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CHAPTER 1: Concept of merchant banking 3 The Objective of the Study 4 Limitations of the project 4 CHAPTER 2: History of Merchant Banking 5 Origin of merchant banking 5 The growth of merchant banking in India 5 CHAPTTER 3: Importance, Need and Role of Merchant Bankers 7 Importance and need of merchant banking 7 Role of Merchant Banker: 9 CHAPTER 4: Organizational setup of merchant bankers in India 11 CHAPTER 5: Qualities of good merchant bankers 13 CHAPTER 6: Requirements for setting up a merchant banking outfit 16 Formation of the Business Organisation 16 Adoption of a viable business plan 16 Registration Of Merchant Bankers 17 CHAPTER 7: Services provided by Merchant Bankers 21 Public issue management - 21 Pre-issue management 25 Post-issue management 25 Underwriting 40 Loan Syndication 45 Project Counseling 48 Portfolio Management 56 Mergers and Acquisitions 64 Mutual Funds 73 Factoring 80 CHAPTER 8: Research Methodology 87 Collection of Data 86 Primary Data 86 Secondary Data 86 CHAPTER 9: Case Study on SBI Capital Markets Limited (SBICAP) 88 Mergers and Acquisitions and Advisory: 91 Project Advisory and Structured Finance Group: 92 Capital Markets 94 Treasury and Investment Group 95 Broking 96 Percentage Share of Major Services in the Revenues of SBI CAPITAL MARKETS 97 Comments by Mr. Supratim Sarkar of SBICAPS 98 CHAPTER 10: Recommendations 99 Bibliography 101 CHAPTER 1 Concept of merchant banking The dictionary meaning of merchant bank refers to an organization that underwrites corporate securities and advises such clients on issues like corporate mergers, etc. involved in the ownership of commercial ventures. This organization may be a bank, corporate body, firm or proprietary concern. The Securities and Exchange Board of India has defined merchant banks as " any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager, consultant, advisor or rendering corporate advisory service in relation to such issue management". In Indian context this definition suits well. Merchant banking in India started with the management of public issues and loan syndication and has been slowly and gradually covering activities like project counselling, portfolio management, investment counselling and mergers and amalgamation of the corporate firms. Although, merchant banking organizations present a long list of services they contemplate to render to their clients but the main services so far being rendered by them are those as authorized by the SEBI. The Objective of the Study is as follows: * To understand the need and the role played by Merchant banks. * To understand the functioning of Merchant Banks. Limitations of the project: As the scope of Merchant Banking is extremely vast, I have covered a few important points such as Concept of Merchant Banking, Need, Importance and Role of Merchant Banking, Qualities of a good Merchant Banker, Services provided by Merchant Banks, Organisational setup of Merchant Bankers in India and a case study on SBI Capital Markets Limited (Merchant Bank) CHAPTER 2 History of Merchant Banking Origin of merchant banking The origin of merchant banking can be traced back to the 13th century when the development of international trade and finance took place. The early merchant bankers were traders of commodities. These bankers also acted as bankers to the kings of European States and financed continental wars and coastal trades. The earlier merchant bankers used to lend their name to the lesser known traders by accepting bills through which they guaranteed that the holder of the bill would receive full value on the date of payment. Hence the name merchant was used because of its roots in merchant trade. The growth of merchant banking in India Formal merchant activity in India was originated in 1969 with the merchant banking division setup by

the Grindlays Bank, the largest foreign bank in the country. The main service offered at that time to the corporate enterprises by the merchant banks included the management of public issues and some aspects of financial consultancy. Following Grindlays Bank, Citibank set up its merchant banking division in 1970.The division took up the task of assisting new entrepreneurs and existing units in the evaluation of new projects and raising funds through borrowing and equity issues. Management consultancy services were also offered. Merchant bankers are permitted to carry on activities of primary dealers in government securities. Consequent to the recommendations of Banking Commission in 1972, that Indian banks should offer merchant banking services as part of the multiple services they could provide their clients, State Bank of India started the Merchant Banking Division in 1972. In the initial years the SBI's objective was to render corporate advice and assistance to small and medium entrepreneurs. The commercial banks that followed State Bank of India were Central Bank of India, Bank of India and Syndicate Bank in 1977.Bank of Baroda, Standard Chartered Bank and Mercantile Bank in 1978 and United Bank of India, United Commercial Bank, Punjab National Bank, Canara Bank and Indian Overseas Bank in late '70s and early '80s. Among the development banks, ICICI started merchant banking activities in 1973 followed by IFCI (1986) and IDBI (1991). CHAPTER 3 Importance, Need and Role of Merchant Bankers Importance and need of merchant banking Important reason for the growth of merchant banking has been developmental