'Merchant Banking Essay\r'

'A merchandiser swaning is a fiscal insane asylum primarily meshed in offering mo crystalliseary run and advice to comp or so(prenominal) and wealthy individuals on how to sparing consumption their m peerless(prenominal)y. A merchandiser posit ingest it away with commercial banking take ups of finance, compe really & axerophthol; long term loans and blood line writing. merchandiser banking does non have retail offices where customer discount go and access their write up. A merchandiser bank is in any case called as wholesale banking.\r\nOBJECTIVE\r\nMain objective of merchant banking is coordinating the hazardivities like the bankers, advertising agency, printers and at a lower laywriters and so forth Guide companies to get render there sh be under SEBI act. The merchant banking determine the number of sh be, price of the stocks and the measure of the release of this red-hot stock. They also interpret run to the finance housing schemes for the struc ture of houses and buying of land.\r\nHistory and harvest-tide of merchandiser lodgeing in India\r\nBefore 1960s there was no merchant banking in India. This administration started by and by 1960s. The Grind lay’s bank was the startle bank which started merchant banking work. Grind lay’s bank is the largest foreign bank in the country. The chief(prenominal) service offered by merchant banking includes the concern of popular anesthetizes and some aspects of mo acquitary consultancy. subsequently(prenominal)ward this to a greater extent banks took initiative of merchant banking services. Bank like Citibank came in 1970. merchant banking with Citibank bring role in in the buff enterpriser and evaluation of new picture. Raising pecuniary resource with comeliness took place. commission consultancy services were started. State bank of India started the merchant banking in 1972. Before 1972 state of matter bank of India employ to just ply funds. But after(prenominal) 1972 state bank of India started multi-tasking. moneymaking(prenominal) banks which followed state bank of India were\r\n1. Central bank in 1977.\r\n2. Syndicate bank in 1977.\r\n3. touchstone chartered bank, mer atomic number 50tile bank and bank of Baroda in 1978.\r\n4. United bank of India, Punjab internal bank, cornerstoneara bank, Indian overseas bank in late 70’s and in early 80’s.\r\nImportance of merchandiser Banking\r\nNeed for merchandiser Banking is felt in the wake of huge public savings lying untapped. merchandiser bankers batch find highly significant role in mobilizing funds of savers to investible channels assuring smart returns on investings and thus can serve in meeting the widening fill for inevitable funds for economic occupation. With maturation of merchant banking profession incarnate enterprises argon undertaking expansion, modernization, and diversification of the existing enterprises. This reinforces the need for a vigorous role to be played by merchant banking.\r\nReasons why specialist merchant banks have polar role to play in India 1) exploitation industrialization and increase of technologically modern industries. 2) Need for encouragement of diminished and speciality industrialists, who require specialist services. 3) Growing complexity in rules and procedures of the government. 4) Need to develop averse aras and states which require different criteria. 5) Exploring the possibility of common ventures abroad and foreign food trades. 6) Promoting the role of reinvigorated Market in mobilizing savings from the public.\r\nFunctions per contriveed under merchandiser Banking\r\nThe important soulas of merchant bankers are:\r\n1) focal point of Debt and Equity Offerings:\r\nThis forms the main function of the merchant banker. He assists the companies in altitude funds from the market. The undergoing tasks include instrument designing, price the issue, registration of the offer document, underwriting support, marketing of the issue, allotment and refund and listing on stock transmutes. 2) Placement and Distribution:\r\nThe merchant banker table services in distributing various securities like faithfulness shares, debt instruments, correlative funds, insurance products, and commercial paper, to name a few. The distribution mesh proceeding of the merchant banker can be classified as institutional and retail in nature. The institutional ne cardinalrk consists of mutual funds, foreign institutional investors; one-on-one equity funds pension funds, monetary institutions, etc.