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METHODOLOGY Quantitative aspect:- Primarily various books on merchant banking
were read to know various features and principle used in working of the
industry. Moreover, various magazines were read to know about the latest
happening in this field. Websites were visited and information regarding
different aspect, to get a better knowledge on the topic was collected. Various
websites were visited so as to study the important of merchant banking in the
ever rising competition in today’s world. Qualitative aspect:- MR. NAVNEET
(Anand rathi) was approached and interviewed, and implementation and scope of
merchant banking was understood through his expertise in the field. Some
analysis was done for different cases so as to understand different strategies
in different situation, MR. Kotiyal (share khan) was also approached to give an
insight on the future of merchant banking in India and the current scenario
EXECUTIVE SUMMARY Merchant banking an overview:- Company raises capital by
issuing securities in market. Merchant bankers at as intermediaries between the
issuer of capital and the ultimate investor who purchase these securities.
Merchant banking……. is the financial intermediation that matches the entities
that need capital and those that have capital? It is function that facilitates
the flow of capital in the market. Scope of merchant banking activities:-
Merchant banking activities helps: • In channel sing the financial surplus of
the general public into productive investment avenues. • To coordinate the
activities of various intermediaries to the share issue such the registrar,
banker, advertising agency, printers, underwriters, brokers etc. • To ensure the
compliance with rules and registration governing the securities market.
Functions of a merchant banker….. The following comprise the main functions of a
merchant banker: 1. Management of debt and equity offerings:- This forms the
main function of the merchant banker. He assists the companies in raising funds
from the market. The main areas of work in this regard includes : instrument
designing, pricing the issue, registration of the offer document, underwriting
support, and marketing of the issue, allotment and refund, listing on stock
exchanges. 2. Placement and distribution:- the merchant banker helps in
distributing various securities like equity shares ,debt instrument, mutual fund
product, fixed deposit, insurance products, commercial paper to name a few. The
distribution network of the merchant banker can be classified as institutional
and retail in nature. the institutional network consist of mutual fund, foreign
institutional investor, private equity funds, pension fund, financial
institution etc. the size of such a network represents the wholesale reach of
the merchant banker. The retail network depends on networking with investors. 3.
Corporate advisory services:- Merchant bankers offer customized solutions to
their client’s financial problems. The following are the main areas in which
their advice is sought. 4. Financial structuring:- Includes determining the
debt-equity ratio and gearing ratio for the client: the appropriate capital
structure theory is also framed. Merchant banker also explores the refinancing
alternatives of the client and evaluate cheaper source of fund. Another area of
advice is habilitation and turnaround management. In case of sick units,
merchant banker may design a revival package in coordination with banks and
financial institution. Risk management is another area where advice from a
merchant banker is sought. He advice the client on different hedging strategies
and suggest the appropriate strategy. 5. Project advisory service:- Merchant
banker help their clients in various stage of project undertaken by the clients.
They assist them in conceptualizing the project idea in the initial stage. Once
the idea is formed, they conduct feasibility studies to examine the viability of
the proposed project. They also assist the client in preparing different
document like the detail project report. 6. Loan syndication:- Merchant banker
arranges to tie up loans for their clients. This take place in a series of step.
Firstly they analyze the pattern of the clients cash flows, based on which the
terms of borrowing can be defined. Then the merchant banker prepares a detailed
loan memorandum, which is circulate to various banks and financial institution
and they are invited to participate in the syndicate. The banks then negotiate
the terms of lending on the basis of witch the final allocation is done.
Registration of merchant banker…. Registration with SEBI is mandatory to carry
out the business of merchant banking in India. An application should comply with
the following norms: • The applicant should be a body corporate. • The applicant
should not carry on 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 company of 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 cores Introduction
The history of origin and growth of merchant banking throughout the world, as
discussed in the forgoing paragraphs, has established, beyond doubts, the fact
that the role of the merchant banker had never been determined. They had
followed strategy of assuming different roles according to the need of need of
time to maintain their existence in the business environment. This is one of the
reasons that no fixed definition cold be ascribed to “MERCHANT BANKING”. Very
commonly, the merchant banking has been defined as to what a merchant banker
does. This is well convinced definition that could be given to any service
oriented industry. The definition given by different authors explaining the
meaning of merchant banking revolved around the role played by merchant banks.