activity throughout the country, exerting excess demand on the sources of funds for ever expanding industry and trade, thus, leaving a widening gap unbridged between the supply and demand of inventible funds. All Indian financial institutions and experienced resources constraint to meet the ever increasing demands for funds from the corporate sector enterprises. In the circumstances corporate sector had the only alternative to avail of the capital market services for meeting their long-term financial requirements through capital issues of equity and debentures. With the growing demand for funds there was pressure on capital market that enthused the commercial banks, share brokers and financial consultant firms to enter into the field of merchant banking and share the growing capital markets. With the result, all the commercial banks in nationalized and public sector as well as in private sector including the foreign banks in India have opened their merchant banking windows and are competing in this field. There has been a mushroom growth of financial consultancy firms and broker firms doing advisory functions as well as managing public issues in syndication with other merchant bankers. Notwithstanding the above facts, the need of merchant banking institutions is felt in the wake of huge public savings lying still untapped. Merchant banks can play highly significant role in mobilizing funds of savers to investible channels assuring promising return on investments and thus can help in meeting the widening demand for investible funds for economic activity. With the growth of merchant banking profession corporate enterprises in both public and private sectors would be able to raise required amount of funds annually from the capital market to meet the growing requirements for funds for establishing new enterprises, undertaking expansion/modernization/diversification of the existing enterprises. This reinforces the need for a vigorous role to be played by merchant banks. Merchant banks have been procuring impressive support from capital market for the corporate sector for financing their projects. This is evidenced from the increasing amount raised form the capital market by the corporate enterprises year after year. In view of multitude of enactments, rules and regulations, guidelines and offshoot press release instructions brought out by the government from time to time imposing statutory obligations upon the corporate sector to comply with all those requirements prescribed therein, the need of skilled agency existed which could provide counseling in these matters in a package form. Merchant bankers, with their skills,

updated information and knowledge, provide this service to the corporate units and advise them on such requirements to be complied with for raising funds from the capital market under different enactments viz. Companies Act, Income-tax Act, Foreign Exchange Regulation Act, Securities Contracts (Regulation) Act and various other corporate laws and regulations. Merchant bankers advise the investors of the incentives available in the form of tax reliefs, other statutory relaxations, good return on investment and capital appreciation in such investment to motivate them to invest their savings in securities of the corporate sector. Thus, the merchant bankers help the industry and trade to raise funds and the investors to invest their saved money in sound and healthy concerns with confidence, safety and expectation for higher yields. Role of Merchant Banker The role of merchant banker is dynamic in the wake of diverse nature of merchant banking services. Merchant banker's dynamism lies in promptly attending to the corporate problems and suggest ways and means to solve it. The nature of merchant banking services is development oriented and promotional to help the industry and trade to grow and survive. Merchant banker is, therefore, dedicated to achieve this objective through his dynamism. He is always awake to renew his skills, develop expertise in new areas so as to equip himself with the knowledge and techniques to deal with emerging new problems of corporate business world. He has to keep pace with the changing environment where government rules, regulations and politics affecting business conditions frequently change; where science and technology create new innovations in production processes of industries envisaging immediate renovations, diversifications, modernizations or replacements of existing plant and machinery or other equipments putting new demands for finances and necessitating overhauling of the capital structure of the firms. Merchant banker has to think and devise new instruments of financing industrial projects. He has to assume wider responsibilities of saving industrial units from going sick and guiding industries to be setup in industrially backward areas to eliminate regional imbalances in industrial development of the country. He has to guide the wider section of the community possessing surplus money to invest in corporate securities and other productive investment channels. He has to help the industry in different forms to ensure that it runs risk free and devoid of uncertainty by assisting the promoters with his knowledge and skills to resolve the problems being faced by them. He has to watch the interest and win over the confidence of the government, its agencies, along with the entrepreneurs, the investors and the whole community. He must bridge the communication gap between