M.P.V.VALIA COLLEGE
T.Y.BBI
MATUSHRI PUSHPABEN VIVNUBHAI VALIA DEGREE COLLEGE OF COMMERCE
BORIVALI (WEST), MUMBAI 400066
PROJECT ON MERCHANT BANKING
SUBMITTED BY :
ROLL NO –
PROJECT GUIDE: PROFESSOR LEENA VASU
UNIVERSITY OF MUMBAI
T.Y.BCOM
(BANKING AND INSURANCE)
(SEMESTER V)
ACADEMIC YEAR
__________
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M.P.V.VALIA COLLEGE
T.Y.BBI
DECLARATION
_______________________
student of Matushri PushapabenVinubhaiValia
College of Commerce studying in BBI (Semester-V) hereby declare that I have
completed this project on merchant banking in the academic year_______.
The information submitted is true and original to the best of my knowledge.
Signature
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ACKNOWLEDGEMENT
I sincerely thank the University for introducing a degree in B.COM for Banking
and Insurance Industry.
I am grateful for the inspiration of many people for their encouragement. I cannot
possibly mention the names of all those who helped me to improve my thinking
through their conversation.
First and for most, I thank my principal sir V.Manikandan for giving advice on our
project. And secondly I thank my guide, Prof. LeenaVasu, who let me initiate this
project and provided valuable suggestions and guidance during the whole project.
Her perceptive has encouraged me to incorporate a different dimension to this
project.
This project has helped me to understand the insight of Merchant Banking and was
of great experience.
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INDEX
SR
NO
PARTICULARS
PAGE
NO
REMARKS/SIGN
1
EXECUTIVE SUMMARY
8
2
9
3
THE OBJECTIVE OF THE STUDY
INTRODUCTION OF MERCHANT
BANKING
4
DEFINITION OF MERCHANT BANKING
12
5
MERCHANT BANKING IN INDIA-POST
INDEPENDENCE
14
6
NEED AND IMPORTANCE OF
MERCHANT BANKING
15
7
WHO IS MERCHANT BANKER
17
8
ROLE OF MERCHANT BANKER
20
9
OBLIGATIONS AND RESPONSIBILITIES
OF MERCHANT BANKER
22
DIFFERENCE BETWEEN MERCHANT
BANKS AND INVESTMENT
23
DIFFERENCE BETWEEN MERCHANT
BANKS AND COMMERCIAL BANKS
25
TYPES OF MERCHANT BANK
ORGANIZATION
26
10
11
12
4
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ORGANIZATIONAL SETUP OF
MERCHANT BANKER IN INDIA
30
SERVICES PROVIDED BY MERCHANT
BANKS
33
QUALITIES OF A GOOD MERCHANT
BANKER
38
SCOPE FOR MERCHANT BANKING IN
INDIA
41
PROBLEMS FACED BY MERCHANT
BANKERS
44
PROGRESS OF MERCHANT BANKING
IN INDIA
45
RANKING OF MERCHANT BANKING IN
INDIA
46
20
DEVELOPMENT STAGES
47
21
MARKET POTENTIAL OF MERCHANT
BANKER SERVICES
52
22
RESEARCH METHODOLOGY
53
23
METHODS OF DATA COLLECTION
55
24
ENVIRONMENTAL FACTORS
AFFECTING MERCHANT BANKS
SERVICES
56
14
15
16
17
18
19
25
26
BRIEF ANALYSIS OF MERCHANT
57
BANKING IN INDIA
DATA ANALYSIS AND INTERPRETATION
64
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FINDINGS
75
28
CONCLUSIONS
76
29
30
BIBLIOGRAPHY
78
79
QUESTIONNARE
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EXECUTIVE SUMMARY
The economy of the country is often afflicted with different unpredictable conditions like
inflation, unemployment, stagnation and so forth. The need to sustain a steady growth is
necessary for corporations and individuals which is possible only with a long term strategy and
financial options. The merchant banking services provide solutions and financial options.
These banks provide advisor services to clients based on a particular fee. They also provide other
financial services to mergers and clients. It is the only financial institute that invests its capital in
the clients company. It acts as an intermediary between those who possess capital and those who
need capital.
To help their clients with a number of financial options, the merchants banking
services operate in a number of countries all over the world. In this manner the clients have the
opportunity to survey the different financial options to ensure better growth.
Now a days, number of private sector banks have joined the battle of offering new and better
products and services. Banking sector has made a tremendous growth in the last few years. The
main achievement of bank is participation in capital market through the merchant banking
activities.
Merchant banking is highly specialized. This means that it can really focus on the particular
needs of its customers. Not all merchant banks will offer every service associated with this type
of
enterprise;
instead
they
will
often
8
focus
on
one
specific
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M.P.V.VALIA COLLEGE
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THE OBJECTIVE OF STUDY


To develop the ability to study the functionality of the merchant banker in India
To learn and apply multidisciplinary concepts, tools and techniques to solve vital

problems.
To familiarize with the various services provide by merchant bankers.

