented below:



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2. ICICI SECURITIES

ICICI Securities Limited is a leader across the spectrum of Merchant Banking. We

are experienced in every aspect of the business from domestic and international

capital markets advisory, to M&A advisory, Private Equity syndication,

Restructuring and infrastructure advisory. Our investment banking team, based

across key cities in India and New York, London, and Singapore consists of

professionals with expertise across a range of industries.

ICICI SECURITIES provide following services:

Mergers and Acquisitions: -

ICICI Securities Limited is amongst the first Indian investment Banks to

form a dedicated M&A practice and continues to be a leader by providing

innovative and unique solutions to achieve varied objectives of the client. They

offer a full range of advisory services, which include joint ventures, mergers,

acquisitions, and divestitures.



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65

Equity Capital Markets: -

ICICI Securities Limited is at the forefront of capital markets advisory

having been involved in most major book building and fixed price offerings

over the last decade. It is amongst the leading underwriters of Indian equity and

equity-linked offerings.

Infrastructure Advisory: -

ICICI Securities Limited has a dedicated infrastructure vertical focused on

assisting clients in identifying and capitalising on the opportunities thrown up

by the all pervasive boom in the Indian infrastructure sector.

Dealing with Bulls and Bears: -

ICICI Securities Limited assists global institutional investors to make the

right decisions through insightful research coverage and a client focused Sales

and Dealing team. The equity group leverages research and distribution reachto domestic and foreign institutional investors in case of public offerings.

Thus the quality of analysis and client servicing standards, are a testimony to the

quality of ICICI SECURITIES team.



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3. KOTAK SECURITIES LIMITED

Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock

broking and distribution arm of the Kotak Mahindra Group. The company was set

up in 1994. Kotak Securities is a corporate member of both The Bombay Stock

Exchange and The National Stock Exchange of India Limited. Its operations

include stock broking and distribution of various financial products - including

private and secondary placement of debt and equity and mutual funds. Currently,

Kotak Securities is one of the largest broking houses in India with wide

geographical reach.

The company has four main areas of business:

Kotak Institutional Equities: -



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Kotak Institutional Equities, among the top institutional brokers in India. It

mainly covers secondary market broking and the marketing of equity offerings,

including IPOs, to domestic and foreign institutional investors.

Structured Finance (Project Finance & Advisory Business): -

KMCC has developed expertise in various vertical segments in the

infrastructure sector including power, oil, gas, ports, automobiles, steel &

metals and hotels, by offering structured finance solutions. Some of the

transactions executed by this team include:

Advisor to Ford on financial closure for its Car project in India.

Advisor to one of the largest LNG projects on the Western coast of India.

Financial advisors and loan syndications to British Gas and GAIL.

Mergers & Acquisitions: -

In the area of Mergers & Acquisitions, we provide our clients expertise and

a comprehensive set of services that help them achieve their strategic and

financial objectives. Our spectrum of services include:

Divestments

Spin-Offs / Restructuring &Joint Ventures / Strategic Alliances



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4. CITIGROUP

Citigroup Corporate and Investment Banking achieve the extraordinary for our

clients around the world. No financial institution is more committed to advancing

the goals of its clients — our diverse and talented staff in more than 100 countries

advises companies, governments and institutions on the best ways to realize theirstrategic objectives. We create solutions for and provide the broadest possible

capital and market access to thousands of issuer and investor clients. And no

institution better executes the increasingly complex payment and cash management

solutions required in today's global economy. The features Citigroup are as

follows: -

Over the years, Citigroup has established a track record of outstanding business

milestones such as Cash Management, pioneered by Citigroup in 1986 and

utilized by over 900 Corporates with through-puts totaling around $ 35 billion

(8% of India's GDP).

It is India's largest foreign bank in the FX (foreign exchange) market with a 14

per cent market share.

As the leading custodian, Citibank has over $22 billion of custody assets under

management.



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5. DSP MERRILL LYNCH LTD.

DSP Merrill Lynch Limited (DSPML), among India's leading investment banking

and brokerage company, is a culmination of a long standing relationship between

DSP Financial Consultants Ltd., and Merrill Lynch & Co., the leading international

capital raising, financial management and advisory company. DSPML is a full

service investment bank and broking company with leadership position in M&A,

Capital

Raising, Securities Research, Equity & Debt Brokering, and Investment Advisory

services. Euro money Magazine has ranked DSPML as the "Best Domestic

Securities firm in India" for the last four consecutive years. This Transaction

heralds DSPML as a key player in the private equity market. The service features

of DSPML are as follows: -

DSPML has consistently been rated as one of India's leaders in origination,

distribution, and trading of equity and debt securities.

DSPML has consistently brought reputable issues to the capital markets.

A diverse client base made up of India's most prestigious private and public

sector corporations and multinational corporations have rendered DSPML a

commanding presence in the Indian capital market.



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Through direct market's group, DSPML offers investors access to every major

initial or subsequent public offering.

DSP Merrill Lynch is the leading underwriter of Indian equity and equity-linked

offerings across domestic and international markets. By leveraging their

extensive knowledge of local markets and global resources, they have delivered

innovative and customized solutions to their clients.