There role and scope of such role have enlarged with the passage of time. The
survey of the existing literature in the foregoing pages reveals that merchant
banking is a non-banking financial activity resembling banking originated, grown
and sustain in European land, got enriched under American patronage and now
being rendered throughout the world by both banking and non-banking institution.
Some of the definitions are discussed below to locate the practical meaning of
the term “merchant banking”. Dictionary meaning of merchant banking hints at
merchant banks as an organization that underwrites securities that underwrites
securities for corporations. Dictionary meaning of merchant banking hints at
merchant banks as an organization that underwriters securities for operation
advises such clients on mergers and is involved in the ownership of commercial
venture. These organizations are sometimes banks which are not merchants and
sometimes merchants who are not banks and
sometimes houses which are neither merchants nor banks. These definition
reflects the historical formation of the merchant banking profession as such, in
which the merchants had assume banking role and subsequently banks assume the
merchant roles. Paul ferries rightly states this phenomenon; the original label
of ‘merchants and bankers was replaced by merchant banker’s. There name lent
creditability involving the other people money. In financial history of Western
Europe, Charles P Kindle Berger writes about merchant banking as the development
of banking from commerce frequently encountered a prolonged intermediate stage
known in England original as merchant banking. The merchant banker was a banker
was a merchant who lent his credit to others. This was done in various ways viz.
making advance to produces before goods were sold, either the goods entrusted to

merchant on commission for sale abroad or received on consignment from abroad,

by issuing letters of credit under which merchants could draw bills of exchange
created by trade. Most merchant banks drifted from generalized commerce into
specified commerce and from specialized commerce into finance. Merchant Banks,
thus, in essence, are financial institution providing specialist services which
generally include the acceptance of bill of exchanges, corporate finance,
portfolio management and other banking services. It is not necessary that a
merchant banker should do all such activities to be called a merchant bankers,
one merchant bank may specialized in one activity only, and take up other
activities also, which may be complimentary or supportive to specialized
activity. For example, firms in England which are engaged in the business of
acceptance of bills are known as merchant bankers. Again, the firm
which are members of the issue House Committee in England (not necessarily be
engaged in the former activity) are also merchant banks. Thus, merchant banks
despite specialization in one activity have different roles to play in different
economic situation. Merchant Banking is an emerging concept in the area of
financial services in India. The profession of Merchant Banking is dedicated to
fulfill the needs of trade and industries by acting as an intermediary,
consultant, liaison man and financer too. Merchant banking is a result oriented
profession commanding high degree of skills and dexterity in solving business
problems, assisting in investments and financial decision making, assisting in
laying corporate strategies, assessing capital needs and helping in producing
the owed as well as borrowed funds for achieving balanced capital structure of
the client corporate un its. Merchant’s banker’s with the confidence of
investors and general public command high reputation for passing on accurate,
adequate and timely information which helps and facilities in the functioning of
capital markets, money markets & international financial system. Merchant
Bankers observe their skill as personal possession for their comparative
strengths in the profession.
Definition “ A merchant bank is a defined as a financial institution or an
organization that underwrites corporate securities and advice such clients on
issue like corporate mergers etc involved in the ownership of commercial
venture, etc. this organization may be bank corporate body, a firm or a priority
concern” Merchant banking in India started with management of public issues and
loan syndication and has been slowly and gradually covering activities like
“project counseling”, “portfolio management” and mergers and amalgamation of
corporate firm. A merchant banker has been defined under the securities and
exchange board of India [merchant banker] rules,1992 as “any person who is
engaged in the business of issue management either by making arrangements
regarding selling, buying or subscribing securities as manager, consultant,
advisor or rendering corporate advisory service in relation to such issue
management.
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