To find out the growth potential of merchant banking in India in various banks.
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INTRODUCTION TO MERCHANT BANKING
A merchant bank is a financial institution that primarily deals with the commercial banking needs
of international finance, long term loans for companies, provides consulting services and
underwriting of stock. It also acts as an intermediary between the issuers and the ultimate
purchasers of securities in the primary market. The concept of merchant banking is relatively
new in the era of financial services in India. Merchant banks do not have retail offices where a
customer can go and open a saving account. They also do not provide regular banking services to
general public. The services provided by merchant bankers include project counselling and preinvestment studies, management of debt and equity offerings, managers, consultants or advisers
to the issue, capital restructuring, project finance, issue management, underwritings of issue,
portfolio management, and working capital finance.
In terms of regulatory agency, SEBI is the statutory body that oversees India’s capital market.
This body has established detailed guidelines for merchant bankers and oversees all aspects of
merchant banking. In case the guidelines are violated, it can suspend or cancel a merchant
banker’s status.
Companies planning to raise funds from investors through the stock market hire a merchant
bank/banker to process, implement, and underwrite the deal. When the stock offerings are very
large, several merchant banks may work together with one being designated to be the lead
underwriter, the merchant banks then determines the details of the issue –number of shares to be
issued, the price at which the share will be issued, regulatory compliance required by the issue,
and the timing of the offerings of this new issue. The next step is the filings of all the paperwork
required by the various regulatory authorities in the time frame required. Finally, some merchant
bankers, along with the company, are also responsible for marketing the new issue to ensure its
success. In some cases, some merchant banks specialize in a single area, such as underwriting or
international finance.
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DEFINITION OF MERCHANT BANKING
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As role of merchant bankers is widespread and overlapping with that of commercial banks and
finance companies, definition is usually the one which is accepted by that country’s regulatory
authority.
In Britain investment banks and merchant banks are synonyms. Investment bank is an
individual or institution which acts as an underwriter or agent for corporations and municipalities
issuing securities. Most also maintain broker/dealer operations, maintain markets for previously
issued securities, and offer advisory services to investors. Investment banks also have a large role
in facilitating mergers and acquisitions, private equity placements and corporate restructuring.
Unlike traditional banks, investment banks do not accept deposits from and provide loans to
individuals.
In the US, merchant bank means an investment bank which is well-equipped to handle
multinational corporations.
According to the securities and exchange board of India (Merchant Bankers)
rules, 1992, “a merchant banker has been defined 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 advisories services in relation to such issue
management”
In India merchant banker is a body corporate who carries on any activity of the issue
management, which consist of preparation of prospectus and other information relating to the
issue, determining financial structure, tie-up of financiers and final allotment and refund of the
subscription; assuming role of an adviser, consultancy, manager to securities market related
operations, merchant banks in India are not allowed to conduct any business other than that
related to securities market.
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MERCHANT BANKING IN INDIA – POST INDEPENDENCE
In 1967, RBI issued its first merchant banking license to grind lays started with management of
capital issues, production planning, system design and also market research. It provides
management consulting service as well. Citibank setup its merchant banking division in 1970. Its
scope includes assisting new entrepreneur, evaluating new projects, raising funds through
borrowing and issuing equity. Indian banks started banking services as a part of multiple services
they offered to claims from 1972. In the initial years, the objective was to render corporate
advice and assistance to small and medium entrepreneurs. Merchant banking activities are
organized and undertaken in several forms. Commercial banks and foreign development finance
institutions have organized them formation of division, nationalized banks have formed
subsidiaries companies and share brokers and consultancies constituted themselves into public
ltd. Co. or registered themselves as private ltd. Companies. Some of them have equity stake of
foreign merchant bankers.
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NEED AND IMPORTANCE OF MERCHANT BANKING
The first bank to start merchant banking activities in India was the Grindlays bank after it
received the licence from reserve bank of India in 1967. The services offered by Grindlays bank
were management of capital issues, providing diverse financial services ranging from production
planning, and system design to market research for new entrepreneurs. Citibank was the second
bank to setup its merchant banking division in 1970. It diversified its activities to include
evaluating new projects, assisting new entrepreneurs, syndication of loans, and raising funds
through borrowings and issuing equity. In 1972, state bank of India started the merchant banking
services with the main objective of rendering corporate advice and providing assistance to small
and medium entrepreneurs.
The importance of merchant banking in India was felt in the context of huge public savings
lying untapped and the fact that specialized services and institutions could play a highly
significant role in mobilizing these funds. Need was felt for skilled professionals who could take
care of various finance related needs and help in raising the required amount of funds annually
from the capital market. Merchant banking activities are undertaken in several forms-it includes
preparation of project reports, deciding upon the financing pattern and sources, appraising the
project report with the financial institutions or banks relating to its technical, commercial,
marketing, and financial viability. It also includes filling up of various application forms with the
relevant information for obtaining the necessary funds from financial institutions and obtaining
government approval. In addition, a merchant banker also assists the companies in the
registration of the offer document, marketing of the issue, underwriting support, and the listing
on stock exchanges. To perform these services efficiently, merchant bankers posses a complete
understanding of all facets of capital markets. This includes every type of debt and equity
financing both domestically and internationally. In fact, some merchant bankers have entered
into collaborations with merchant bankers abroad for diversifying and providing services
internationally. In this way they could assist in meetings the growing requirement for funds for
economic activity in a country.
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The growth of merchant banking profession in the last few years has helped corporate to
raise funds from the capital market to meet the growing requirements for expansion,
modernization, diversification, and setting up of new enterprises. This reinforces the need for a
vigorous role to be played by merchant banking. The increased and growing demand for funds
had put pressure on the capital market. This motivated the public sector banks, foreign banks,
share brokers, and even the financial consultancy firms to enter into the field of merchant
banking and help in raising funds from the capital market under different enactments. Thus,
merchant bankers with their updated information and knowledge act as financial intermediaries
and play a highly significant role in mobilizing funds of savers, promising them a good return on
their investment and capital appreciation. Some of the important reasons why specialist merchant
banks have a crucial role to play in India are:

Merchant bankers possess a complete understanding and knowledge of capital markets


because of the growing complexity in rules and procedures of the government.
Their ability to structure transactions which are beneficial to all parties.
Need to develop new enterprises, modernization and diversification of the existing





enterprises.
Growing need for off-shore financing and promoting joint ventures abroad.
Increased development activities taking place in the country.
Huge savings lying untapped.
For promoting the role of new issue market in mobilizing savings.
For providing special advice and consultancy to the small and medium enterprises.
WHO IS MERCHANT BANKER?
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T.Y.BBI
A Merchant banker is a financial institution engaged primarily in accepting foreign bills,
advising companies on flotations and takeovers, underwriting new issues, hire-purchase finance,
making long-term loans to companies, and managing investment portfolios, funds, and trusts
WHAT DOES A MERCHANT BANKER DO?
A merchant banker is responsible for offering consultation services for mergers and acquisition,
giving advice to businesses that plan to enter the international market and helping small
businesses expand for a bigger target market. They also provide capital to businesses or make
investment transactions with traders and sellers.
THE MAIN OBJECTIVES OF MERCHANT BANKER
Merchant banker renders their specialized assistance in achieving the main objective which are
presented below.
1. To carry on the business of merchant banking, assist in the capital formation, manage
advice, underwrite, provide standby assistance, securities and all kinds of investments
issued, to be issued or guaranteed by any company, corporation, society, firm, trust
person, government, municipality, civil body, public authority established in India.
2. The main objective of merchant banker is to create secondary market for bills and
discount or re-discount bills and acts as an acceptance house.
3. Merchant bankers another objective is to set up and provide services for the venture
capital technology funds.
4. They also provide services to the finance housing schemes for the construction of houses
and buying of land.
5. They render the services like foreign Exchange dealer, money exchange, and authorized
dealer and to buy and sell Foreign exchange in all lawful ways in compliance with the
relevant laws of India.
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6. They will invest in buying and selling of transfers, hypothecate and deal with dispose of
shares, stocks, debentures, securities and properties of any other company.
ROLE OF MERCHANT BANKER
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The role of merchant banker is dynamic in the wake of diverse nature of merchant banking
services. Merchant banker’s dynamism lies in promptly attending to the corporate problems and
suggests ways and means to solve it. The nature of merchant banking services is development
oriented and promotional to help the industry and trade to grow and survive. Merchant banker is,
therefore, dedicated to achieve this objective through his dynamism. He is always awake to
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renew his skills, develop expertise in new areas so as to equip himself with the knowledge and
techniques to deal with emerging new problems of corporate business world.
He has to keep pace with the changing environment where government rules, regulations
and policies affecting business conditions frequently change; where science and technology
create new innovations in production processes of industries envisaging immediate renovations,
diversification, modernizations or replacements of existing plant and machinery or other
equipments putting new demands for finances and necessitating overhauling of the capital
structure of the firms. Merchant banker has to think and devise instruments of financing
industrial projects.
He has to assume wider responsibilities of saving industrial units from sick and guiding
industries to be setup in industrially areas to eliminate regional imbalances in industrial
development of the country. He has to guide the wider section of the community possessing
surplus money to invest in corporate securities and other productive investment channels. He has
to help the industry in different forms to ensure that it runs risk free ad devoid of uncertainty by
assisting the promoters with his knowledge and skills to resolve the problems being faced by
them. He has to watch the interest and win over the confidence of the government, its agencies,
along with the entrepreneurs, the investors and the whole community.
He must bridge the communication gap between different sections and resolve the problems
being faced in different areas concerned with the business world. To discharge the above role, a
merchant banker has to be dynamic. In the days ahead, merchant bankers have very significant
role to play tuning heir activities to the requirements of the growth pattern of the corporate
sector, the industry and the economy as a whole which is, in it, a challenging task and to meet
these challenges merchant bankers will have to be more vigorous and strategic in playing their
role. They will have also to adopt new ways and means in discharging their role.
OBLIGATIONS AND RESPONSIBILITIES OF A MERCHANT BANKER
Merchant bankers have the following obligations and responsibilities:
1. Merchant banker should maintain proper books of accounts, records and submit half
yearly/annual financial statement to the SEBI within stipulated period of time.
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2. No merchant banker should associate with another merchant banker who is not registered
with SEBI.
3. Merchant bankers should not enter into any transaction on the basis of unpublished
information available to them in the course of their professional assignment.
4. Every merchant banker must submit himself to the inpection by SEBI when required for
and submit all the records.
5. Every merchant banker must disclose information to the SEBI when it requires any
information from them.
6. All merchant bankers must abide by the code of conduct prescribed for them.
7. Every merchant banker who acts as lead manager must enter into an agreement with the
issuer setting out mutual rights, liabilities, obligations, relating to such issues with
particular reference to disclosures allotment, refund etc.
THE DIFFERENCE BETWEEN
INVESTMENT BANKS AND MERCHANT BANKS
Merchant Banks and Investment Banks, in their purest form, are different services .In
practices, the fine lines that seperate the functions of merchant banks and investment banks tend
to blur. Traditional merchant banks often expand into the field securities underwriting, while
many investment banks participate in trade financing activities.
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M.P.V.VALIA COLLEGE
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In theory, investment banks and merchant banks perform different functions.
Pure investment banks raise funds for business and some government by registering and
issuing debt or equity and selling it on a market. Traditionally investment banks only
participated in underwriting and selling securities in large blocks. Investment banks facilitate
mergers and acquisitions through share sales and provide research and financial consulting to
companies.
Traditionally, investment banks did not deal with the general public.
Traditional market banks primarily perform international financing activities such as
foreign corporate investing, foreign real estate investment, trade finance and international
transaction facilitation.
Some of the activities that a pure merchant bank is involved in may include issuing letters of
credit, transferring funds internationally, trade consulting and co-investment in project involving
trade of one form or another.
The current offerings of investment banks and merchant banks varies by the institution offerings
the services, but the there are a few characteristics that most companies that offer both
investment and merchant banking share.
As a general rule, investment banks focus on initial public offerings (IPO’s) and large public and
private share offerings. Merchant banks tend to operate on small scale companies and offer
creative equity financing, bridge financing, mezzanine financing and a number of corporate
credit products. While investment banks tend to focus on larger companies, merchant banks offer
their services to companies that are too big for venture capital firms to serve properly, but are too
small to make a compelling public share offerings on a large exchange. In order to bridge the gap
between venture capital and public offerings, larger merchant banks tend to privately place
equity with other financial institutions, often taking on large portions of ownership in companies
that are believed to have strong growth potential.
Merchant banks still offer financing products to their clients. Investments banks rarely offer trade
financing because most investment banking clients have already outgrown the need for trade
financing and the various credit products linked to it.
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Merchants banks and Commercial banks
Merchant banks
1. Assist in raising capital in the form of
Commercial Banks
1. Provide funds in the form of term loan
equity, preference shares, and
and working capital.
syndicated loan working capital
instruments
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2. Advisor not financer
2. Financing is the main business.
3.Do not accept chequable deposits.
3.Demand deposits are the key feature.
4. Mainly fee based business.
4. Mainly fund based business.
5. Being advisors, they are closer to the
5. Being lenders, they are more cautions,
customers and get to know risks of the
assess risks in lending proposals and cannot
transactions properly. They work on risks
afford to be grossly relationship based and
shields i.e mitigation measures
close to the customer.
6. Most of work they get is about management
6. Commercial banks majority business is of
of capacity of lead managers, underwriters,
terms lending and bank deposits.
piercing of issue, book running and liaisoning
with SEBI.
TYPES OF MERCHANT BANK ORGANIZATION
According to the Securities and exchange Board of India, four Categories of the merchant banking
organizations exist in the country.