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6. UPFC(Uttar Pradesh Financial Corporation)

Scheme for merchant banking & financial services

Decades ago UPFC has taken a humble step for the industrial development

of U.P. by providing term loan assistance to small & medium scale units. Sincethen it has acquired a matured professional approach in Industrial Financing,

several small-scale units nurtured by UPFC has groomed into big enterprises.

In order to meet the challenges of liberalized policy of the Government & Changed

economic Scenario, UPFC has started Merchant Banking & other financial

Services to serve its valued clients. UPFC, a category-I Merchant Banker with

unmatched expertise in project appraisal and term lending offers a whole gamut of

Merchant Banking Services.

1. Issue management: UPFC provides expert services to manage public issues

of the companies successfully; it has already managed Public Issues as a lead

Manager with great success.

2. Underwriting: In order to provide a protective umbrella to the public issues

of its clients, UPFC also underwrites the issue.

3. Subscription to equity share: UPFC subscribes to the equity shares

reserved under FI quota, to enable the company to market the public issue

effectively.



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7. JM Morgan Stanley

Investment Banking focuses on capital raising, mergers, acquisitions, restructuring

and financial advisory and private equity for Indian corporates in the international

and domestic capital markets. Through innovation and value-added services, the

firm has contributed immensely to the overall development of the capital market

and mergers and acquisitions in India.It have the merchant banking and

underwriting licenses from the Indian securities market regulator, the Securities

and Exchange Board of India. Some of the recent transactions of JM MorganStanley

US$ 20MM fund raising for Nipuna Services (a BPO subsidiary of Satyam

Computer Services)

Rs. 3,219 MM preferential allotment of equity shares/ warrants in Bajaj Auto

Finance Limited to financial investors and the promoter, Bajaj Auto Limited.

The services of JM Morgan Stanley are:

JM Morgan Stanley has a dedicated group that regularly interacts with over 40

financial investors in India as well as overseas.



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75

operational and financial performance in the light of changing regulatory

environment.

Merchant Bankers have reason to believe they will be handicapped without the

marketing support. But the worst sufferer would be the investor, especially the

small investor it is this class, which forms the backbone of the capital market. As a

result of the ban, the small investor would be deprived of the opportunity to study

the corporate profile of the Issuer. In the absence of adequate information, they

will have to depend on manipulated facts and information fed by unreliable

sources.

Besides, there are larger issuers arising out of SEBI‘s action. From the point of

view of liberalisation of the economy, SEBI has taken a retrograde step. A market

economy flourished through bigger markets, higher sales and lesser profits. To

achieve this performance, a company needs an aggressive marketing plan and

advertising effort is the main thrust to such a plan. No marketing plan can be

worthwhile unless it is backed by an effective advertising plan. The ban imposed

by SEBI nips the marketing plan in the bud.

For the merchant banking division, the development of new services to meet the

changing market conditions is an ongoing process. Today the entire merchant

banking industry in India is faced with the challenge of attracting Non-resident

Indian (NRI) investments into India particularly under the scheme for portfolio

investments through stock exchanges. Despite the several policy liberalizationswhich have been announced by the Government in the past year, the response from

NRIS, to date is far below expectations. One important reason for the poor

response to the portfolio investment scheme is quite clearly the lack of information

with the non-resident investor perturbed regarding the changing conditions in the



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76

Indian stock markets. The Merchant Banking divisions is now in the process of

introducing a comprehensive portfolio advisory service which will try to fill up this

information gap, offer expert counseling on investment opportunities undertake to

buy / sell orders, periodically evaluate the portfolio and look after all the

administrative formalities, such as attending to tax returns, collections and

remittances of dividends, etc. in compliance with the Reserve Bank of India‘s and

Securities and Exchange Board of India (SEBI) guidelines.



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78

economy.

Infact, merchant banks should replace brokers in trading, in course of time so that

the market operations will be beneficial both to the industrial sector and investor as

well as other operations in the primary and secondary markets. And the merchant

bankers should also pass on the profits to investors, depositors and shareholders

equitably.

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 what are 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.



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BIBLIOGRAPHY

BOOKS REFFERED

Merchant Banker – H.R. SUNEJA

Merchant Banking Principles & Practices- H.R.MACHIRAJU

Merchant Banking in India-

Sr.No Title Reference

1 Merchant Banker H.R. SUNEJA

2 Merchant BankingPrinciples & Practices H.R.MACHIRAJU

3 Merchant banking in

India

B.C. LAKSHMANNA &

C.N KRISHNA NAIK

4 Merchant Banking J.C.VERMA (3rd

& 4th

Edition)



Merchant Banking

80

B.C. LAKSHMANNA & C.N. KRISHNA NAIK

Merchant Banking – J.C.VERMA (3rd& 4th Edition)

WEBILOGRAPHY

www.google.co.in www.yahoo.com www.economictimes.com

www.jmmorgansranley.com www.dspml.com www.sebi.com

http://www.google.co.in/


http://www.yahoo.com/


http://www.economictimes.com/


http://www.jmmorgansranley.com/


http://www.dspml.com/


http://www.sebi.com/










Merchant Banking

final merchant banking project

Documents