different sections and resolve the problem being faced in different areas concerned with the business world. To discharge the above role, a merchant banker has to be dynamic. In the days ahead, merchant bankers have very significant role to play tuning their activities to the requirements of the growth pattern of the corporate sector, the industry and the economy as a whole which is, in itself, a challenging task and to meet these challenges merchant bankers will have to be more vigorous and strategic in playing their role. They will have also to adopt new ways and means in discharging their role. CHAPTER 4 Organizational setup of merchant bankers in India In India a common organizational setup of merchant bankers to operate is in the form of divisions of Indian and foreign banks and financial institutions, subsidiary companies established by bankers like SBI, Canara Bank, Punjab National Bank, Bank of India, etc. Some firms are also organized by financial and technical consultants and professionals. Securities and Exchange Board of India has divided the merchant bankers into four categories based on their capital adequacy. Each category is authorized to perform certain functions. From the point of organizational setup India's merchant banking organizations can be categorized into four groups on the basis of their linkage with parent activity. They are: (A) Institutional Base Where merchant banks function as an independent wing

or as subsidiary of various private/Central Governments/State Governments financial institutions. Most of the financial institutions in India are in public sector and therefore such setup plays a role on the lines of government priorities and policies. (B) Banker Base These merchant bankers function as division/subsidiary of banking organization. The parent banks are either nationalized commercial bank or the foreign banks operating in India. These organizations have brought professionalism in merchant banking sector and they help their parent organization to make a presence in capital market. (C) Broker Base In the recent past there has been an inflow of qualified and professionally skilled brokers in various stock exchanges of India. These brokers undertake merchant banking related operations also like providing investment and portfolio management services. (D) Private Base These merchant banking firms are originated in private sector. These organizations are the outcome of opportunities and scope in merchant banking business and they are providing skill-oriented specialized services to their clients. Some foreign merchant bankers are also entering either independently or through some collaboration with their Indian counterparts. Private sector merchant banking firms have come up either as the sole proprietorship or public limited companies. Many of these firms were in existence for quite some times before they added a new activity in the form of merchant banking services by opening new divisions on the lines of commercial banks and All India Financial Institutions. CHAPTER 5 Qualities of good merchant bankers Merchant bankers are individual experts who organize and manage the merchant banks. The operations of merchant banks are, therefore, influenced by the personality trait of these individuals. For the success of merchant banks' operations, the qualities which merchant bankers should have are discussed below:- 1. Leadership - Merchant banker should posses all relevant skills, updated knowledge to interact with the clients and effectively communicate. Leadership is synonymous with followers who follow the one who leads. 2. Aggressive action - Aggressiveness is a personality trait of a good leader but in merchant banking it has a wider connotation. Aggressive merchant bankers are always looking for new business. Once a business opportunity has been located, the merchant banker has got to obtain the mandate for the merchant banking assignment from the clients at once which will depend upon his own communication skills, persuasiveness and the background of the organization to which he belongs. A good merchant banker is one who does not allow his client to think anything outside except what has been advised. Therefore, promptness in grasping the clients' problems and providing better choice amongst alternative solutions evidence aggressive approach in the profession to hold the client's interest in entirety for the present as well as the future. 3. Co-operation and friendliness - No doubt, these two characteristics are the symbols of good leadership but it hardly needs to be stressed that cooperation and friendliness coupled with persuasiveness are the main instruments with which a merchant banker mixes with the people, gathers information, obtains business mandate and renders satisfactory services to the clients. Business of an honest merchant banker spreads with geometrical propagation when he shares the thoughts of his clients with sympathetic gestures and offers pragmatic suggestions without greed or favours. Very often, rude, intemperate and indifferent disposition or blunt out burst withdraw fortunate business opportunities forever. These are the vices unbecoming of a merchant banker and should be eschewed. Friendliness and cooperation must flow as natural traits in the merchant banker to win over the trust of the clients like a doctor or lawyer who retain their clients permanently. 4. Contacts - Success of a merchant banker depends upon his sociable nature and the richness of wider contacts. A merchant banker is supposed to be acquainted deeply with all the constituents of merchant banking. The scope of contact encompasses intimate contiguity and acquaintances within his own organization, Central and State Government Offices where

