MERCHANT BANKING

BY
MANVENDRA KUMAR
P.G.D.M
  Introduction: Merchant Banking
CONTENTS: 

 Rules & regulation applicable for

merchant banker


 Code of conduct for merchant

bankers.


 Penalty imposed for merchant

bankers(in case of default) on
non compliance of SEBI Rule.
 1. Introduction: Merchant Banking

Merchant Banking is a business of issue management either

by making arrangements regarding selling, buying or
subscribing to securities, or rendering corporate advisory
service in relation to such issue management
Major Merchant
Banker………………
 SBI CAPITAL MARKETS LTD
 PUNJAB NATIONAL BANK
 ICICI SECURITIES LTD
 AXIS BANK LTD.(FORMERLY UTI BANK LTD.)
 BAJAJ CAPITAL LTD
 GOLDMAN SACHS (INDIA) SECURITIES PVT. LTD.
 · MORGAN STANLEY INDIA COMPANY PVT LTD
 · BARCLAYS SECURITIES (INDIA) PVT. LTD
 

COMMERCIAL BANKING

 MERCHANT BANKING

 Deals with Debt & Debt related  Deals with Equity & Equity

finance. related finance.

 Management oriented.
 Asset oriented.
 Willing to accept risks
 Generally avoid risks.
 1. In which year Merchant Banking Business Started In
India.?
 1969


2. Name the bank initiated Merchant banking service in

India?
 Grindley


 3. Merchant Banking is also known as-

 PE firm
1.



Services of Merchant Banks
 Project Counseling:
 Management of Debt and Equity Offerings
 Corporate Advisory Services:
 Loan Syndication
 Providing Venture Capital Financing
The various categories for which registration can
be obtained are:

 1) Category I – to carry on the activity of issue

management and to act as adviser,consultant, manager,
underwriter, portfolio manager.
 2) Category II - to act as adviser, consultant, co-
manager, underwriter, portfolio manager.
 3) Category III - to act as underwriter, adviser or
consultant to an issue
 4) Category IV – to act only as adviser or consultant
to an issue
 The capital requirement for carrying on
activity as merchant banker:

The capital requirement depends upon the category. The

minimum net worth requirement for acting as merchant banker
is given below:
Category I – Rs. 5 crores
Category II – Rs, 50 lakhs
Category III – Rs. 20 lakhs
Category IV – Nil
 GUIDELINES FOR MERCHANT BANKERS :

Authorization criteria include

§ Professional qualification in finance, law or business management

§ Infrastructure like office space, equipment and man power

§ Capital adequacy

§ Past track of record,experience,generalreputation and fairness in all

transactions
ØEvery merchant banker should maintain copies of balance sheet,Profit
and loss account,statement of financial position
Ø
ØHalf-yearly unaudited result should be submitted to SEBI

ØMerchant bankers are prohibited from buying securities based on the

unpublished price sensitive information of their clients

ØSEBI has been vested with the power to suspend or cancel the
authorization in case of violation of the guidelines
Ø
ØEvery merchant banker shall appoint a ‘Compliance Officer‘ to
monitor compliance of the Act
Ø
ØSEBI has the right to send inspecting authority to inspect books
of accounts, records etc… of merchant bankers

ØInspections will be conducted by SEBI to ensure that provisions of the

regulations are properly complied
ØAn initial authorization fee, an annual fee and renewal fee may be collected by
SEBI
FOR MERCHANT BANKERS
  Registration of Merchant Bankers
 The Applicant . . . .


 shall be a body corporate other than a NBFC

ü has the necessary infrastructure to effectively discharge his activities .

ü Should have minimum two experienced employees to conduct the business of the
merchant banker.

ü Should fulfill the capital adequacy requirement as specified.

ü his partner, director or principal officer should not be involved in any
connected with the securities market which has an adverse bearing on the
business of the applicant.

ü his partner, director or principal officer has not at any time been convicted
for any offence involving moral turpitude or has been found guilty of
any economic offence.