Institutional based merchant banking organizations operate as subsidiaries of private financial

institutions or those recognized by the state or central government.
Banker based organizations are those that operate as divisions or subsidiaries of the nationalized
commercial banks or the foreign banks functioning in the country.
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M.P.V.VALIA COLLEGE
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

The third category
consist of qualified brokers who provide skilled merchant banking services like portfolio

management.
The private merchant banking organization work as sole proprietorships, private limited, public
limited or partnership companies.
Requirements for setting up a Merchant Banking Organization
1. Formation of the business organization:
SEBI act 1992 does not prescribe any specific form of business organization to carry on the activities as
merchant banker. However, the types of organizations are listed below:





Sole proprietorship
Partnership Firm
Hindu Undivided Family (HUF)
Corporate Enterprises
Co-operative Society
Generally it is preferred that Merchant Banking organization be a registered company. Merchant Banks
are generally setup as subsidiary companies of banks (Public or Private). For example, SBI caps, ICICI
Securities etc.
2. Adoption of a viable business plan:
All the basics tests required to find out whether the business to be undertaken is viable or not are also
applicable to a Merchant Banking setup. Capital adequacy, profitability, growth opportunities and current
market size are some of the factors which need to be looked into.
3. Registration of Merchant Bankers:
a. Application for grant of certificate:
An application for grant of a certificate needs to be made to SEBI. The application can be made for any
one of the following categories of the merchant banker namely:I)
Category I, that is, to carry on any activity of the issue management, which will inter-alia
Consist of preparation of prospectus and other information relating to the issue, determining
financial structure, tie-up of financiers and final allotment and refund of the subscription; and
to act as adviser, consultant, manager, underwriter, portfolio manager.
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M.P.V.VALIA COLLEGE
II)
III)
IV)
T.Y.BBI
Category II, that is, to act as adviser, consultant, co-manager, underwriter, portfolio manager
Category III, that is to act as underwriter, adviser, and consultant to an issue
Category IV, that is to act only as adviser or consultant an issue. To carry o the activity as
underwriter or portfolio manger a separate certificate of registration needs to be obtained
from SEBI.
b. Application to confirm to the requirements:
The application should confirm to all the requirements under the SEBI guidelines, otherwise it may be
rejected.
c. Furnishing of information, clarification and personal representation:
The board may require the applicant to furnish further information or clarification regarding matters
relevant to the activity of a merchant banker for the purpose of disposal of the application. The
applicant or its principal officer may appear before the board for personal representation.
d. Consideration of application:
The Board shall take into account for considering the grant of a certificate, all matters, which are
relevant to the activities relating to merchant banker and in particular the applicant complies with the
following requirements, namely:

The applicant shall be a body corporate other than a non-banking financial company.
The merchant banker who has been granted registration by the Reserve Bank of India to act
as a Primary or satellite dealer may carry on such activity subject to the condition that it shall

not accept or hold public deposit.
The applicant has the necessary infrastructure like adequate office space, equipment, and

manpower to effectively discharge his activities.
The applicant has in his employment minimum of two persons who have the experience to

