SERVICES PROVIDED BY MERCHANT BANKS Broadly a merchant bank provides the following services: [1] 1.

Corporate Counselling: It covers the entire field of merchant banking activities i.e., project counselling, capital restructuring, portfolio management and the full range of financial engineering including venture capital, public issue management, loan syndication, working capital, fixed deposits, lease financing, acceptance credit, etc. However, the scope of corporate counselling is limited to giving suggestions and opinions leaving it to the client to take corrective actions for solving its corporate problems. 2. Project Counselling: Project counselling is an important merchant banking service which includes preparation of project reports, deciding upon the financing pattern to finance the cost of the project and appraising the project report with the financial institutions/banks. Project reports are prepared to obtain government approval of the project, for procuring financial assistance from financial institutions and banks & for ensuring market for the proposed product, for planning public issues, etc. While rendering project counselling services, the merchant banker has to appraise the project considering the various aspects as to the type of the project, location, technical, commercial and financial viability of the project. Financing the project cost is an important aspect of project counselling. The two sources of funds available to finance the project cost are internal sources of funds (or owners' funds) which includes promoter's contribution and retained earnings; and external sources of funds which refers to the borrowed funds in the form of loans from banks, private investors and financial institutions and in the form of debentures from the public. Merchant banker has to decide the financing mix of the internal and external sources of funds keeping in view the rules, regulations and norms prescribed by the government or followed by the term lending financial institutions. 3. Credit Syndication: Once the clients company has decided about the project proposed to be undertaken, the next step is looking for the sources wherefrom the funds could be procured to implement the project. Merchant banker has to locate the sources of funds and comply with the formalities required to procure the funds. This service rendered by the merchant banker in arranging and procuring credit from financial institutions, banks and other lending and investment organizations for financing the clients' project cost as loan syndication or credit syndication. 4. Issue Management and Underwriting:

www.wikipedia.org

Management of capital issues is a professional service rendered by the merchant bankers. Public issue management involves marketing of corporate securities by offering the securities to the public, procuring private subscription to the securities and offering securities to existing shareholders of the company. A merchant bankers post issue activities include final allotment and/or refund of subscription amount, calculation of underwriters liability in case of under subscription and complying the necessary statutory requirements for listing of securities on the stock exchange. 5. Under-writing of Public Issue: A fully underwritten public issue spells confidence to the investing public, which ensures a good response to the issue. Keeping this in view, companies which float a public issue usually, desire a full underwriting of the issue. Underwriting is only the guarantee given by the underwriter that in the event of under subscription, the amount underwritten would be subscribed in proportion by the underwriter. 6. Bankers to the Issue: The function of a banker to the issue is to accept application forms from the public together with subscription money and transfer them to the account of the controlling branch. The merchant banker can automatically become the banker to the issue in the following cases: The bank is a broker to the company It has given underwriting commitments. It acts as a manger to the issue 7. Portfolio Management: Portfolio management refers to managing efficiently the investment in the securities held by professionals to others. Merchant bankers take up management of a portfolio of securities on behalf of their clients, providing special services with a view to ensure maximum return by such investments with a minimum risk of loss of return on the money invested in securities. A merchant banker while performing the services of portfolio management has to enquire of the investment needs of the client, the tax bracket, ability to bare risk, liquidity requirements, etc. they should study the economic environment affecting the capital market, study the securities market and identify blue chip companies in which money can be invested. 8. Advisory Services Relating to Mergers and Takeovers: Merchant bankers role is specific and specialized in handling the mergers and takeover assignments. Being a professional expert, the merchant banker is apt to safeguard the interest of the shareholders in both the companies and as such his assistance is useful for both the companies, i.e. the acquirer as well as the acquired company. Based on the purpose of business objective, the search of the acquirer company will start for a merger partner company. If the objective of merger is growth oriented i.e. seeking expansion in production and market segments, utilization of existing companies or optimum utilization of resources, then the acquirer company will select

a business related company as a merger partner. If the objective is diversification in production line or business activities, then it will select a non-related company as a merger partner. Once the merger partner is proposed the merchant banker has to appraise the merger/takeover proposal with respect to financial viability and technical feasibility. He has to negotiate with the parties and decide the purchase consideration and mode of payment. He has to comply with the legal formalities like getting approval from the Government/ RBI; drafting the scheme of amalgamation; getting approval of company Board, financial institution, high court if required; arranging for the meeting etc. 9. Venture Capital Financing: Financing an emerging high-risk project is called venture capital financing. Many merchant bankers are entering into this area. The financing is by subscription to the equity capital, while repayment is by selling the equity through stock market when the shares are listed. 10. Leasing: Leasing is a viable source of financing while acquiring capital assets. The services include arrangement for lease finance facilities for leasing companies, legal; documents and tax consultancy. 11. Non Resident Investment: To attract NRI investments in the primary and secondary markets, the merchant bankers provide investment advisory services to the NRIs in terms of identification of investment opportunities, selection of securities, portfolio management, etc. they also take care of operational details like purchase and sale of securities securing the necessary clearance from RBI under FERA for repatriation of dividends and interest, etc. 12. Arranging Offshore Finance: The merchant bankers help their clients in the following areas involving foreign currency financing: a. b. c. d. Financing Of Exports And Imports Long Term Foreign Currency Loans Joint Ventures Abroad Foreign Collaboration Arrangements

13. Management of Fixed Deposits of Companies: Recently, merchants bankers have begun to structure and mobilize fixed deposits for their corporate clients. They take care of the procedural and legal aspects, and also mange the collection and subsequent servicing of the deposits. They advice with regard to the amount to be raised, interest charges, terms of deposits and other related issues are also offered to the client.

14. Relief to Sick Industries: The services offered by merchant bankers to sick industries can be summarized as follows: a. Assessment of capital requirements and counselling on capital restructuring. b. Appraisal of technological, environmental, financial and other factors causing sickness. c. Preparations of programs and packages for rehabilitation of sick units. d. Providing necessary assistance where the rehabilitation package involves mergers or amalgamation. e. Obtaining necessary approval for implementation the rehabilitation package from the statutory authorities. f. Monitoring the implementation of the scheme of rehabilitation.