ü Should have the professional qualification from an institution recognized by
Mechanism of Public issue
Management

Decision to raise Capital funds

Obtaining SEBI approval

Arranging Underwriting

Preparation and finalization of prospectus

Selection of
Registrars,Brokers,Bankers,etc
Arranging Press and investor conference

Printing and publicity of Public issue

Documents
SEBI Compliance
ISSUE LAUNCH
CODE OF CONDUCT FOR MERCHANT BANKERS:
1. A Merchant Banker shall make all efforts to protect the

interests of investors.
investors
2. A Merchant Banker shall maintain high standards of

integrity , dignity and fairness in the conduct of its

business.

3. A Merchant Banker shall fulfill its obligations in a prompt ,

ethical , and professional manner .

4. A Merchant Banker shall at all times exercise due diligence ,

ensure proper care and exercise independent professional

judgment.

5. A Merchant Banker shall ensure that

A. Inquiries from investors are adequately dealt with;

b. Grievances of investors are redressed in a timely and

appropriate manner;

c. Where a complaint is not remedied promptly, the investor is advised

6. A Merchant Banker shall ensure that adequate disclosures are made to the
investors in a timely manner in accordance with the applicable regulations and
guidelines so as to enable them to make a balanced and informed decision.

7. A Merchant Banker shall endeavor to ensure that the investors are provided
with true and
adequate information without making any misleading or exaggerated claims or
any
misrepresentation and are made aware of the attendant risks before taking any
investment
decision.

8. A Merchant Banker shall endeavor to ensure that copies of the prospectus,

offer document, letter of offer or any other related literature is made
available to the investors at the time of issue or the offer.

9. A Merchant Banker shall not discriminate amongst its clients, save and
except on ethical and
commercial considerations.

10. A Merchant Banker shall not make any statement, either oral or written,
PENALTY IN CASE OF NON-COMPLIANCE OF SEBI RULE
 A.Suspension of Registration


 A penalty of suspension of registration of a merchant banker may be
imposed where –
ü The merchant banker violates the provisions of the Act, rules or
regulations;
ü The merchant banker –
 (a) fails to furnish any information relating to his activity
as
 merchant banker as required by the SEBI;
 (b) furnishes wrong or false information;
 (c) does not submit periodical returns as required by the
SEBI.
 (d) does not co - operate in any enquiry conducted by the SEBI.

ü The merchant banker fails to resolve the complaints of the investors or

fails to give a satisfactory reply to the SEBI in this behalf;
ü The merchant banker indulges in manipulating o
ü The merchant banker fails to maintain the capital adequacy
requirement;
ü The merchant banker fails to pay the fees;
ü The merchant banker violates the conditions of registration;
 B.Cancellation of Registration
 A penalty of cancellation of registration of a merchant
banker may be imposed if

ü The merchant banker indulges in manipulation or price
rigging or cornering activities affecting the securities
market and the investors interest;
ü
ü The financial position of the merchant banker deteriorates
to such an extent that the SEBI is of the opinion that
his continuance as merchant banker is not in the interest
of investors;
ü
ü The merchant banker is guilty of fraud, or is convicted of a
criminal offence;


 C.Show-cause notice and order
ü On receipt of the report from the enquiry officer, the SEBI
shall consider the same and issue a show-cause notice as to
why the penalty as proposed by the enquiry officer should
not be imposed.
ü The merchant banker shall within twenty - one days of the
date of the receipt of the show- cause send a reply to the
SEBI.
ü The SEBI after considering the reply to the show-cause notice,
if received, shall as soon as possible but not later than
thirty days from the receipt of the reply, if any, pass such
order as it deems fit.
ü Every order passed shall be self- contained and give reasons
for the conclusions stated therein including justification
of the penalty imposed by that order.
ü The SEBI shall send a copy of the order to the merchant
banker.
1.Merchant Banking Principles and Practices by H.R.
Machiraju
2. Financial Services by Eric Banks
3. www.sebi.gov.in
4. www.indianmba.com
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