conduct the business of the merchant banker
A person directly or indirectly connected with the applicant has not been granted registration
by the Board.
The applicant fulfils the capital adequacy requirement is as follows:
The capital adequacy requirements should not be less than the net worth of the person making the
application for the grant of registration. The net worth shall be as follows:CATEGORY
MINIMUM AMOUNT
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M.P.V.VALIA COLLEGE
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CATEGORY I
Rs. 5,00,00,000
CATEGORY II
Rs. 50,00,000
CATEGORY III
Rs. 20,00,000
CATEGORY IV
NIL
The applicant, his partner, director principal officer is not involved in any litigation connected with
the securities market which has an adverse bearing on the business of the applicant and have not at
any time been convicted for any offence involving moral turpitude or has been found guilty of any
economic offence.
The applicant has the professional qualification from an institution recognized by the Government in
finance, law or business management. Grant of certificate to the applicant is in the interest of
investors.
e. Procedure for registration.
He board on being satisfied that the applicant is eligible shall grant a certificate. On the grant
of a certificate the applicant shall be liable to pay the fees as prescribed.
f. Payment of fees and the consequences of failure to pay fees:
Every applicant eligible for of a certificate shall pay such fees in such manner and within the
period specified. Where a merchant banker fails to pay the annual fees in Schedule II, the
Board may suspend the registration certificate, whereupon the merchant banker for the period
during which the suspension subsists. The Merchant banks can commence business on
acquisition of a certificate of registration from SEBI after completion of the above mentioned
formalities.
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ORGANIZATIONAL SETUP OF MERCHANT BANKER IN INDIA
In India a common organizational setup of merchant bankers to operate is in the form of
division of Indian and foreign banks and financial institutions, subsidiary companies
established by bankers like SBI, Canara Bank, Punjab National Bank, Bank of India, etc.
some firms are also organized by financial and technical consultants and professionals.
Securities and exchange Board of India has divided the merchant bankers into four categories
based on their capital adequacy. Each category is authorized to perform certain functions.
From the point of organizational setup India’s merchant banking organizations can be
categorized into four groups on the basis of their linkage with parent activity. They are:
1. Institutional Base:
Where merchant banks function as an independent wing or as subsidiary of various Private/
Central Government/ State Government of financial institutions. Most of the financial
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institutions in India are in public sector and therefore such setup plays a role on the lines of
government priorities and policies.
2. Banker Base:
These merchant bankers function as division/subsidiary of banking organization. The parent
banks are either nationalized commercial bank or the foreign banks operating in India. These
organizations have brought professionalism in merchant banking sector and they help their
parent organization to make a presence in capital market.
3. Broker Base:
In the recent past there has been an inflow of qualified and professionally skilled brokers in
various exchange of India. These brokers undertake merchant banking related operations also
like providing investment and portfolio management services.
4. Private Base:
These merchant banking firms are organized in private originated in private sector. These
organizations are the outcome of opportunities and scope in merchant banking business and they
are providing skill-oriented specialized services to their clients. Some foreign merchant bankers
are also entering either independently or through some collaboration with their Indian
counterparts. Private sector merchant banking firms have come up either as the sole
proprietorship or public limited companies. Many of these firms were in existence for quite some
times before they added new activity in the form of merchant banking services by opening new
divisions on the lines of commercial banks and all Indian Financial Institutions.
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Code of conduct
According to the 13 regulation of SEBI of 1992 (Merchant bankers), every merchant banker
should comply with the following codes of conduct.
They are:
a) The merchant banker must observe high integrity and fairness in all his dealings.
b) He shall render at all times high standard of services, excise due diligence, exercise
independent professional judgment.
c) If necessary, he must disclose to his clients the possible source of conflict of duties and
interests.
d) The merchant banker should not indulge in unfair practice or unfair competition with
other merchant bankers.
e) He should not make any exaggerated statement about his capacity or achievement.
f) H should always endeavour to give the best possible advice and prompt efficient and cost
effective service.
g) .maintain the secrecy of all he confidential information received during the course of
service to his client.
h) He should he should not engage in the creation of a false market or price rigging or
manipulation.
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SERVICES PROVIDED BY MERCHANT BANKS:
There are various services provided by merchant banks are as follows:
1. Promotional services :
Merchant banks have a promotional role in the field of industrial activity. The task
involves identification of the project, its location, obtaining many approvals/concessions
from various concerned authorities, preparation of project feasibility reports and estimated
profitability figures. The work involves, in addition, assessing the availability of inputsraw materials, skilled labour and technology, both indigenous and imported. Selection of
products and formulation of marketing plans, distribution channels and advertising
strategies.
2. Management of public issues :
Merchant banks help new as well as established companies to raise equity finance. They act
as managers to the issue. They decide on the size and the type (preference/ordinary shares) of
the issue, and its mode of placement (public/private) and time of its issue. They advise on the
timing of the public issue and also advise on the size and price of the issue.
3. Investment advice to companies :
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M.P.V.VALIA COLLEGE
Merchant
banks
T.Y.BBI
advise
and
offer
their
services
to
corporate
clients
on
expansion/diversification/modernization and updating of technologies. They also offer their
expert services on capital restructuring, mergers, takeovers and liquidation of companies.
4. Project Management:
Merchant bankers offer help to their clients in every way possible. For e.g . They advise
about location of a project, preparing a project report, conducting feasibility studies,
making a plan for financing the project, finding out sources of finance, advising about
concessions and incentives from the government which the companies are not aware of.
5.Stock exchange operations :
Merchant banks act as brokers and jobbers on stock exchanges. They also operate through
investment banks, mutual funds, venture capital companies and manage the funds of
investors so as to offer them security, reasonable return and liquidity.
6.Money market activities :
These include underwriting and dealing in short-term negotiable instruments such as
commercial paper, promissory notes, certificates of deposits, bankers acceptance, treasury
bills and government bonds.
8. Portfolio management :
These services include advice to individuals and companies on their investment in shares,
debentures, and other financial assets. This make the investment safe, liquid and profitable for
clients.
9.Advice on capital structuring:
Based on the projects appraisal and fund capacity of the promoters, merchant bankers prepare
suitable capital structure. Firstly, optimal and achievable debt-equity mi is decided. Then within
equity how much from promoters, how much by private placement and hen and how much by
public issue, if desired is decided. Debt decisions are about choosing between term loan and
debentures, possible collaterals, etc. Convertibles if suitable are part of such capital structure.
10.Preperation of prospectus and liaisoning with SEBI:
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M.P.V.VALIA COLLEGE
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As a corporate decides to go for public issue of shares (IPO or follow-on issue), merchant
bankers are appointed to prepare prospectus. It is as per SEBI prescribed format. The activity
includes lots of data collection from corporate itself as the theme of prospectus is disclosure
to the prospective IPO investors. Prospectus so prepared is submitted to SEBI. The merchant
bankers would hold dialogue with SEBI officers and comply with any suggestions,
requirements from them. Prospectus is updated and resubmitted for final approval. Requisite
permission are sought from the stock exchanges on which the shares are to be listed.
11. Pricing Decision:
Merchant bankers and the promoters choose between fixed price issue or book building exercise.
In both the cases they have to decide the price or price-band. Price / band depends upon
company’s EPS and PE ratio (already listed). If the company is not listed, industry PE ratio is
used for the purpose. It is also a function of company’s brand image and company, lead
manager’s confidence in wooing the investors at good premium. Pricing is o be decided few days
before the opening of the issue. Prospectus approval by SEBI is not related to pricing of the
issue.
12. Marketing in capacity in Lead Managers:
Merchant banker, who is appointed as lead manager to the issue, is responsible to market the
issue and attract the investors. This is done through media campaign, personal mailers to loyal
investors. Apart from retail investors, the issue is also to be marketed I other categories if
investors such as institutional investors, FII’s HNI’s etc.
13. Underwriter to the issue:
If subscription to the issue is less than full
i.eundersubscription, then underwriters are
responsible to the gap between total applied capital and size of the issue. Maximum guarantee of
the underwriter could be upto 10% of the total issue size. This means 90 & of the issue must be
subscribed to by prospective investors. Remaining 10% undersubscription is filled by the
underwriters. In case issue subscription is less than 90 %, then amount is refunded to applicants
and issue stands cancelled. Underwriting is a contingency risk. It does not come under merchant
banking licence of SEBI. A separate licence is to be taken from SEBI for underwriting activity.
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14.Assistance in ADR/GDR and other International Instrument:
Many Indian corporate ADRs/GDRs in US and other global markets respectively. They have
to deal with the local depository and merchant bankers in respective countries. The corporate
at times lack in expertise to deal with them or they do not have adequate staff to coordinate
entire process with these agencies. Mostly these corporate appoint an Indian bankers and
depositories etc . Indian merchant banks undertake partial documentation also help in FCBs,
ECBs, FRNs, Eurocredits and EuroCPs.
15. Management of Debenture issue:
As in public issue of shares, merchant bankers also undertake similar responsibilities in case
