MARKETING OF MERCHANT BANK SERVICES SERVICES OF MERCHANT

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. PRE -SSIE 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 • • 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 • 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. • 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. • • 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. • •

• • 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 OFFER 7 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

• • 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.