\r\n3) Corporate consultatory work:\r\nIt de nones advice provided by a merchant banker to a incorporated unit to ensure conk out(p) corporate unit to ensure better corporate performance in footing of image building among investors, steady growth through superb working, appreciation in market value of its equity shares. The counselor is limited to only opinions and sug gestions and whatever critical analysis would form part of a specific service\r\n4) Project Advisory Services:\r\nProject guidance is a very important and lucrative merchant banking service. It covers development of an idea into a project, homework of the project spread over , estimation of the embody of the project and deciding upon the means of financial and techno-economic appraisal of projects for jacket crown issue/ funding etc. The tiptoe charged for project report supply / appraisal ranges surrounded by 0.25% to 2% of the ingrained project cost. The fee charged depends upon- a)Total size of the project\r\nb)The total complexity of the project\r\n5) Loan Syndication:\r\n merchandiser bankers arrange to tie up loans for their clients. This takes place in a series of steps. Firstly, they give way the pattern of the client’s specie flows, establish on which the terms of the borrowings can be defined. Then the merchant banker prepares a detailed loan schedule, which is circulated to various banks and financial institutions and they are invited to participate in the syndicate. The banks thusly negotiate the terms of contribute on the basis of which the final allocation is done. 6) Providing move Capital Financing:\r\nMerchant bankers help companies in obtaining venture superior even up for funding their new and innovative strategies. 7) Management of Capital Issues:\r\na) Pre-issue Management:\r\nSteps ask to be taken to manage Pre-issue body process mechanism are as follows:\r\n1) Obtaining stock exchange approvals tomemorandum and articles of association.\r\n2) Taking action as per SEBI guidelines.\r\n3) Finalising the appointments of the pursuit agencies â€\r\nCo managers /advisors to the issue.\r\nUnderwriters to the issue.\r\nBrokers to the issue.\r\nBnakers to the issue and refund banker.\r\n publicizing agency.\r\nPrinters and registrars to the issue.\r\n4) Advise the caller to appoint listeners, sound advisers and broad base come on of Directors.\r\n5) outline the prospectus.\r\n6) Obtaining approvals of draft prospectus from the telephoner’s legal advisors, underwriting financial institutions/banks.\r\n7) Obtaining consent from parties and agencies playacting for the issue to be enclosed with the prospectus.\r\n8) boon of prospectus from Securities and exchange add-in Of India(Sebi).\r\n9) file of the prospectus with registrar of companies (Roc)\r\n10) Making an practise for enlistment with Stock veer along with copy of the prospectus.\r\n11) Publicity of the issue with advertisement and conferences\r\n12) Open subscription list.\r\nB) Post Issue Management:\r\nSteps involved:\r\n1) To verify and sustain that the issue is subscribed to the extent of 90% including development from underwriters in character of subscription. 2) To care and co-ordinate the allotment procedures of registrar to the issue as per inflict Stock Exchange guidelines. 3) 3)To ensure issue of refund allurement , allotment earns/ credentials within the prescribed date limit of 10 weeks after the closure of subscription list 4) To report sporadically to SEBI about the progress in the matters link to allotment and refunds. 5) To ensure the listing of securities at a stock exchanges. 6) To attend the investors for managers regarding the public issue. 7) The merchant bankers managing public issue can negotiate fee subject to a ceiling .This fee is to be dual-lane by all lead managers, advisers etc.\r\nRegistration with SEBI as Merchant Banker\r\nMerchant banks are generally setup as subsidiary companies of banks. For e.g.: SBI caps, ICICI securities etc. Once the feasibleness studies are undertaken and it comes out to be feasible then the following steps are undertaken for registration with SEBI: Application for give way of certificate:\r\nAn drill for grant of certificate is needful to be do with SEBI as without guardianship the certificate no somebody can act as a merch ant banker. The performance can be made in one of the following categories: 1. house 1: To take hold out any activity of issue management which includes preparation of prospectus and other(a) information relating to issue, ascertain financial structure, tie up of financers and financial allotment, and refund of the subscription. Another activity that pertains to this stratum is of advisor, advisor manager, underwriter, portfolio manager. 2. class 2: To act as advisor. Consultant, co manager, underwriter and portfolio manager. 3. socio-economic class 3: To act as underwriter, advisor, and consultant to an issue. 4. Category 4: To act only as advisor and consultant to an issue. To rock on the activity of underwriter and portfolio manager, a separate certificate of registration unavoidably to be obtained from SEBI.\r\nFurnishing of information, clarification, and personal representation: The applier may need to provide push information or clarification regarding matters colligate to activity of merchant banker. Consideration of application:\r\nBefore granting the certificate, the dialog box shall take into account that the applicator complies with the following requirement 1. The applicator shall be a body corporate other than a non banking financial club. 2. The merchant banker who has been granted the certificate by run batted in to act as pristine principal sum shall carry on much(prenominal) activity with the condition that it should not acquire or hold any public deposit. 3. The applier should have necessary infrastructure to carry on his activities. 