CA Final Course Paper 1 Financial Reporting
Chapter 8 Unit 3
CA. Ajay Lunawat
Meaning of Merchant Banker
Commercial Vs Merchant Banking
Categories of Merchant Bankers
Registration with SEBI
Services Offered
Guidelines
Intermediary Channel
between the issuers and the ultimate purchasers of securities in the
primary security market
Providing advisory, managerial and non banking services
To help existing units for expansion or set up new ventures
“Merchant banks are the financial institutions
providing specialist services which generally include
the acceptance of bills of exchange, corporate
finance, portfolio management and other banking
services”.
•Cox. D
“any person who is engaged in the business of issue
management either by making arrangements regarding
selling, buying or subscribing to securities as manager,
consultant, advisor or rendering corporate advisory
service in relation to such issue management”.
• The Notification of the Ministry of Finance
The Term originated from London where Foreign Trade was
financed through acceptance of bills
Later on helped the government of under developed countries to
raise long term funds
Thereafter the merchant bankers formed association which is now
called “Merchant Banking and Securities House Association”
Commercial Banking
Merchant Banking
Financial Services with Saving
Accounts, Loans, Credit Cards,
Brokerage
Financial Consultancy and
Advisory Services
Earns on Loans, Mortagates etc.
Earnings as Profits from Fees it
charges for its services
Involved in Debt Related Finances
Involved in Equity Related Finances
Primarily Risk Averters
Are Risk Takers
Category I
Category II
Category III
Category IV
•Issue
Management
•Advisor
•Consultant
•Manager
•Underwriter
•Portfolio
Manager
•Advisor,
•Consultant
•Comanager,
•Underwriter,
•Portfolio
Manager;
•Advisor
•Consultant
•Underwriter
•Advisor
•Consultant
Application for
Grant of Certificate
Information
Furnishing,
Clarification &
Personal
Representation
Application
Consideration
Granting the
Certificate
Payment of Fees
Project
Counseling
Issue
Management
Loan
Syndication
•Preparing project report
•Deciding on Finance Pattern
•Project Appraisal
•Marketing of Corporate Securities
•Pre Issue and Post Issue Activities
•Assistance in Loan Raising
Underwriting
Managers/Consultants.
Advisors
Portfolio Management
Offshore Finance
•Provides underwriting services to the companies
•The underwriting helps in easy raising of external resources
•Managing and Providing advisory services for listing the companies in
stock exchanges
•Advisory services during Mergers and Acquisitions
•Assists the investors in selecting and maintaining proper portfolio
•Help in Long Term Foreign Currency Loan
•Joint Ventures Abroad
Specified under SEBI under the SEBI (Merchant Bankers) Regulations, 1992.
Net worth’ means the sum of paid-up capital and free reserves of the applicant
at the time of making application under sub-regulation (1) of regulation 3.
Net worth Category wise should be
Category I
Rs 5,00,00,000
Category II
Rs 50,00,000
Category III
Rs 20,00,000
Category IV
NIL
Every merchant banker shall keep and maintain the following
books of account, records and documents as per regulation 14
a copy of balance sheet as at the end of the each accounting period
a copy of profit and loss account for that period;
a copy of the auditor's report on the accounts for that period;
a statement of financial position
Records and documents pertaining to due diligence exercised in pre-issue and post issue activities
of issue management and in case of takeover, buy-back and delisting of securities
The responsibilities with regard to the management of the issue
Any change in the information or particulars previously furnished, which
have a bearing on the certificate granted to it.
The names of the body corporate whose issue he has managed or has
been associated with;
The particulars relating to the breach of the capital adequacy requirements as
specified in regulation 7;
Under Regulation 29, the merchant banker shall submit a half yearly
report for the period ending up to 31st March and 30th September of
every year in the format specified in Schedule IV, within three months
from the close of the period to which it corresponds.∗
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
has specified a format for half yearly report to be submitted by
merchant bankers.
To ensure that the books of account are being maintained in the required
manner
That the provisions of the Act, rules, regulations are complied with;
To investigate into the complaints received from investors, other merchant
bankers or any other person on any matter having a bearing on the activities of
the merchant banker
To investigate suo motu in the interest of securities business or investors'
interest into the affairs of the merchant banker.
SEBI has the right to appoint one or more persons as inspecting authority to undertake inspection of the
books of account
As per Regulation 31, it shall be the duty of the merchant banker to allow the inspecting authority to have
reasonable access to the premises occupied by such merchant banker or by any other person on his behalf
extend reasonable facility for examining any books, records, documents and computer data in the
possession of the merchant banker or any such other person and also provide copies of documents or other
materials which, in the opinion of the inspecting authority, are relevant for the purposes of the inspection.
The SEBI may also appoint a qualified auditor to investigate into the books of account or the affairs of the
merchant bankers.
• five per cent of the total underwriting commitment
or rupees twenty-five lacs, whichever is less.
Underwriting
Oblligation
• the merchant banker shall, itself or jointly with
other merchant bankers associated with the issue,
Further Issue
underwrite at least fifteen per cent of the issue size
Should make all efforts to protect investors interests
Maintain high standards of Integrity, dignity and Fairness
Fulfill all obligations in ethical and professional manner
No Discrimination among the clients
Render best possible advice to the clients
To inform the clients of penal action by SBI, if any
To abide by Rules and Regulations of the concerned Acts
Not Create False Market
It is responsible for the act of its employees and agents
Ability to
Analyse
Abundant
Knowledge
Innovative
Approach
Integrity
Capital
Market
Familiarity
High Capital
Non Cooperation of
Issuing Companies
Vast Scope
•SBI stipulates high capital adequacy norms which restricts the
young professionals
•Non Cooperation of Issuing Companies
•Non Cooperation of Issuing Companies
•Non Cooperation in Timely Securities Allotment
•Non Cooperation during refunding of application money etc
•Wider in scope of services requires development of adequate
expertise
For What Purpose inspection of
records and documents of Merchant
Bankers is ordered by SEBI?
SEBI has the right to appoint one or more persons as inspecting
authority to undertake inspection of the books of account, records and
documents of the merchant banker for any of the following purposes:
To see that books of account are being maintained in the required
manner
To ensure that provisions of SEBI Act, rules and regulations are
complied with
To investigate into complaints received from investors,
other merchant bankers, or any other person on any
matter having a bearing on the activities of merchant
banker;
To investigate suo moto in the interest of securities
business or investors’ interest into the affairs of
merchant bankers.
Write short note on Capital adequacy
requirements of merchant bankers
Capital adequacy requirements have been specified by SEBI
under the SEBI (Merchant Bankers) Regulations, 1992.
Regulation 7 specifies that the requirement of capital
adequacy shall be a net worth of not less than five crore
rupeesAs amended by SEBI (Merchant Banker) (Third
Amendment) Regulations, 2006
For the purpose of this regulation, ‘ Net worth’ means the
sum of paid-up capital and free reserves of the applicant at
the time of making application under sub-regulation (1) of
regulation 3
Merchant bankers are the specialised agency which manages the
capital issues.
They are also called the managers to the issue.
A merchant banker acts as an intermediary between the issuers and
the ultimate purchasers of securities in the primary security market.
The services offered includes underwriting and providing advice on
complex financings arrangements, mergers and acquisitions, direct
equity investments in corporations.