MARKETING OF MERCHANT
BANK SERVICES
SERVICES OF MERCHANT BANK
• 1)CORPORATE COUNSELLING• 2) PROJECT COUNSELLING—PROJECT REPORT,PATTERN OF
FINANCING.. ASSISTANCER FOR APPROVAL AND FINANCE.
• 3) LOAN SYNDICATION—APPROACH FINANCIAL INSTITUTIONS
FOR LONG TERM LOANS
• 4) ISSUE MANAGEMENT– IT INVOLVES MARKETING OF
CORPORATE SECURITIES –OFFERING THEM TO PUBLIC IT
MANAGEMENT PRE-ISSUE AND POST ISSUE ACTIVITIES . PRESSIE MANAGEMENT IS DIVIDED INTO ISSUETHROUGH
PROSPECTUS, OFFER OR PRIVATE PLACEMENT; MARKETING
AND UNDERWRITING PRICING OF ISSUE.
DEFINITION
• NOTIFICATION OF MINISTRY OF FINANCE DEFINES
MERCHANT BANKER AS –
• ANY PERSON WHO IS ENGAGED IN BUSINESS OF ISSUE
MANAGEMENT EITHER BY MAKING ARRANGEMENTS
REGARDING SELLING,BUYING OR SUBSCRIBING TO THE
SECURITIES AS MANAGER,CONSULTANT,ADVISOR OR
RENDERING CORPORATE ADVISORY SERVICE IN RELATION
TO SUCH ISSUE MANAGEMENT.
• THERE IS NO UNIVERSAL DEFINITION OF MERCHANT
BANKING. IT IS AN INSTITUTION WHICH COVERS A WIDE
RANGE OF FUNCTIONS SUCH AS MANAGEMENT OF
CUSTOMER SERVICES, PORTFOLIO MANAGEMENT, CREDIT
SYNDICATION, ACCEPTANCE CREDIT, COUNSELLING,
INSURANCE ETC.
ORIGIN OF MERCHANT BANKING
• MERCHANT BANKING ORIGINATED THROUGH
ENTERING OF LONDON MERCHANTS IN FINANCING
FOREIGN TRADE THROUGH ACCEPTANCE OF
BILLS. LATER THESE MERCHANTS ASSISTED GOVT.
IN RAISING LONG TERM FUNDS THROUGH
FLOTATION OF BONDS. LATER ON THEY EXTENDED
THEIR ACTIVITIES TO SYNDICATION OF LONG
TERM/SHORT TERM FINANCE, UNDERWRITING,
ACTING AS REGISTRARS, DEBENTURE TRUSTEES,
PORTFOLIO MANAGERS, NEGOTIATING AGENTS
FOR MERGERS AND TAKEOVERS. THUS THE
INSTITUTION OF MERCHANT BANKERS CAME TO
STAY.
MERCHANT BANKING IN INDIA
• IN INDIA PRIOR TO ENACTMENT OF INDIAN COMPANIES ACT
1956 MANAGING AGENCY HOUSES WERE ISSUE HOUSES
FOR SECURITIES. FEW SHARE BROKING FIRMS ALSO
FUNCTIONED AS MERCHANT BANKERS.
• THE NEED FOR MERCHANT BANKERS WAS FELT WHEN
NUMBER OF ISSUES IN PRIMARY MARKET WERE
INCREASING. MERCHANT BANKING SERVICES WERE
STARTED BY FOREIGN BANKS –NATIONAL GRINDLAYS AND
CITY BANK IN 1970, THE BANKING COMMISSION IN ITS
REPORT 1972 RECOMMENDED THAT COMMERCIAL BANKS
AND FINANCIAL INSTITUTIONS SHOULD START THEIR
MERCHANT BANKING WING.THIS MARKED SPECIALISED
MERCHANT BANKING DIVISIONS..
BEGINNING
• TO BEGIN WITH MERCHANT BANKING SERVICES
WERE OFFERED ALONGWITH OTHER TRADITIONAL
BANKING SERVICES. IN MID 80’S BANKING
REGULATION ACT WAS AMENDED PERMITTING
COMMERCIAL BANKS TO OFFER A WIDE RANGE OF
FINANCIAL SEERVICES THROUGH THE
SUBSIDIARIES.
• SBI WAS THE FIRST AND THEN ICICI,BANK OF
INDIA, BANK OF BARODA,CANARA, PUNJAB,UCO
BANK FOLLOWED. THE MERCHANT BANKING
GAINED PROMINENCE DURING 1083-84 DUE TO
NEW ISSUES BOOM
MERCHANT BANKS AND COMMERCIAL BANKS
• DIFFERENCE IN APPROACH,ATTITUDE AND AREAS
• COMMERCIAL BANKS DEAL WITH DEBT AND DEBT RELATED
FINANCE. MERCHANT BANK IS EQUITY AND EQUITY RELATED
FINANCE.
• COMMERCIAL BANKS ARE ASSET ORIENTED, DECISIONS ARE
BASED ON DETAILED CREDIT ANALYSIS. MERCHANT BANKS
ARE MANAGEMENT ORIENTED
• COMMERCIAL BANKS ARE MAINLY FINANCIERS. ACTIVITIES
OF MERCHANT BANKEERS ARE PROJECT
COUNSELLING,CAPITAL RESTRCTURING, AMALGAMATIONS,
TAKEOVERS
SERVICES OF MERCHANT BANKS
• 1) CORPORATE COUNSELLING
• 2) PROJECT COUNSELLING– PREPARING PROJECT REPORT,
DECIDING FINANCE PATTERN, ASSISTING FOR SANCTIONS BY
GOVT.OFFICE AND FINANCIAL INSTITUTIONS.