4. The applicant should employ at to the lowest degree two persons who have the experience to conduct the telephone circuit of merchant banker. 5. The applicant should fulfill the capital adequacy requirement as follows: The capital adequacy requirement should not be less than the net worth of the applicant. The net worth shall be as follows Category 1: 5 crores\r\nCategory 2: 50 lacs\r\ nCategory 3: 20 lacs\r\nCategory 4: Nil\r\n6. The applicant or any of his associate should be free of any legal charges, should not have been convicted for any offence and not found guilty of any economic offence. 7. The applicant should possess professional unspoiledness from any recognized govt. institute in finance law or patronage management. Procedure for registration:\r\nThe SEBI on macrocosm satisfied with the eligibility of the applicant shall grant him a certificate . Payment of fees:\r\nThe applicant has to pay Rs. 5 lacs within 15 days of date of receipt of intimation regarding grant of certificate. If the merchant banker fails to pay the required fee, the Board may suspend the registration and applicant may cease to carry on activity as merchant banker for the halt during which the subscription subsists. The merchant banker may commence on the business as merchant banker on the acquisition of Certificate of Registration from SEBI after the completion of above menti oned formalities. Procedure for recap: Board’s Right to jaw The Board may appoint one or more than persons as inspecting way to undertake inspection of the books of accounts, tempers and documents of the merchant banker for any of the purposes specified in sub-regulation (2). Notice forrader inspection:\r\nBefore undertaking an inspection, the Board shall give a bonny honour to the merchant banker for that purpose. Where the Board is satisfied that in the interest of the investors no such(prenominal) recover should be given, it may inspect without preliminary notice. During the course of inspection, the merchant banker against whom an inspection is macrocosmness carried out shall be bound to unfreeze his obligations. Obligations of Merchant Banker on Inspection:\r\nIt shall be the duty of every conductor, proprietor, partner, officer and employee of the merchant banker, who is being inspected, to produce to the inspecting business office such books, accounts and other documents in his custody or control and furnish him with the statements and information relating to his activities as a merchant banker within such time as the inspecting authority may require. The merchant banker shall allow the inspecting authority to have reasonable access to the premises occupied by such merchant banker or by any other person on his behalf and also extend reasonable facility for examining any books, records, documents and computer info in the possession of the merchant banker or any such other person and also provide copies of documents or other materials which, in the opinion of the inspecting authority are relevant for the purposes of the inspection.\r\nThe inspecting authority, in the course of inspection, shall be entitled to examine or record statements of any principal officer, director, partner, proprietor and employee of the merchant banker. It shall be the duty of every director, proprietor, partner, officer or employee of the merchant banke r to give to the inspecting authority all assistance in connective with the inspection which the merchant banker may be reasonably expected to give. Submission of write up to the Board:\r\nThe inspecting authority shall, as curtly as possible submit, an inspection report to the Board. Action on Inspection or Investigation Report:\r\nThe Board of the professorship shall after consideration of inspection or investigation report take such action. Appointment of Auditor:\r\nThe Board may appoint a qualified auditor to investigate into the books of account or the personal matters of the merchant banker. Communication of findings:\r\nThe Board shall after consideration of the inspection report pass on the findings to the merchant banker to give him an opportunity of being heard before any action is taken by the Board on the findings of the inspecting authority. On receipt of the explanation if any, from the merchant banker, the Board may call upon the merchant banker to take such me asures as the Board may deem fit in the interest of the securities market and for due(p) conformity with provisions of the Act, rules and regulations.