Merchant banking assignment

Who is a Merchant Banker? A merchant banker can be defined as “ An organization that acts as an intermediary between the issuers and the ultimate purchasers of securities in the primary security market. ” A merchant banker is an institution that helps companies to raise capital. It is an organization that underwrites corporate securities, provides advisory services to its clients. What is Merchant Banking? Merchant bankers facilitate issue process and their activities are termed as merchant banking ‘ Essentially, Merchant banking is what merchant bankers do. Merchant Banking As per RBI A merchant banking company has been exempted from the provisions of Section 45-IA [Requirement of registration and net owned fund], Section 45-IB [Maintenance of liquid assets] and 45-IC [Creation of Reserve Fund] of the RBI Act, 1934 , [3] Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 and [4] Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 subject to compliance with the following conditions: a)It is registered with the Securities and Exchange Board of India as a Merchant Banker under Section 12 of the Securities and Exchange Board of India Act, 1992 and is carrying on the business of merchant Banker in accordance with the Securities and Exchange Board of India Merchant Banking (Rules) 1992 and Securities and Exchange Board of India Merchant Banking (Regulations) 1992; (b)acquires securities only as a part of its merchant banking business; c)does not carry on any other financial activity referred to in Section 45I(c) of the RBI Act, 1934; and does not accept or hold public deposits as defined in paragraph 2(1)(xii) of the Notification No. DFC 118/DG(SPT)-98 dated January 31, 1998. Registration of merchant bankers… Registration with SEBI is mandatory to carry out the business of merchant banking in India. An applicant should comply with the following norms: •The applicant should be a body corporate The applicant should not carry on any business other than those connected with the securities market •The applicant should have necessary infrastructure like office space, equipment, manpower etc. •The applicant must have at least two employees with prior experience in merchant banking •Any associate company, group company, subsidiary or interconnected company of the applicant should not have been a registered merchant banker •The applicant should not have been involved in any securities scam or proved guilt for any offence •The applicant should have a minimum net worth of Rs. crores State Bank Of India – Merchant Bank About State Bank of India State Bank of India is India’s largest commercial bank. The bank has a vast domestic network of 9019 branches (approximately 14% of all bank branches) and commands one-fifth of deposits and loans of all scheduled commercial banks in India. The State Bank Group includes a network of eight banking subsidiaries and several non-banking subsidiaries offering merchant banking services, fund management, factoring services, primary dealership in government securities, credit cards and insurance.

SBI has branches/representative offices in 31 countries and correspondent relationship with 720 foreign banks. State Bank of India is an active participant in the area of finance of Project export activities. These activities will mainly involve financing the fund based and non fund based requirements of the project exporters. • Export of engineering goods on deferred payment terms Execution of turnkey projects abroad • Execution of overseas civil construction contracts abroad • Exports of services are the contracts for export of consultancy, technical and other services. Project export contracts are generally of high value and exporters undertaking them are required to offer competitive terms to be able to secure orders from foreign buyers in the face of stiff international competition.

To ensure the compliance with rules and regulations governing the securities market Functions of a SBI as a Merchant Banker… The following comprise the main functions of a merchant banker: •Management of debt and equity offerings- This forms the main function of the merchant banker. He assists the companies in raising funds from the market. The main areas of work in this regard include: instrument designing, pricing the issue, registration of the offer document, underwriting support, marketing of the issue, allotment and refund, listing on stock exchanges. Placement and distribution- The merchant banker helps in distributing various securities like equity shares, debt instruments, mutual fund products, fixed deposits, insurance products, commercial paper to name a few. The distribution network of the merchant banker can be classified as institutional and retail in nature. The institutional network consists of mutual funds, foreign institutional investors, private equity funds, pension funds, financial institutions etc. The size of such a network represents the wholesale reach of the merchant banker.

The retail network depends on networking with investors. •Corporate advisory services- Merchant bankers offer customised solutions to their clients financial problems. The following are the main areas in which their advice is sought: Financial structuring includes determining the right debt-equity ratio and gearing ratio for the client, the appropriate capital structure theory is also framed. Merchant bankers also explore the refinancing alternatives of the client, and evaluate cheaper sources of funds.

By which it gained its invention in India in early 1980, even if it was exactly started in 1964 by the unit trust of India. In addition to the above, the mutual funds can be grouped into [a] Close ended funds & [b] Open ended funds. The Indian corporate companies can only benefits from the mutual funds on gaining savings for investment, better yield low cost on investment, tax benefits, flexible on investment, promoting industrial development reducing the cost of new issue and many more other advantages.

On the other side, Indian corporate companies must be informed on the kind of risks involved with the mutual funds like market risks, scheme risks, business risk, investment risks and even the political nature of risks. While the investors are selecting the funds must take into account the objectives of the fund, consistency of performance of the funds. Historical background of the funds, cost of operation, capacity for innovation, the investors servicing, market trends, and even the transparence of the fund management.

The Indian methods of venture financing are equity participation, income notes, the conventional loans and even the conditional loans. In order to promote the venture capital growth in India, there must be tax concessions for capital gains, high level development of capital market, giving of fiscal incentives to Indian corporate companies, high level participation of the private sectors the improving and reviewing of the existing laws and limited partnership and many more. Discounting, factoring and forfeiting services: Due to the exact trade transaction the trade bill comparatively arises, the Indian corporate companies must take into consideration that the supplier of the exact goods draws bill which is based on the purchase for the invoice price of goods sold on credit method of which is drawn on the short period of time. The buyer pays the amount on the exact date by which the supplier of goods has to await until the expiry of the exact bill.

However, the banks provides the cash discounting based on the exact trade bills by which they deduct certain charges as discount based on the amount of the bill and credit balance of the customers account. •Factoring: Factoring is to get thing being done. The ward factor means to mark or to do according to R. W. Johnson factoring is a service involving the purchase by financial organization, called a factor of receivables owned by manufacturers and distributors by the customers with the factor assuming full credit and collection responsibilities.