MEANING .FUNCTIONS AND QUALITY OF MERCHANT BANKERS

• MERCHANT BANKING
  MEANING.FUNCTIONS
  FINANCIAL MARKETS AND SERVICES
  
  
• INTRODUCTION

1. ORIGINATED IN LONDON
2. THE POST WAR PERIOD WITNESSED THE RAPID GROWTH OF MERCHANT BANKING THROUGH THE INNOVATIVE INSTRUMENTS
3. IN INDIA PRIOR TO ENACTMENT OF INDIAN COMPANIES ACT 1956, THE MANAGING AGENTS ACTED AS ISSUE HOUSE.
4. THE MERCHANT BANKING  SERVICES WERE STARTED BY NATIONAL GRINDLAYS BANK IN 1967 AND THE CITI BANK IN 1970.
5. THE BANKING COMMISSION RECOMMENDED THE SETTING UP OF MERCHANT BANKING INSTITUTIONS BY COMMERCIAL BANKS AND FINANCIAL INSTITUTIONS.
6. THE STATE BANK OF INDIA WAS THE FIRST INDIAN BANK TO SET UP MERCHANT BANKING DIVISION IN 1972

• DEFINITION
• AN INSTITUTION WHICH COVERS A WIDE RANGE OF ACTIVITIES SUCH AS MGMT OF CUSTOMER SERVICES , PORTFOLIO MGMT , CREDIT SYNDICATION ACCEPTANCE CREDIT,COUNSELLING, INSURANCE ETC.
• THE NOTIFICATION OF THE MINISTRY OF FINANCE DEFINES A MERCHANT BANKER AS ‘ ANY PERSON WHO IS ENGAGED IN THE BUSINESS OF ISSUE MANAGEMENT EITHER BY MAKING ARRANGEMENTS REGARDING SELLING, BUYING OR SUBSCRIBING TO THE SECURITIES AS MANAGER,CONSULTANT,ADVISER OR RENDERING CORPORATE ADVISORY SERVICE IN RELATION TO ISSUE MGMT.
• FUNCTIONS

1. PROJECT ADVISORY SERVICE
2. CORPORATE ADVISORY SERVICE
3. CREDIT SYNDICATION
4. FINANCIAL RESTRUCTURING
5. ISSUE MANAGEMENT
6. UNDERWRITING
7. PORTFOLIO MANAGEMENT

• FUNCTIONS
• PROJECT ADVISORY SERVICE:-

1. PREPARATION OF PROJECT REPORT FOR OBTAINING GOVERNMENT APPROVAL AND FINANCIAL ASSISTANCE FROM THE FINANCIAL INSTITUTIONS
2. DECIDING UPON THE PATTERN OF FINANCING THE COST OF THE PROJECT
3. THE APPRAISAL OF THE PROJECT FROM VARIOUS ANGLES LIKE LOCATION,TECHNICAL,COMMERCIAL AND FINANCIAL VIABILITY
4. ALSO INCLUDES FILLING UP OF APPLICATION FORMS TO FINANCIAL INSTITUTIONS

• CORPORATE COUNSELLING:

1. COVERS THE ENTIRE FIELD OF MERCHANT BANKING ACTIVITIES LIKE:
2. PROJECT COUNSELLING
3. CAPITAL RESTRUCTURING
4. PROJECT MANAGEMENT
5. PUBLIC ISSUE
6. LOAN SYNDICATION
7. WORKING CAPITAL,LEASE FINANCING ETC
8. THE SCOPE OF CORPORATE COUNSELLING IS LIMITED TO GIVING SUGGESTIONS AND OPINION

• LOAN SYNDICATION:-

1. REFERS TO ASSISTANCE RENDERED BY MERCHANT BANKS TO GET LONG TERM LOAN FROM A SINGLE DEVELOPMENT BANK/OR A SYNDICATE OR CONSORTIUM
2. ARRANGING LOANS FOR THEIR CLIENT BY ANALYZING THEIR CASH FLOW PATTERN
3. OFFER ASSISTANCE IN LOAN DOCUMENTATION
4. PLACE EQUITY WITH BANKS,FINANCIAL INSTITUTIONS,MUTUAL FUNDS AND DOMESTIC PRIVATE EQUITY FUNDS
5. ORGANIZE THE FINANCIAL PARTICIPATION OF MULTINATIONAL AGENCIES,INTERNATIONAL BANKS AND FOREIGN BANKS AND EXPORT CREDIT AGENCIES

• ISSUE MGMT:-
• THE PRE ISSUE MANAGEMENT IS DIVIDED INTO

1. ISSUE THROUGH PROSPECTUS ,OFFER FOR SALE AND PRIVATE PLACEMENT
2. MARKETING AND UNDERWRITING
3. PRICING OF ISSUE

• POST ISSUE MANAGEMENT

• PRE ISSUE MANAGEMENT
• PUBLIC ISSUE THROUGH PROSPECTUS:-

1. COMMON METHOD OF PUBLIC ISSUE THROUGH PROSPECTUS
2. OFFER FOR SALE THROUGH THE INTERMEDIARY OF ISSUE HOUSE OR FIRM OF STOCK BROKER
3. PRIVATE PLACEMENT
4. FOR BRINGING PUBLIC ISSUE,MERCHANT BANKER HAS TO COORDINATE VARIOUS AGENCIES GOVT,PUBLIC BODIES AND PROFESSIONAL