of public issue of debenture. Lead managers, underwriters, Pre and post issue advisor are all
merchant bankers. Pre-issue advice in this case is about interest rate, discount/ premium at
issue and redemption, convertible or redeemable. Issue is to be rated by rating agencies.
Merchant bankers coordinate with them.
16. Preparation of bankable proposal and Syndication of loan
Term loan application is prepared by merchant bankers. Bankers are choosen based on speed,
relationship and interest rate criteria. Project report in the format prescribed by respective
bankers is prepared and proposal is submitted. Negotiation process is also handled by
merchant bankers. They are responsible till sanction and also disbursement of loan,
depending upon scope assigned to them by the corporate.
17. Working capital:
Merchant bankers advice on optimal mix of long term and short term funds. They assist in
bill discounting, placement of commercial Paper, arrange line of credit, place inter corporate
deposits. They act as intermediaries. They liaison with the rating agencies for rating of CP
and ICDs.
18. Advice on mergers and Acquisitions:
Merchant bankers scrutinize merger, acquisition and takeover proposals. Merchant bankers
work on both the sides, acquirer as well as acquire. Tasks include projection of post merger
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M.P.V.VALIA COLLEGE
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scenario, assessment of viability of merger. Decision include price, share exchange ratio,
nature of deal (cash, otherwise, mix)
19. corporate Structuring advice:
Merchant bankers analyse financial statement and can advise on possible measures on
improvement of profitability, EPS. They can also suggest mix of fixed and variable
overheads. Choice between lease or own, outsourcing or in-house is suggested by them.
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QUALITIES OF A GOOD MERCHANT BANKERS
Merchant banker are individual experts who organize and manage the merchant banks. The
operation of a merchant bank is influenced by the personality, traits of its merchant bankers.
Their qualities are:
1. Leadership:
In order to interact with their clients and communicate effectively merchant bankers
should posses all relevant skills and update knowledge.
2. Aggressive Action:
Merchant
bankers always looking for new business opportunities. On locating a business
opportunity and after obtaining the assignment from the clients, a merchant banker has to be
prompt in grasping the clients problems and to provide a better choice amongst alternative
solutions. A good merchant banker is one who does not allow his clients to think anything
outside except what has been advised and thus holding the clients interest for the present as well
as for the future.
3. Co-operative and friendliness:
Co-operative and friendliness coupled with persuasiveness must flow as natural traits in
the merchant banker in order to win over the trust of their clients just like a doctor or a lawyer
who retains their clients permanently. A good merchant banker has to share the thoughts of his
clients with sympathetic and offer suggestions without any greed or favors.
4. Contacts:
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A merchant banking business mainly depends upon the sociable nature and wider
contacts. The scope of contacts of a merchant banker covers:
a.
b.
c.
d.
His own organization
Central and state government offices banks
Financial Institutions
Promoters/Directors/Owners/ Chief Executives of the public and private
e.
f.
g.
h.
i.
enterprise
Printers
Advertising Agencies
Brokers and Stock Exchange Dealers.
Advocate and Solicitors
Members of the press.
Merchant banking have to widen the contacts and continue to maintain them by meeting
people in personal, in special gatherings and through writing to them.
5. Attitude towards problem solving:
A good quality of a merchant banker is to be skilled in human relations particularly in the
inter-personal behavior. A merchant banker should have a positive approach to
understand the difficulties. Adverse circumstances and the viewpoints of others. Effective
communication and proper feedback are the pre-requisite for creating a positive attitude
towards problem solving which could be gained partly through the learning process and
partly as an inborn personality trait.
6. Inquisitiveness for acquiring new skills, information and knowledge:
Merchant bankers survive by providing the information required by their needy clients.
Therefore they must keep themselves updated with the latest information in the area of
the service product which they market.
7. Knowledge:
Thorough understanding of technical issues related to business, understanding of legal and
statutory requirements, appreciation of business acumen, financial expertise are key things a
merchant banker must know. Delivery of his service depends on his basic understanding of
these issues.
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8. Capital market Familiarity:
Merchant banker should be well versed with stock market, their movements. He should
track important happenings in the market on ongoing basis.
9. Liasoning ability:
Merchant bankers are required o liaison with SEBI, RBI, stock exchange, depositories and
other government authorities forpublic issue related duties. It is a imperative that a merchant
bank maintains excellent rapport with all of them and also close relations even at informal
levels. This only can see speedy and favorable clearance by the authorities.
10. Innovation:
Corporates may approach with unique requirements. Standard solutions and products may
not solve problems sometimes. Merchant bankers should do out of box thinking and be able
to do financial engineering. They can device new financial instruments and get approved
from the authorities. Innovations is required even to address stringents legal requirements.
11. Integrity:
Merchant banker has valuable and confidential information of its customers. Merchant
bankers should take utmost care that the information is not leaked and also not consumed for
the purpose other than for which it was disclosed to the merchant bankers.
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SCOPE FOR MERCHANT BANKING IN INDIA
In the present day capital market scenario, the merchant banks play the role of an encouraging
and supporting force to the entrepreneurs, corporate sectors and the investors. There is vast scope
for merchant bankers to enlarge their operations both in domestic and international market.
1.Growth of new issues market:
The growth of new issue market is unprecedented since 1990-91.the amount of annual
average of capital issues by non-government public companies was only about 90 crores in
the 70s,the same rose to over Rs.1000 crores in the 80s’and further to rs.12700 crores in the
first four years of 1990’s. The number of capital issues has also increased from 516 in 199192 to 1,221 in 2005-06. The trend is expected to continue in future.
2.Entry of foreign investors:
within two years to march 1994, the total inflow of foreign capital through these routes
reached to about $5 billion. It is estimated that this figure may go up to $ 35-40 billion by the
turn of this century. Further, foreign direct investments as also investment by NRIs have risen
considerably due to number of incentives offered to them. They need the services of
merchant bankers to advise them for their investment in India.
1. Changing policy of financial institutions:with the changing emphasis in the lending
policies of financial institutions from security orientation, corporate enterprises would
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require the expert services of merchant bankers for project appraisal, financial
management etc. the policy of decentralization and encouragement of small and medium
industries will further increase the demand for technical and financial services which can
be provided by merchant bankers.
2. Development of Debt Market: the concept of debt market has set to work through
National Stock Exchange and the over the Counter Exchange of India. Experts feel that
of the estimated capital issues of Rs.40000crores in 1994-95, a good portion may be
raised through debt instruments. The development of debt market will offer tremendous
opportunity to Merchant Bankers.
3. Innovations in financial Instruments:the Indian capital market has witnessed
innovations in the introduction of financial instruments such as non-convertible
preference shares, zero coupon bonds, deep discount bonds, triple option bonds, secured
premium notes, floating rate bonds, auction rated debentures etc. this has further
extended the role of Merchant Bankers as market makers for these instruments.
4. Corporate Restructuring: as a result of liberalization and globalization the competition
in the corporate sector is becoming intense. To survive in the competition, companies are
reviewing their strategies, structure and functioning. This had led to corporate
restructuring including mergers, acquisitions, splits, disinvestment and financial
restructuring. This offers good opportunity to Merchant Bankers to extend the area of
their operations.
5. Disinvestment: the government raised Rs.2000 crores through disinvestment of equity
shares of selected public sector undertakings in 1993-94. The government proposes to
shift the present method of periodic sale of public sale of public sector shares to round the
year off loading of shares directly on the stock exchange from the year 1995-96.the
government will sell the shares of identified public sector at any time during the year
when they get a good price above minimum stipulated level. This is likely to provide
good business to Merchant Bankers in future.
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PROBLEMS FACED BY MERCHANT BANKERS
1. SEBI guidelines have authorized merchant bankers to undertake issue related activities only
with an exception of portfolio management. These guidelines have made the merchant
bankers either to restrict their activities or think of separating these activities from the present
one and float new subsidiary and enlarge the scope of its activities
2. SEBI guidelines stipulate a minimum net worth of Rs. 1 crore for authorization of merchant
bankers. Small but professional and specialized merchant bankers who do not have a net
worth of Rs.1 crore may have to close down their business. The entry is denied to young,
specialized professionals into merchant banking business.
3. Non-co-operation of the issuing companies in timely allotment of securities and refund of
application money is another problem of merchant bankers. The guidelines have put the
responsibility on the merchant bankers. They have to seek the co-operation of the issuing
company to shoulder the responsibility.
4. Though regulations are much better now, there is still scope for further improvement.
Merchant bankers can be made more accountable and responsible. Professional qualifications
focused on merchant banking are not available. Industry is not well organized and all the
players do not play the same tune. This is especially evident in comparison with insurance
and mutual funds industry.
5. Association of Merchant Bankers in India is a professional non-profit company setup to
represent the industry. It is expected to set code of ethics and facilitate dialogue between the
industry and regulatory bodies. Training and awareness programs are also expected from
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AMBI. Because of lack of support from members and non-initiative from SEBI/government,
AMBI dormant at present.
PROGRESS OF MERCHANT BANKING IN INDIA