• 3) LOAN SYNDICATION
• 4) ISSUE MANAAGEMENT – MARKETING OF CORPORATE
SECURITIES, ISUE FUNCTIONS NORMALLY DIVIDED INTO
PRE-ISSUE AND POST ISSUE FUNCTIONS . PRE ISSUE
FUNCTIONS ARE DIVIDED INTO– I) ISSUE THROUGH
PROSPECTUS, OFFER AND PRIVATE
PLACEMENT.II)MARKETING AND UNDERWRITINGAND III)
PRICING OF ISSUES.
POST ISSUE MANAGEMENT
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THE POST ISSUE MANAGEMENT CONSISTS OF COLLECTION OF
APPLICATION FORMS AND STATEMENT OF AMOUNTS RECEIVED
FROM BANKEERS, SCREENING OF APPLICATIONS, DECIDING
ALLOTMENT PROCEDURE, MAILING ALLOTMENT LETTERS/SHARE
CERTIFICATES AND REFUND ORDERS
REGISTRAR TO ISSUE PLAYS MAJOR PART IN THE ISSUE HE HAS TO
SUBMIT BASIS OF ALLOTMENT TO THE STOCK MARKET.AFTER IT IS
APPROVED BY THE STOCK MARKEET THE REGISTRAR HAS TO
ENSURE THAT ALLOTMENT LETTER/REFUND ORDERS ARE SENT
WITHIIN 70 DAYS OF THE CLOSE OF THE ISSUE
UNDERWRITING OF THE PUBLIC ISSUE
MANAGERS,CONSULTANTS OR ADVISORS TO THE ISSUE .
PORTFOLIO MANAGEMENT
• IT REFERES TO INVESTMENT IN DIFFERENT KINDS OF
SECURITIES ISSUED BY DIFFERENT COMPANIES AND
SECURITIES ISSUED BY GOVERNMENT
• PORTFOLIO MANAGER HAS TO CONDUCT REGULAR MARKET
AND ECONOMIC SURVEYS REGARDING—
1) MONETARY AND FISCAL POLICIES OF GOVT.
2) FINANCIAL STATEMENTS OF DIFFERENT COMPANIES
3) MOVEMENT OF SHARE MARKET
4) CHANGING PATTERN OF INDUSTRIES
5) COMPETITION WITHIN INDUSTRY
* PORTFOLIO MANAGEMENT HAS BECOME NECESSARY FOR
MANY NEW INVESTORS.
MERCHANT BANKERS AS LEAD MANAGERS
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AS PER SEBI GUIDELINES IT IS MANDATORY THATALL PUBLIC ISSUES
SHOULD BE MANAGED BU MERCHANT BANKERS IN THE CAPACITY OF LEAD
MANAGERS. ONLY IN CASE OF RIGHTS ISSUE NOT EXCEEDING 50 LAKHS
SUCH AN OBLIGATION IS NOT NECESSARY.THE NUMBER OF LEAD
MANAGERS DEPENDS ON SIZE OF THE ISSUE.
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LESS THAN 50 CRORES—2, 50 TO 100 CRORES 3, 100 TO 200
CRORES 4, 200 CRORES TO 400 CRORES 5, ABOVE 5 CRORES –5 OR
MORE AS PRESCRIBEB BY THE SEBI.
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DUTIES AND RESPONSIBILITIES OF LEAD MANAGERS –
1) AGEEMENT WITH ISSUING COMPANY- WHICH IS TO BE SUBMITTED
TO SEBI AT LEAST ONE MONTH BEFORE THE ISSUE OPENS.
2) EVERY MERCHANT BANKER MUST HAVE REGISTRATION OF SEBI
3) LEAD MANAGER CANNOT UNDERTAKE WORK IF THE COMPANY IS
ITS ASSOCIATE.
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4) IF MORE THAN ONE LEAD MANAGEERS THEN RESPONSIBILITIES
OF EACH MUST BE CLEARLY DEFINED IN THE AGREEMENT
5) THE LEAD MANAGER IS UNDER OBLIGATION TO ACCEPT MINIMUM
UNDERWRITING OBLIGATION OF 5 % OF THE ISSUE OR 25 LAKHS
WHICHEVER IS LESS.
6) DUE CARE AND DILIGENCE IN VERIFYINHG THE PROSPECTUS.OR
LETTER OF OFFER7 LEAD MANAGER HAS TO GIVE DUE DILIGENCE
CERTIFICATE THAT PROSPECTUS OR LETTER OF OFFER IS IN
CONFORMITY WITH DOCUMENTS RELEVANT TO ISSUE,
DISCLOSURES ARE TRUE,FAIR, ADEQUATE AND ALL LEGAL
REQUIREMENTS ALL DULY COMPLIED WITH..
7) EVERY LEAD MANAGER HAS TO SUBMIT ALL PARTICULARS OF
ISSUE,PROSPECTUS TO THE SEBI AT LEAST TWO WEEKS BEFORE
THE DATE OF FILING WITH THE REGISTRAR OF COMPANIES OR
REGIONAL STOCK EXCHANGE OR BOTH
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8) ANY SUGGESTIONS MADE BY SEBI MUST BE PROPERLY
INCORPORATED
9) IN CASE OF DEVELOPMENT THE LEAD MANAGER HAS TO ENSURE
THAT UNDERWRITERS CONTRIBUTE THE AMOUNT OF THEIR
LIABLITY
10) EVERY LEAD MANGER IS RESPONSIBLE FOR TIMELY REFUND OF
ANY EXCESS APPLICATION MONEY
11) IT IS HIS DUTY TO MAIL; SHARE/DEBENTURE CERTIFICATE
IMMEDIATELY ON ALLOTMENT OR INFORM IT TO THE DEPOSITORY
PARTICIPANT .