compliances under various relevant enactments are to be reported, Indian and foreign banks, financial institutions at Central and State levels, promoters/directors/owners and chief executives of the private and public enterprises which would be prospective beneficiaries of merchant banking services, printers, advertising agencies, brokers and stock exchange dealers, advocates and solicitors and members of the press whose services are availed of in executing merchant banking assignments. Merchant banker should widen contacts and references and continue to maintain them in goodness, honour and humour by meeting people in person, through writing and in special gatherings. 5. Attitude towards problem solving - The most important personality trait of a merchant banker is his attitude towards problem solving. Every client coming to him has got to return fully satisfied having consulted a merchant banker. Positive approach to understand the view point of others, their difficulties and their adverse circumstances is possible only when a person is skilled in human relations particularly the inter-personal and intra-personal behaviour. Effective communication and proper feedback are the pre-requisites for creating a positive attitude towards problem solving which could be gains partly through learning process and partly as an in-born quality. This trait is a subject matter of personality development but is so important that it must be treated as a separate objective quality of a good merchant banker. 6. Inquisitiveness for acquiring new skills, information and knowledge - Merchant bankers live on the wits they earn by giving information to needy clients. Therefore, they should keep abreast with latest information in the area of the service product, they market. This is possible if merchant bankers posses the quality of inquisitiveness. The above qualities of a merchant banker are only illustrative. All good qualities in merchant bankers are difficult to be defined so elaborately. Nevertheless, merchant banker should possess super business acumen, managerial abilities, administrative capacities and salesmanship so as to understand the problems of trade and industry, devise ways and means to sort out and resolve those problems and sell the service product to the needy clients. CHAPTER 6 Requirements for setting up a merchant banking outfit 1. Formation of the Business Organisation SEBI act, 1992 does not prescribe any specific form of business organization to carry on the activities as merchant banker. However, the types of organizations are listed below: a) Sole proprietorship b) Partnership firm c) Hindu Undivided Family (HUF) d) Corporate Enterprises e) Co-operative Society Generally it is preferred that the Merchant Banking outfit be a registered company. Merchant Banks are generally setup as subsidiary companies of banks (Public or Private). For example, SBI caps, ICICI Securities etc. 2. Adoption of a viable business plan All the basic tests required to find out whether the business to be undertaken is viable or not are also applicable to a Merchant Banking setup. Capital adequacy, profitability, growth opportunities and current market size are some of the factors which need to be looked into. 3. Registration of Merchant Bankers a) Application for grant of certificate An application for grant of a certificate needs to be made to SEBI . The application can be made for any one of the following categories of the merchant banker namely:-> Category I, that is - (i) to carry on any activity of the issue management, which will inter-alia consist of preparation of prospectus and other information relating to the issue, determining financial structure, tie-up of financiers and final allotment and refund of the subscription; and (ii) to act as adviser, consultant, manager, underwriter, portfolio manager.> Category II, that is, to act as adviser, consultant, co- manager, underwriter, portfolio manager;> Category III, that is to act as underwriter, adviser, consultant to an issue;> Category IV, that is to act only as adviser or consultant to an issue. To carry on the activity as underwriter or portfolio manager a separate certificate of registration needs to be obtained from SEBI. b) Application to conform to the requirements The application should conform to all the requirements under the SEBI guidelines,

otherwise it may be rejected. c) Furnishing of information, clarification and personal representation The Board may require the applicant to furnish further information or clarification regarding matters relevant to the activity of a merchant banker for the purpose of disposal of the application. The applicant or its principal officer may appear before the Board for personal representation. d) Consideration of application The Board shall take into account for considering the grant of a certificate, all matters, which are relevant to the activities relating to merchant banker and in particular the applicant complies with the following requirements, namely: -> the applicant shall be a body corporate other than a non- banking financial company> the merchant banker who has been granted registration by the Reserve Bank of India to act as a Primary or Satellite dealer may carry