Merchant banking

Prepared to deliver lecture in Class

1. Dr. Jamaluddeen (Jamal) Assistant Professor Department of Commerce University of North Bengal Merchant Banking

2. MERCHANT BANKING Merchant banking may be defined as an ‘institution which covers a wide range of activities such as underwriting of shares, portfolio management , project counselling , insurance etc. They render all these services for a fee ORIGIN The term merchant banking originated from the London who started financing foreign trade through acceptance of bills Later these merchants formed an association which is now called ”Merchant Banking and Securities House Association ” Origin of Merchant Banking in India is from 1967 and started well functioning from 1970

3. SERVICES OF MERCHANT BANKERS PROJECT COUNSELLING : It includes preparation of project reports, deciding upon the financing pattern, appraising the project relating to its technical , commercial and financial viability. It includes filling up of application forms for obtaining funds from financial institutions . LOAN SYNDICATION : Assistance is rendered to raise loans for projects after determining promoter’s contribution. These loans can be obtained from a single institution or a consortium .

4. ISSUE MANAGEMENT Management of issues involves marketing of corporate securities i.e. equity shares, preference shares and debentures by offering them to public .  Pre-issue activities : They prepare copies of prospectus and send it to SEBI and then file them to Registrar of Companies They conduct meetings with company representatives and advertising agencies to decide upon the date of opening issue , closing issue , launching publicity campaign etc . They help the companies in fixing up the prices for their issues  Post-issue activities : It includes collection of application forms, screening of applications, deciding allotment procedure, mailing of allotment letters, share certificates and refund orders

5. UNDERWRITING OF PUBLIC ISSUES : Underwriting is an insurance to the company which makes public Issues. Raising of external resources is easy for the issues backed by well known underwriters . MANAGERS , CONSULTANTS OR ADVISERS TO THE ISSUE : SEBI insist that all issues should be managed by at least one authorised merchant banker but not more than two . For an issue of 100 crores , upto a maximum of four merchant bankers shall be appointed. They help in listing of shares in stock exchange, completion of formalities under Companies Act etc .

6. PORTFOLIO MANAGEMENT Investors are interested in safety , liquidity and profitability of his investment but they cant choose the appropriate securities. So merchant bankers help their investors in choosing the shares. They conduct regular market and economic surveys . Portfolio management  refers to maintaining proper combination of securities in a manner that they give maximum return with minimum risk.  Merchant Bankers  provide  portfolio management services  to their clients.

7. NRI INVESTMENT NRIs has to follow lots of complicated rules for investing in the shares in India . Merchant bankers help them in choosing the shares and offer expert advice fulfilling government regulations thus mobilising more resources for corporate sector. ADVISORY SERVICE FOR MERGERS & TAKEOVERS Merchant banker acts as middlemen between offeror and offeree related with Amalgamation (Merger and purchase) , Acquisition , Takeover . It negotiates mode of payment and gets approval from government. It also works as advisor and legal consulants

8. OFF SHORE FINANCE Merchant Bankers provide services to a client outside of one's national boundaries , whether or not that location is land- or water-based .  Merchant bankers help their clients in : Long term foreign currency loan Joint venture abroad Financing exports and imports Foreign collaboration arrangement

9. MERCHANT BANKER IN INDIA Commercial banks: SBI, Bank of Baroda, etc. Foreign banks: National Grindlays Bank, Citibank, HSBC bank etc. Development banks: ICICI, IFCI, IDBI, SFC, SIDC, etc.. Private firms: JM Financial and Investment service, DSP Financial Consultants: Ceat Financial Services , Kotak Mahindra, VMC Project Technologies : Morgan Stanley , Jardie Fleming , Klienwort Benson etc.

10. MERCHANT BANKING REGULATIONS Certificate from SEBI is a must . They are of four types : Category I: Can act as Issue managers ( Rs . 5 crores ) Category II: Can act only as co-managers ( Rs.50 lakhs ) Category III: Can act as co-managers but cannot undertake portfolio management ( Rs.20 lakhs ) Category IV: Can merely act as consultant or advisor to issue of capital ( Nil )

11. GUIDELINES FOR MERCHANT BANKERS SEBI’s authorization is a must to act as merchant bankers, Authorization criteria include Professional qualification in finance, law or business Mgt. Infrastructure like office space , equipment and man power Capital adequacy Past track of record , experience , general reputation and fairness in All transactions  Every merchant banker should maintain copies of ( Financial Statements ) balance sheet , P/L account , statement of financial position  Half-yearly unaudited result should be submitted to SEBI  Merchant bankers are prohibited from buying securities own name

12.  SEBI has been vested with the power to suspend or cancel the authorisation in case of violation of the guidelines Every merchant banker shall appoint a ‘ Compliance Officer ‘ to monitor compliance of the Act SEBI may send inspecting authority to inspect books of accounts, records etc. of merchant bankers  An initial authorisation fee , an annual fee and renewal fee may be collected by SEBI A lead manager holding a certificate under category I shall accept a minimum underwriting obligation of 5% of size of issue or Rs.25 lakhs whichever is less

13. CODE OF CONDUCT Should make all efforts to protect the interest of investors Should maintain high standards of integrity , dignity and fairness in conduct of business Should fulfil all obligations in an ethical manner Should not discriminate among the clients Should ensure that prospectus , letter of offer etc. is available to investors at the time of issue Should render best possible advice to its clients Any penal action of SEBI should be informed to its clients

14. Should inform the board about any legal proceedings initiated against it Should abide by the rules of SEBI Regulations , 2003 Shall develop its own internal code of conduct for governing its internal operations Should ensure that any person it employs should have the capacity to be a merchant banker It is responsible for the act of its employees and agents Should not create false market CODE OF CONDUCT

15. PROBLEMS OF MERCHANT BANKERS SEBI stipulates high capital adequacy norms for authorization which prevents young, specialized professionals into merchant banking business Non co-operation of the issuing companies in timely allotment of securities and refund of application of money etc . is another problem Yet merchant banking is vast but should develop adequate expertise to provide a full range of merchant banking services

16. ASK ME ABOUT THE TOPIC IF YOU WANT … IF ANY QUERIES

17. Thank You Dr. j AMALUDDEEN Assistant Professor Department of Commerce North Bengal University Contact No. 07499615156 E-mail: [email protected]