Merchant Banker’s main activity is of management of public issue of shares.

As stock markets in the country progress or move, merchant bankers’ business activity
grows.

Earlier, stock markets in India were in nascent stage. Controller of capital Issues (CCI)
was the controller authority. Issue pricing was also dictated by CCI. Later, it was replaced
with SEBI.BSE got a strong companion as NSE. Both are highly automated and
sophisticated now.

Merchant bankers’ role in CCI era and in restricted freedom was of course not so
significant. As the size of capital market increased, pricing became a critical issue.

Book building and book running is an important exercise. With India liberalizing its
policies, its presence in international markets has increased

Number of merchant bankers is on rise since liberalization. Virtually every PSU bank has
a merchant banking subsidiary. Indian finance companies dominated merchant banking in
early year.
Now giant multinational merchant bankers are showing presence in India. Merchant and its
scope are growing.
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RANKING OF MERCHANT BANKING IN INDIA
MERCHAN
T BANKS
OE
FSS
QPS
QM
INN
ICICI
Securities
4.0
4.0
4.2
3.8
4.3
IDBI
4.2
3.2
4.5
4.0
4.8
SBI
4.4
3.9
4.6
6.7
5.2
IFCI
6.1
5.7
6.0
6.0
6.3
BOB
6.7
6.5
6.7
6.6
6.8
JM Finance
6.5
6.5
5.5
5.9
5.4
PNB
6.8
6.8
6.7
6.8
6.8
Note:
OE: Overall excellence
FSS: Financial soundness
QPS: Quality product
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QM: Quality management
INN: Innovations
GUIDELINES FOR MERCHANT BANKER
Merchant banking has been statutorily brought within framework of the securities and exchange
board of India under SEBI (merchant bankers) regulations, 1992
(1)In terms of the guidelines issued during April 1990, all merchant bankers will require
authorization by SEBI to carry out business.
The criteria for authorization include:
(i)Professional qualification in finance, law or business Management
(ii)infrastructure like adequate office space, equipment and manpower,
(iii)employment of two person who have the experience to conduct business of merchant
bankers;
(iv)capital adequacy;
(v)past track of record, experience ,general reputation and fairness in all transactions.
(2)SEBI issued further guidelines classifying the merchant bankers into four categories based on
the nature and range of activities and their responsibilities to SEBI investors and issuers of
securities. SEBI has issued revised guidelines on December 22, 1992 classifying the activities of
merchant bankers an follows:
The first category consists of merchant bankers who carry on any activity of issue management
which will inter alia consists of preparation of prospectus and other information relating to the
issue, determining financial structure, tie-up of financiers and final allotment and refund of
subscription and to act in the capacity of managers, advisor or consultant to an issue, portfolio
manager and underwriter.
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The second category consists of those authorized to act in the capacity of co-manager/advisor,
consultant, underwriter to an issue or portfolio manager.
The third category consists of those authorized to act as underwriter, advisor consultant to an
issue.
The fourth category consists of merchant bankers who act as advisor or consultant to an issue.
Minimum net worth for fist category is Rs.1 crore, second category Rs.50
lakhs, third category Rs.20 lakhs and fourth category is nil.
The above classification was valid upto December 1997 only.
(3) An initial authorization fee, an annual fee and renewal fee may be collected by SEBI.
(4)All issues must be manages at least by one authorized banker, functioning as the sole manager
or the lead manager. Ordinarily not more, functioning as the sole managers should be associated
as lead managers. But, for issues over Rs.100 crores and above the number of lead managers
may go upto a maximum of four. The specific responsibilities of each lead manager must be
submitted to SEBI to the issue.
(5)the lead merchant banker holding a certificate under category I shall accept a minimum
underwriting obligation of 5% of the total underwriting commitment or Rs.25 lakhs whichever is
less.
(6)Each lead merchant banker is required to furnish to the SEBI half yearly
Unaudited financial results when required by it with a view to monitor the capital adequacy of
the merchant banker.
(7)SEBI has prescribed a code of conduct to the merchant bankers. The banker must perform his
duties with highest standards of integrity and fairness in all his dealings. He will render at all
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times high standards of service exercise due diligence ensure proper care and exercise
independent professional
Judgment. The merchant banker and his personnel will act in an ethical manner in all his dealings
with the Investors clients and follow bankers. All merchant bankers must adhere to the code of
conduct.
(8)The above guideline will be administered by SEBI and it will supervise the activities of
merchant bankers.
(9)SEBI has been vested with power to suspend or cancel the authorization in case of violation of
the guidelines.
(10)To ensure transparency and accountability in the operation of merchant bankers and to
protect the investors, a number of obligations and responsibilities have been imposed on them.
(11)Inspections will be conducted by SEBI to ensure that provisions of the regulations are
properly complied with and to investigate the complaints from customers. It is obligatory on the
part of merchant bankers to furnish all details sought by the investigating team. The regulations,
however, indicate that the board would give reasonable notice to merchant bankers before
undertaking inspection. On the basis of inspection report, the board will communicate the
contented of the report to the concerned merchant the banker to give him/her an opportunity to
put forth his/her submissions. On receipt of the explanations, if any, of the merchant bankers, the
SEBI would advise merchant bankers to take any measures that it may deem fit, and to comply
with the provision of the regulations.
(12)The regulations empower SEBI to take action against defaulting banker such as
suspension/cancellation of registration.
(13)In case of deliberate manipulation, or price rigging or cornering activities or deterioration in
the financial position, the board is empowered to cancel the registration of the merchant banker.
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(14)Under the regulation, the SEBI is empowered to suspend a registration of a member banker
in case the merchant banker furnishes wrong or false information, fails to resolve the complaints
of the investors, etc. The penalty or suspensions or cancellation of registration can be imposed by
SEBI only after holding an enquiry and giving sufficient opportunity to the merchant banker of
being heard. Any merchant banker aggrieved by an order of SEBI, can, however, appeal to the
union Government.
(15)The merchant bankers will be prohibited from carrying out fund based activity other than
those related exclusively to the capital markets. In effect, the activities undertaken by NBFC’s
such as accepting deposits, leasing and bill discounting would not be allowed to be undertaken
by a merchant banker.
Renewal of certificate
Three months before the expiry period, an application is submitted to SEBI in form a of the SEBI
(merchant bankers)regulation,1992 SEBI considers the application and on begin satisfied renews
the certificate of registration for a further period of three years,Rs.2.5 lakhs in the renewal fee
payable to SEBI within fifteen days of date of receipt of information regarding renewal of
certificate. In the case of non registration or a failure to renew the registration, the person
corporation shall not be allowed to carry on the activity as a merchant bankers from the date of
expiry
of
validity
period.
Inspection by SEBI
SEBI if it so wants may decide to inspect books of accounts records and document of merchant
bankers to ensure that all document are maintained in the required manner and that the various
provision of act, rules or regulation are complied with this inspection can be carried by SEBI by
either giving a reasonable notice or undertake inspection without notice in the interest of
investors. In case of a complaint against the merchant baker or if the merchant banker violates
the provisions of act, rules or regulation SEBI may appoint a qualified auditor to investigate the
affairs of merchant banker and also recommend orders that may include suspension or
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cancellation of registration against the merchant banker. Some of the condition when a penalty of
suspension of registration can be imposed on a merchant banker are:






Conducts business in an unprofessional manner.
Violates the rules and regulations.
Is guilty of misconduct and furnishing incorrect information to the investors.
Fails to submit periodical returns, as required by the board.
Is guilty of conduct which is not in co ordinance with the code of conduct specified.
Fails to maintain the capital adequacy requirement in accordance with the provisions of


regulation.
Is found guilty of manipulating or price rigging in the issue.
Does not cooperate and offer satisfactory explanation in any enquiry conducted by the
board.
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DEVELPOMENT STAGES OF MERCHANT BANKING FIRMS
In the merchant banking organization in the following chart, the firm of merchant banker and
individual stock broker have been included as they have been contributing jointly to the growth
of the profession of merchant banking. But most of these firms are not well developed to show
stage of maturity. Most of them are still in the start-up and early growth stages. This is easily
dissemble from the following projection of the development stages.
Unit
1
Stages in development
of merchant banking
Startup
2
Early growth
3
Accelerating growth
4
Sustaining growth
5
Maturity
Organizational setup
Very loose Organization,
founders and associates
involved in the
management.
Emerging formal
organization, founders or
professional managers in
management.
Formal organization with
professional, manager or
founder.
Complex organization
with professional
manager.
Principal financing
source
Own investment
Individual
investment.
Firms investment
with banks backing
in terms of loan.
Corporate finance
from bank plus
equity funds from
public.
Multilayer complex
Matching finance
management organization. available from all
all possible sources.
MARKET POTENTIAL OF MERCHANT BANKING SERVICES
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Merchant banking in the country has come to be primarily associated with the capital market.
With deregulation of Indian markets there are several new sectors open to private investment
which have consequently created an opportunity for private financing. The need for this banking
is not currently met, by the commercial banks or the financial institutions and hence there is huge
gap which needs to be filled. This gap can be filled. This gap can be met through capital market
or a range of finance products and hence a good scope exists for the various services offered by a
merchant banker. The establishment of SEBI and the abolition of the office of controller of
capital issues (CCI) in 1992 heralded in area of free market pricing of equity shares. Merchant
bankers in particular have been assigned a greater responsibility in the fixation of issue price &
premium, if any. In the CCI regime merchant bankers had restricted role of to play in that regard.
The role was confined mainly to getting clearance from the CCI & to ensuring the success of
capital issue through marketing efforts. There were also no disclosure norms. Merchant bankers
were seldom held accountable for the correctness of the information disclosed in the prospectus
& letter of offer but with issuance of comprehensive guidelines for free market pricing. Code of
conduct for merchant bankers etc. by SEBI role of merchant bankers has considerably increased.
An outstanding development in history of Indian capital market was opening up in 1992
by allowing financial institutions to invest in the primary and secondary market & also
permitting Indian companies to directly tape foreign capital market through Euro issues. The
result was so encouraging that within less than 2 years to march 1994 the total inflow of foreign
capital through these routes reached to about $5 billion. It was estimated that this figure may go
up to $35-$40 billion by the turn of the century. Though, at the initial stage the Indian merchant
banker have played supportive role has almost all of euro issue have been laid manager by
foreign merchant banker, but in future they may play major role by their increasing participation
as managers/ lead managers. Foreign direct investment (FDI) has also investments by NRI have
risen considerably due to number of incentives offered to them. They need the services of
merchant bankers to advice them for their investments in India. Further increasing investments in
joint ventures abroad by Indian corporations also require expert service of merchant banker. For
the first time in India the concept of debt market has set to work through NSE & OTCI. Experts
feel that the estimated capital issues of Rs. 4000 crores in 1994-95, a good portion may be raised
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through debt instruments. The development of debt market will offer tremendous opportunity to
Merchant bankers. Recently, Indian capital market has also witnessed innovations in the financial
instruments such as non-convertible debentures with detachable warrants, cumulative convertible
preference shares, zero coupon bonds, secured premium notes, suction rated bonds, etc. this has
further extended the role of Merchant banker as Market Makers for these investments.
RESEARCH METHODOLOGY
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RESEARCH DESIGN:

A research design is an arrangement of condition for collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in


procedure.
A sample design is a definite plan for obtaining a sample from a given population
For carrying out my research work I would follow exploratory cum descriptive research

design
Universe and survey population sampling :
All the items under consideration in any field of inquiry constitute a “universe” or
“population”.

SAMPLE SIZE:
Sample size the information that you have been taken from the respondents.
The information is taken from this 43 respondents.
METHODS OF DATA COLLECTION
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There are usually two types of methods such as primary data and secondary data as follows:

PRIMARY DATA:
Primary data usually consists of the data that are collected or fresh data for the
first time and thus is original in character. Primary data that are used in the study are :
1. QUESTIONNARE
2. VISITING THE BANKS AND ADVICE FROM CUSTOMERS

SECONDARY DATA:
Secondary data usually consists of the data that is collected from some existing
literature. It has been already analyzed by some one else earlier and is derived from that
source. Secondary data that is used in the study are :
1. Newspapers
2. Websites
3. Books
4. Magazines

ANALYSIS PATTERN:
1. Analyzing data is being shown in chart and graphs
2. Cross tabulation of data
Environmental factors affecting merchant banking services.
Schematic view of environmental factors affecting merchant
banking services
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ENVIRONMENTAL FACTORS
-open for changeMerchant Banking Services
THE USES OF SERVICES
General
economic
conditions
Technology
scientific
innovation
Legal aspect
law and
regulation
Demand
for service
The Merchant Bankers
The merchant bankers are a part of economics structure of the nation and they function in an
environment which is influenced inter alias by the following important factors:
1. The general economics condition, prevailing in the country presenting an economic
environment, affects the functioning of every economic or social organization. These
economic conditions assimilate the boom and prosperity, the depression and
recessionary impacts on industry trade and commerce.
2. The technology and scientific innovations are responsible for onward shifting of the
entire developmental process to state of higher development. Besides, the
technological development also helps the system to use information processing and
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communication techniques to overcome limitations or restrictions of time and space,
and provide better services.
3. The law and regulations affect the functioning and relationship with users of services
of the organizations. Besides complying to various legal formalities the merchant
bankers exist the legal framework. Both creation of law and regulation of law is the
network within which the government and merchant banks to abide by the legal
norms which have the characteristics of change depending upon the moods of the
public system. And public interest.
4. Demand for merchant banking services is one of the environmental factors that affect
the merchant banking functioning in two respects viz. the competitive forces exist for
merchant banking units and there remains a demand for the quality service to be
provided to the users.
Demand will change subject to changes in others environment factors,
particularly under the influence of technological development taking place. The coverage
of rural areas and small business is the present day need of environmental through geared
professionalism. The merchant banking professionalism requires new response in
education and training conforming to the dynamics of the change. Professional
development programs have got be reshaped to suggest merchant banks to render more
specialized services.
BRIEF ANALYSIS OF MERCHANT BANKS OF INDIA

STATE BANK OF INDIA
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
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BANK OF BARODA
STATE BANK OF INDIA
State Bank Of India merchant banking group is strongly positioned to offer project financial
solutions to your business. They are specialize in the arrangement of a various forms of Foreign
currency credit for corporate.
They also provide the resources, convenience and services to meet your needs by arranging
Foreign currency credit through:


