Merchant Banking and Financial Services, III Semester (MBA), UNIT-1
Definition of Merchant Banking
The term ‘Merchant banker’ was used in relation to a wealthy merchant, who developed the banking side of one’s business, in England. In India, merchant banking definition is framed in SEBI rules 1992. It defines merchant banker as “ any person who is engaged in the business ofissue management either by making arrangement regarding selling, buying or subscribing to securities as manager, consultant, advisor or rendering corporate advisory services in relation to such issue management.”
Role of Merchant Bankers in
the Capital Market
The Role of merchant banker in the process of issue management is
vital and his services are broadly categorized as pre-issue management and post
issue management.
Pre-issue management involves the following:
Obtaining approval for the issue from SEBI
Drafting of prospectus and getting it approved by various
authorities concerned.
Underwriting
Drafting the documents like application forms, newspaper
advertisements etc.,
Process of advertisement
Selection of registrar to issue, printing press, advertising
agencies, brokers and bankers to issue
Arranging press conferences for brokers and investors
Selection and fixation of collection centre for receiving
application money
Listing of securities in stock exchange
Post issue management includes the following:
Collection of application forms
Screening the applications
Deciding allotment procedure
Mailing of letter of allotment
Issue of share certificates
Refund of application money to non-allottees.
Advisory services relating to mergers and takeovers
A merchant banker acts as a ‘liasoning officer’ for mergers and
acquisitions.
He helps the company in managing its portfolio.
Off shore financing
Merchant bankers help their clients in off shore financing such as
long term foreign currency loans, joint ventures abroad, licensing and
franchising, financing exports and imports, foreign collaboration arrangements
etc. In addition to this, it provides advisory services like identification of
investment opportunities, selection of securities, and investment management to
non-resident Indians and also they help in operational activities like purchase
and sale of securities, securing necessary clearance from RBI. Issue Management
activities of Merchant Bankers are discussed in detail in Unit-2.