• MARKETING:-

1. AFTER DISPATCH OF PROSPECTUS TO SEBI,THE FINALIZATION OF THE FOLLOWING MATTER IS DONE WITH THE CONSULTATION WITH THE COMPANY:
2. DATE OF OPENING AND CLOSING OF ISSUES
3. REGISTRATION OF PROSPECTUS
4. LAUNCHING PUBLICITY CAMPAIGN
5. FIXING OF BOD MEETING
6. HAS TO SEE THAT AL RELEVANT MATERIALS HAVE BEEN DELIVERED TO STOCK EXCHANGE 21 DAYS BEFORE THE ISSUE OPENS

• PRICING OF THE ISSUES

• POST ISSUE MANAGEMENT

1. COLLECTION OF APPLICATION FORMS AND STATEMENTS OF ACCOUNT
2. SCREENING OF APPLICATION
3. DECIDING ALLOTMENT PROCEDURE
4. MAILING OF ALLOTMENT LETTERS
5. SHARE CERTIFICATES AND REFUND ORDERS

• UNDERWRIITEN OF PUBLIC ISSUE
• GUARANTEE GIVEN BY THE UNDERWRITER THAT IN THE EVENT OF UNDER SUBSCRIPTION,THE AMOUNT UNDERWRITTEN WOULD BE SUBSCRIBED BY HIM. ONLY CATEGORY I,II AND III ARE PERMITTED TO UNDERWRITE THE ISSUE
• MANGERS,CONSULTANT OR ADVISERS TO THE ISSUE:-

1. ASSIST IN DRAFTING THE PROSPECTUS,APPLICATION FORM AND COMPLETION OF FORMALITIES
2. SEBI GUIDELINES INSIST THAT ALL ISSUES SHOULD BE MANAGED BY AT LEAST ONE AUTHORISED MERCHANT BANKER
3. NOT MORE THAN 2 TWO MERCHANT BANKERS SHOULD BE ASSOCIATED AS LEAD MANAGERS,ADVISERS AND CONSULTANT TO PUBLIC ISSUE
4. IN ISSUE OF OVER RS 100 CRORE A MAXIMUM OF FOUR MERCHANT BANKERS COULD BE ASSOCIATED

• PORTFOLIO MANAGEMENT:-

1. PORTFOLIO MANAGEMENT REFERS TO MAINTAINING PROPER COMBINATION OF SECURITIES IN A MANNER THAT THEY GIVE MAXIMUM RETURN
2. THEY CONDUCT REGULAR SURVEY AND SCAN THE EXTERNAL ENVIRONMENT AND GUIDE AND PROVIDE DIRECTION TO THE INVESTOR
3. MERCHANT BANKERS ALSO HELP NON RESIDENT INVESTOR IN SELECTING THE RIGHT TYPE OF SECURITIES AND OFFERING GUIDELINES IN FULFILLING GOVERNMENT REGULATIONS

• ADVISORY SERVICE RELATED TO MERGER AND TAKE OVER :

1. ARE THE MIDDLEMEN IN SETTING NEGOTIATION
2. SAFEGUARD THE INTERESTS OF THE SHAREHOLDERS OF BOTH THE COMPANIES
3. NEGOTIATE THE PURCHASE CONSIDERATION AND MODE OF PAYMENT AND ALSO FULFILL THE DOCUMENTATION AND LEGAL WORK

• OFF SHORE FINANCE:-

1. LONG TERM FOREIGN CURRENCY LOANS
2. JOINT VENTURE ABROAD
3. FINANCING EXPORT AND IMPORTS
4. FOREIGN COLLABORATION

• NON RESIDENT:

1. INVESTMENT ADVISORY SERVICES TO NRI IN TERMS OF IDENTIFICATION OF INVESTMENT OPPORTUNITIES
2. TAKE CARE OF OPERATIONAL CLEARANCE

• QUALITY OF MERCHANT BANKERS

1. ABILITY TO ANALYSE VARIOUS ASPECTS SUCH AS TECHNICAL.FINANCIAL.ECONOMIC ASPECTS
2. KNOWLEDGE ABOUT THE VARIOUS ASPECTS AND REGULATORY FRAMEWORK
3. ABILITY TO BUILD UP GOOD RELATIONSHIP WITH THE CLIENT
4. ADOPTING INNOVATIVE APPROACH TO SATISFY THE CLIENT

• INTEGRITY AND MAINTAINING HIGH PROFESSIONAL STANDARD
• DUTIES AND RESPONSIBILITES OF LEAD MGR

1. WRITTEN AND DETAILED AGREEMENT WITH THE ISSUING COMPANIES
2. NO ASSOCIATION WITH OTHER MERCHANT BANKER IF NOT REGISTERED
3. CAN NOT TAKE THE WORK RELATED TO ITS ASSOCIATE
4. CLEAR RESPONSIBILITY OF LEAD MGRS
5. UNDER AN OBLIGATION TO ACCEPT A MINIMUM UNDERWRITING OBLIGATION OF 5% OF THE TOTAL UNDERWRITING COMMISSION OR RS 25 LACS WHICHEVER IS LESS
6. EXERCISE DUE DILIGENCE IN VERIFICATION OF PROSPECTUS
7. SUBMISSION OF ALL THE PARTICULARS TO SEBI  AND ROC
8. DUTY TO ENSURE TIMELY REFUND
9. DUTY TO ENSURE THE MAILING OF SHARE/DEBENTURES CERTIFICATES