Commercial loans
Syndicate loans

Lines of credit and loans from expert agencies
BANK OF BARODA
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Appraisal and Merchant banking:
Bank Of Baroda provides its assistance to corporate customers to assess the value of their
holdings in syndicate loans and in consultations for merchant banking.
Appraisal:
BOB carries out credit and merchant appraisal of all types of business ventures
including infrastructure projects by their specialized team of officials at a reasonable costa.
Other consultations:
Their team is highly capable of advising an parameters of feasibility of an
existing/proposal project and suggest measures if required for improvement of the business
enterprise.
MERCHNANT ESTABLISHMENT IN DENA BANK
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DENA RUPAY PLATINUM DEBIT CARD is launched by Dena bank in
association with National Payments Corporation of India (NPCI).
Your Dena rupay platinum debit card lets you conveniently access your account
through ATM’s and at merchant establishments wherever Rupay logo is displayed.
Where Dena Rupay Platinum Debit Card can be
used?
Dena Rupay Platinum Card can be used at Dena bank ATM’s and at merchant establishment
wherever the logo is displayed.
STEPS TO BE FOLLOWED AT MERCHANT ESTABLISHMENTS
STEP 1: Present your card at the merchant
STEP 2: The merchant will swipe it at the POS terminal and the amount of purchase
STEP 3: You will be presented the PIN pad key in your PIN
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STEP 4: The terminal will process the transaction and charge slip will be printed
STEP 5: Check the amount on the charge slip and sign on the customers copy of the change
STEP 6: The merchants will return the customers copy of the change.
DATA ANALYSIS AND INTERPRETATION
1. Financial service used by you from bank?
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SR NO
USE FINANCIAL
SERVICE
NUMBERS
1
Yes
36
2
No
44
Total
80
using financial service
yes
no
45.00%
55.00%
INTERPRETATION:
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Out of total respondents 36 respondents are taking financial services and about 44 respondents
are not taking financial services. Because some of the respondents would be aware about the
services and some would not be aware about the merchant banking.
2. Are you aware about merchant banking?
SR NO
KNOW ABOUT
MERCHANT BANKING
NOS
1
YES
32
2
NO
48
TOTAL
80
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KNOW ABOUT MERCHANT BANKING
60
50
40
30
20
10
0
YES
NO
Column1
INTERPRETATION:
The above chart states that about 32 nos of respondents know about the merchant banking and
about 48 respondents do not know about merchant banks. Because they do not know about
merchant banking because of the persons would be illiterate and their education is very low, their
savings would be low, and their financial statements also would not be proper.
3. Satisfaction of customers with regard to various service offered by merchant bank?
1
Advisory services
38
Consultancy services
48
Portfolio management
10
2
3
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50
45
40
35
30
25
20
15
10
5
0
advisory services
consulatncy services
portfolio management
INTERPRETATION:
From the above diagram it states that about 38 respondents are satisfied by the service offered by
banks and about 48 respondents are not satisfied by the services offered by the banks. The
various services like advisory services, consultation services and underwriting services and so
on. And about the 10 respondents are saying can’t say because they would not have been using
the services.
4. Do you have any bank account in the following banks?
SR NO
BANKS
NOS
1
ICICI
28
2
BOB
36
3
SBI
42
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50
45
40
35
30
25
20
15
10
5
0
ICICI
BOB
SBI
INTERPRETATION:
From the above chart it states that they are no of customers who have been having a bank
account in the above banks. ICICI has the 26 no of customers providing the no of services and
have the bank accounts. From the BOB there are 36 customers having bank accounts. And the
SBI have the more account as compared to ICICI and BOB because of better financial service.
5. Which banks provide you maximum services?
SR NO
BANK
%
1
ICICI
20
2
BOB
15
3
SBI
30
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35
30
25
20
15
10
5
0
ICICI
BOB
SBI
INTERPRETATION:
From the above bar graph it states that about 20% of the respondents are satisfied form the ICICI
bank and from the BOB the 15% of the respondents are satisfied with the services offered by this
bank.
And from the services offered by the SBI is about 45% to their customers.
So from above its states that the more of the respondents are being served by the SBI offering
more services to their customers.
6. As being customers are services provided timely?
SR NO
DEPENDS ON M.B
NOS
%
1
YES
56
70
2
NO
24
30
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140
120
100
Series 3
NOS
80
60
40
20
0
YES
NO
INTERPRETATION:
Out of total respondents 70% respondents say that they are timely served by merchant bankers
and about 30% of the total respondents say that they are not served by the merchant bankers.
7. Do you feel that merchant banks are trustworthy?
SR NO
TRUSTWORTHY
NOS
1
YES
48
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2
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NO
33
TOTAL
81
TRUSTWORTHY
YES
NO
40.74%
59.26%
INTERPRETATION:
From the above pie chart the respondents response that about the 59% of the merchant banks are
trustworthy while investing with them.
And about 41% states that they are not trustworthy while investing in merchant banks with that
they are providing the services.
8. Do you think that the services provide by the merchant bank needs to be improved?
SR NO
TO BE IMPROVED
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1
YES
38
2
NO
46
3
MAY BE
10
50
45
40
35
30
25
Column1
20
15
10
5
0
YES
NO
MAY BE
INTERPRETATION:
From the above chart it states that the about 36 respondents are responding that there is need to be
improve in the service that there should be 24x7 services should be provided.
About 48 of the respondent are saying not to improve the services because they are satisfied by the
services that are being provided by the merchant bankers.
Some of them may not be having any idea about the merchant bank so they are not aware that the services
should be improved or not.
9. How you will rate the services provided by the merchant bankers ?
SR NO
RATINGS
NOS
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1
GOOD
47
2
SATISFACTORY
33
3
NEEDS
17
IMPROVEMENT
RATINGS
GOOD
SATISFACTORY
NEEDS IMPROVEMENT
16.16%
47.47%
36.36%
INTERPRETATION:
From the above char it states that about 48% ratings are for good services and some of the
respondents says that they are satisfied with the services about 36% and 16% of the respondents
say that the services need to be improve provided by banks.
10. What is the position of merchant banking?
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SR NO
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POSITION
NOS
1
GOOD
56
2
BAD
32
3
NEEDS IMPROVEMENT
12
POSITION
GOOD
BAD
NEEDS IMPROVEMENT
INTERPRETATION:
From the above pie chart it states that 56 nos of respondent are responding that the position of
the merchant bank at present scenario is good because of they are investing more in merchant
banks and they are being properly served by merchant bankers.
Some of the respondents responds that the position is not good because of the financial structure
of the bank.
And some of the respondents response that the position should be improved in future by
improving the services.
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FINDINGS



Long standing client relationship.
Strong positions in high-growth client and product niches.
Multiple revenue growth initiative are in place with detailed and concrete action plans,

and with rigorous follow up mechanisms.
Growth is controlled by sound risk management system and disciplined cost

management.
Small and medium scale enterprise SME’s need immediate attention from merchant

bankers to get access to finance .
SME’s are facing stiff competition from large scale companies.
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CONCLUSION
The merchant banking business has increased over a short period of time and with
continued economic reforms. However, a stiff competition exists in this line and survival
will depend upon the financial skills and spectrum of financial services and instruments
offered by the merchant banker. Hence, Merchant banking services is taking shape for
turbulent times.
Merchant banking is an activity initially undertaken by a few large commercial banks in
India, and it is now being adopted and undertaken by practically every commercial banks
through its Merchant banking department. The range of activities covered under merchant
banking were very wide indeed. The merchant banks offer a package of financial service. Unlike
in the past, their activities are now primarily non-fund based. Therefore, they do not require
much capital. One of the basic requirements of merchant banking is a highly professional staff
and worldwide contacts. Merchant banking is usually international on character.
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BIBLIOGRAPHY
 Notes: financial service management .
 Research methodology
 Internet
www.google.com/news
www.wikipedia.com
www.sebi.gov.in
www.DENABANK.COM
QUESTIONNARE
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Respondent’s profile:
Name:
1. Are you using financial service provided by banks?
(a)
Yes
(b) no (c) can’t say
2. Are you aware about merchant banking?
(a)
Yes
(b) no
3. Are you satisfied with the services offered by merchant banks?
(a)
Advisory services (b) portfolio management services
(c)consultation services
4. Are you having bank account in following banks?
(a)
ICICI
(b) BOB (c) SBI
5. Which bank provides you maximum services?
(a)
ICICI (b) SBI (c) BOB
6. As being customers are services provided timely?
(a) Yes
(b) no
7. Do you feel that merchant banks are trustworthy?
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(a) Yes
T.Y.BBI
(b) no
8. Do you think that the services provide by the merchant bank needs to be
improved?
(a) Yes
(b) no
(c) may be
9. How you will rate the services provided by the merchant bankers ?
(a)
10.
(a)
Good
(b) bad
(c) need improvement
What is the position of the merchant banking?
Good
(b) bad
(c) needs improvement
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