\r\nGuidelines of SEBI\r\nThe SEBI has issued guidelines for the issue of capital by companies. The guidelines mainly cover the requirement for the first issue by a new or existing company. The guidelines issued by SEBI are mentioned below: If any company’s other income exceeds 10% of the total income, the detail should be chance ond. The company should disclose any adverse situation which affects the operations of the company. The company should also disclose the capacity employment of plant for the last 3 years. The promoters mustiness maintain their holding at least 20% of the expanded capital. The minimum application money payable at the time of issue should not be less than 25% of the issue price. The company should disclose the time normally taken for the judicature of investor’s grievances. The company can elucidate firm allotments in public issues as follows: 1. Indian Mutual funds (20%)\r\n2. FII’s (24%)\r\n3. Regular employees of the company (10%)\r\n4. Financial institution (20%)\r\nThe company should disclose the safety net scheme or buy back off arrangements of the shares proposed in public issue. In case of public issues, atleast 30 mandatory collection centres should be established. In the guidelines regarding right issue, the company should give advertisements in not more than 2 newspapers about the dispatch of letter of offers. No preferential allotment to be made along then rights issue. The company should disclose the free agreement amid the lead managers and the company in the memorandum of understanding.\r\nDifference amid Merchant Banking and mercenary Banking\r\nMERCHANT BANKING\r\nCOMMERCIAL BANKING\r\nMerchant banking deals with equity and equity related finance. Merchant banks are management oriented.\r\nMerchant banks allowing to accept risks of busines s.\r\nThe activities of merchant banks include project counseling in area of capital restructuring, unitings, amalgamations e.t.c.\r\n commercialized banking deals with debt and debt related finance. Commercial banks are summation oriented.\r\nCommercial banks generally avoid risks of business.\r\nCommercial bankers are merely financiers.\r\nDifference between Merchant Banking and investiture Banking\r\nMERCHANT BANKING\r\ninvestment funds BANKING\r\nMerchant banking is purely fee based.\r\nMerchant banking are impossible to stay distant from international trends. Merchant banks expands into the field of securities, underwriting Merchant banking primarily perform international financing activities such as\r\n1. Foreign corporate investing\r\n2. Foreign real soil investment.\r\n3. Trade finance and inter execution facilitation.\r\nMerchant banks tends to operate on small scale companies and offer creative equity financing ,and numbers of corporate creed products.\r\nInvestment banking is both fee based and fund based.\r\nInvestment banking commits their own funds.\r\nInvestment banks trade finance activities.\r\nInvesting banking urge on mergers and acquisitions through share sales and provide research and financial consulting to companies. It chargees on initial public offering’s and large public and mystical share offering. While investment banks tends to focus on large companies. Recent developments in Merchant Banking\r\nThe recent developments in merchant banking are due to certain contributing(prenominal) factors in India are : The merchant banking was at its best during 1985-1992 when there were legion(predicate) new issues . It was expected that 2010 going to be good time for merchant banks , as many new issues are coming up . The foreign investors- both in the form of portfolio investment and through foreign direct investments are venturing in Indian Economy. It is increase the scope of merchant bankers in many ways. Disinvestments in the government sector in the country give a giant scope to the merchant bankers to function as consultants. Introducing of new financial instruments in the market has increased the opportunity for the merchant banks. The merger and corporate restructuring along with MOU and MOA are well-favoured immense opportunities to the merchant bankers for consultancy jobs.\r\nChallenges faced by Merchant Banker in India\r\nSEBI guideline has certified their operations to Issue Management and Portfolio .Management to some extent due to which the scope of work is limited. The net worth requirement is very high in categories I and II specially so many professionally experienced person/organizations cannot come into the picture. sad New issues market in India is drying up the business of the merchant bankers.\r\nScope for Merchant Banking\r\n1. Growth of primary market: if the primary market grows and issues increases, the scope of merchant banking provide be enhanced.\r\n2. Entry of forei gn investment: now India capital market straight off taps foreign capital through euro issues.FDI is increased in capital market .so merchant bankers is required to advice them for their investment in India. The increasing number of joint ventures also requires expert services of merchant bankers. if more and more NRI’s participate in capital market ,there will be great demand for merchant banker services.\r\n3. ever-changing policy of financial institutions: now the lending prices of financial institutions are based on project orientation, so the merchant banker services will be needed by corporate enterprise to provide expert guidance.\r\n4. Development of debt markets: if the debt market is enhanced, there will be tremendous scope for merchant bankers, now NSE and OTCEI are planned to repeal funds through their debt instruments.\r\n5. Corporate restructuring: due to liberalization and globalization companies are confront lot of competitions .In order to compete, they ha ve to restructuring, merger, acquisitions or disinvestments. They offer good opportunities to merchant bankers.\r\n'