Merchant Banking

Presented by Group-8
❯ Anubhav Singh
❯ Kartik Kumar
❯ Chandan Kumar Singh
❯ Neha Sharma
❯ Satya Kumari
❯ Savitri Pal
Contents of Our Topic:-
 Definition of Merchant Banking, it's History and Functions
 Merchant Banking in India
 Merchant Banking Regulations and Obligations of
Merchant Banker
 Importance of Merchant Banking and Difference between
Merchant Banking and Commercial Banking
 Classification of Merchant Banking
 Services of Merchant Banking
 Merchant Banking services offered by Axis Bank &
Conclusion
Definition of Merchant Banking:-
 Merchant banking can be defined as a skill-oriented professional
service provided by merchant banks to their clients, concerning their
financial needs, for adequate consideration, in the form of fee.
 In modern terms, a merchant bank is a firm or financial institution that
invests equity capital directly in businesses and often provides those
businesses with advisory services.
 A merchant bank offers the same services as an investment bank,
however, it typically services smaller clients and makes direct equity
investments in them.
Continued...
 They also issue and sell securities on behalf of corporations
through private placements to refined investors who require less
regulatory disclosure.
 Large merchant banks place equity privately with other financial
institutions by acquiring a considerable share of ownership from
companies with a significant potential for high growth rate to seal the
gap between venture capital and public stock.
History of Merchant Banks:-
 Traced back to Italy in the late Medieval times as well in France in the
17th and 18th centuries.
 Merchant banks began operating as organized money
markets consisting of merchants financing the transactions of other
merchants.
 In the United Kingdom, merchant banks started in the early
18th century.
 The oldest merchant bank in the United Kingdom is Barings Bank,
which was established by a German-originated family of bankers and
merchants. It was founded in 1762 and was the second oldest
merchant bank in the world after Berenberg Bank.
Continued....
 The growth of trade and industries in the 19th century led to the
emergence of merchant banks in the United States.
 The first merchant banks in the United States were JP Morgan & Co
and Citi Bank.
 The industry was mainly dominated by German-Jewish immigrant
bankers and Yankee houses with close ties to expatriate Americans
who settled in London as merchant bankers.
Functions of Merchant Bank
Equity Underwriting:- Portfolio Management:-
• Equity underwriting is achieved • Merchant banks
by evaluating the amount of provide portfolio
stock to be issued, the value of management services to
the business, the use of proceeds institutional investors and other
and the timing of issuance of the investors.
new stock.
• They help in the management of
• Merchant banks handle all the securities to enhance the value
necessary paperwork and liaison of the underlying investment.
with the appropriate marketing
division to advertise the stock. • Merchant banks may assist their
clients in the purchase and sale
of securities to help them attain
their investment objectives
Functions Continued...
Credit Syndication:-
 Merchant banks help in processing loan applications for short and long-
term credit from financial institutions.
 They provide these services by estimating total costs involved, developing a
financial plan for the entire project, as well as adopting a loan application
for commercial lenders.
 they also assist in choosing the ideal financial institutions to provide credit
facilities and act on the terms of the loan application with the financiers.
 Merchant banks also ensure the lender’s willingness to participate,
organize bridge finance, and engage in legal formalities regarding
investment to be approved and checking the working
capital requirements.
Merchant Banking in India:-
 Started in 1967 by National Grindlays followed by Citi Bank in 1970.
 The State Bank of India was the first Indian commercial bank to set up a
separate merchant banking division in 1972.
 Later, the ICICI set up its merchant banking division in 1973 followed by a
number of other commercial banks like Canara Bank, Bank of Broada,
Bank of India, Syndicate Bank, Punjab National Bank, Central Bank of India,
UCO Bank, etc.
 The FERA regulations in 1973, which required a large number of foreign
companies to dilute their shareholdings in India, gave a boost to the
merchant banking activities in India.
 Since then, a number of development banks and financial institutions such
as IFCI and IDBI have also entered this field.
 Merchant Banking Regulations:-
❯ SEBI (Merchant Bankers’) Regulation Act, 1992 defines a ‘merchant banker’ as
“any person who is engaged in the business of issue management either by
making arrangements regarding selling, buying or subscribing to securities or
acting as manager, consultant, adviser or rendering corporate advisory
service in relation to such issue management”.:
❯ At present no organisation can act as a ‘merchant banker’ without obtaining a
certificate of registration from the SEBI.
Continued...
 However, It must be noted that a person/ organisation has to get
himself registered under these regulations if he wants to carry on
or undertake any of the authorised activities, i.e., issue
management assignment as manager, consultant, advisor,
underwriter or portfolio manager.
 To obtain the certificate of registration, one had to apply in the
prescribed form and fulfill two sets of norms
(i) operational capabilities and (ii) capital adequacy norms.
OBLIGATIONS OF MERCHANT BANKER
 Maintenance of book of accounts,Records and other Documents.
 Submission of Half-yearly Results.
 Report on Steps taken on Auditor's Report.
 Appointment of Lead Merchant Bankers.
 Restriction on Appointment of Lead Managers
 Responsibilities of lead Managers
 Lead Merchant Banker not to associate with a Merchant Banker
without registration.
Cont...
 Underwriting Obligations.
 Submission of Due Diligence Certificate.
 Documents to be furnished to the board.
 Information to the Board.
 Disclosures to the Board.
 Boards right to Inspect.
 Obligations of Merchant Banker on inspection by the Board.
Importance of Merchant banking
The Importance of Merchant Banks is as follows:
Project Advisory Services: When a merchant bank works with clients, they are
responsible for preparing a project report for review. The information that is contained in
these reports usually includes the company’s capital structure, a profitability analysis, and
a liquidity analysis along with technical and economic parameters.
Corporate Counseling: The merchant banks are responsible for customizing financial
solutions for client review. The role that they play is to assess and provide the counselling
that is needed in order to make a substantial profit.
Security Placement: They can assist clients in the distribution of bonds, equity shares, and
popular insurance products. Once the merchant banker meets the clients, they assist on
placement of different type of securities.
Venture Capital: Merchant banks are also available to assist their clients with venture
capital services. When these banking professionals are included these processes, they are
involved in dialogue with various kinds of venture capital firms.
Difference between Merchant Banking and
Commercial Bnaking:-
Merchant Banking Commercial Banking

 Catering needs of corporate  Catering needs of common

firms. man.
 It cannot be done.  Anyone can open an account.
 More exposed to risk.  Less exposed to risk.
 Related to Primary markets.  Related to secondary
markets.
 It’s management oriented.
 It’s asset oriented.
 Plays different roles like
underwriting, portfolio etc.  Plays the role of financers.
CLASSIFICATION OF MERCHANT BANKER
Who is MERCHANT BANKER -
SEBI (Merchant Bankers’) Regulation Act, 1992 defines a ‘merchant
banker’ as “any person who is engaged in the business of issue
management either by making arrangements regarding selling,
buying or subscribing to securities or acting as manager, consultant,
adviser or rendering corporate advisory service in relation to such
issue management”
The SEBI has classified merchant bankers under four categories for the purpose of registration.

Category-I can act as issue manager, advisor, consultant, underwriter and portfolio manager.

Category-II can act as advisor, consultant, underwriter and portfolio manager.

Category-III can act as underwriter, advisor and consultant only.

Category-IV can act as consultant or advisor to the issue of capital.

Thus, only Category-I merchant bankers could act as lead managers to an issue.

However, with effect from December 9, 1997, different categories of merchant bankers were abolished
and only Category-I merchant bankers are registered by the SEBI.
CAPITAL ADEQUANCY NORMS-
The minimum net worth requirement for acting as merchant
banker is given below –
Category-I – RS 5 crore
Category-II –Rs 50 lakhs
Category-III – RS 20 lakhs
Category-IV - Nil
Merchant Banking services
 Loan syndication.
 Managers, consultants or Advises to the issue.
 NRI investment.
 Underwriting of public issues.

 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.
Continues...
 Managers, consultants or Advises to the issue:-SEBI insist that
all issues should be managed by at least one authorized
merchant banker but not more than two. For an issue of 100
crores,up to 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.

 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 mobilizing more resources for
corporate sector.
Continues...
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.
Merchant Banking services offered by Axis
Bank & Conclusion
Merchant Banking services offered by Axis
Bank & Conclusion

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 Debt Solutions

❯ Axis Bank is a leading provider of debt solutions in the form of bond

or debenture issuances and loan syndication. The Bank has
successfully managed various debt issuances of mid and large size
which includes plain vanilla loans or bonds.

Equity Solutions

❯ Axis Bank offers corporate and investors, equity solutions that meet
all your needs, with respect to the market sentiments. Our Axis Bank
offered equity services are trustworthy.
 Merger and Acquisitions
❯ Axis Bank offers capital market services where in it serves the middle
market with best-in-class advisory services that provide flawless
solutions for all the requirements of our clients so that they
experience smooth mergers and acquisitions.

Private Equity

❯ Axis Bank offers, Private Equity as an end-to-end advisory service to

companies looking to raise equity from financial investors. Through
Private Equity advisory solutions, we understand that the efficacy of
funding depends upon a company's needs and shareholders'
aspirations.
 Advisory Services
❯ Axis Bank is one of the leading provider of Advisory Services to public
and private sector clients on capital structuring and funding options,
with a view to help them cut down on the cost of funds. As part of its
Advisory Services in India, Axis Bank offer private sector and public
sector advisory solutions.

Trusteeship Services
❯ Axis Bank is a SEBI registered Debenture Trustee which offers services
such as Debenture Trusteeship, Security Trusteeship, Monitoring Agency
and Facility Agency. Axis Bank has a professionally qualified, dynamic
team, duly aided by branches all over the country, to provide quality
Trusteeship Services in India.
 Depository Services

❯ Axis Bank is a registered member of NSDL and is enrolled as a

Depository Participant. You can avail of a host of depository
services in India by just opening an account with NSDL(National
Securities Depository Limited) through Axis Bank.

E-Depository Services

❯ Axis Bank offers its customers e-Depository Services as a part of its

capital market services. Axis e-Depository services is an internet
based service which lets Demat Account holders and brokers
submit delivery instructions online using a service called Speed-e.