on such activity subject to the condition that it shall not accept or hold public deposit> the applicant has the necessary infrastructure like adequate office space, equipments, and manpower to effectively discharge his activities> the applicant has in his employment minimum of two persons who have the experience to conduct the business of the merchant banker> a person directly or indirectly connected with the applicant has not been granted registration by the Board;> the applicant fulfils the capital adequacy requirement is as follows: The capital adequacy requirement should not be less than the net worth of the person making the application for grant of registration. The networth shall be as follows, Category Minimum Amount Category I Rs. 5, 00, 00, 000 Category II Rs. 50, 00, 000 Category III Rs. 20, 00, 000 Category IV Nil> the applicant, his partner, director or principal officer is not involved in any litigation connected with the securities market which has an adverse bearing on the business of the applicant and have not at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence> the applicant has the professional qualification from an institution recognised by the Government in finance, law or business management> grant of certificate to the applicant is in the interest of investors. e) Procedure for Registration The Board on being satisfied that the applicant is eligible shall grant a certificate. On the grant of a certificate the applicant shall be liable to pay the fees as prescribed. f) Payment of fees and the consequences of failure to pay fees Every applicant eligible for grant of a certificate shall pay such fees in such manner and within the period specified. Where a merchant banker fails to pay the Annual fees as provided in Schedule II, the Board may suspend the registration certificate, whereupon the merchant banker shall cease to carry on any activity as a merchant banker for the period during which the suspension subsists. The Merchant Bank can commence business on acquisition of a Certificate of Registration from the SEBI after completion of the above mentioned formalities. CHAPTER 7 Services provided by Merchant Bankers Public issue management Public issue management involves marketing of corporate securities and devolves upon the merchant bankers a responsibility to take all necessary steps to market the securities successfully. The basic objective behind the public issue remains the effective channellising of the savings into investment in corporate securities and enlistment of shares with stock exchanges or Over the Counter Exchange of India (OCTEI) for creation of transferability and liquidity in the secondary market. Public issue - Public issue of corporate securities involves marketing of capital issues of new or existing companies, additional issues of existing companies including rights issues and dilution of shares by letter of offer. Marketing of new issues is done by issue of prospectus. Public issue by prospectus or otherwise are managed by the involvement, coordinated effort and co-operation of a number of agencies which take active part by rendering professional services in which they have their respective specialization. These agencies at apex level include managers to the issue i.e. the merchant bankers who plan, coordinate and control the entire issue activity and direct different agencies to contribute to the

successful marketing of securities. Other agencies are underwriters, brokers, bankers, advertising agency, printers, auditors, solicitors/advocates/legal advisors, registrar to the issue and other governmen

Definition of merchant banking: The Notification of the Ministry of Finance defines merchant banker as Any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager-consultant, advisor or rendering corporate advisory services in relation to such issue management The Amendment Regulation specifies that issue management consist of Prospectus and other information relating to issue, determining financial structure, tie-up of financiers and final allotment and refund of the subscriptions, underwriting and portfolio management services. In the words of Skully A Merchant Bank could be best defined as a financial institution conducting money market activities and lending, underwriting and financial advice, and investment services whose organization is characterized by a high proportion of professional staff able to able to approach problems in an innovative manner and to make and implement decisions rapidly. Nature of merchant banking: Merchant banking is skill based activities and involves serving every financial need of every client. It requires focused skill-base to provide for the requirements of the client. SEBI has made the quality of man-power as one of the criteria for registration as merchant banker. These skills should not be concentrated in issue management and underwriting alone, which may have an adverse impact on business. Merchant bankers can turn to any of the activities mentioned above depending upon resources, such as capital, foreign tie-ups for overseas activities and skills. The depth and sophistication in merchant banking business are improving since the avenues for participating in capital market activities have widened from issue management and underwriting to private placement, bought out deals (BODS), buy-back of shares, merges and takeovers. The services of merchant bank cover project counseling, pre investment activities, feasibility studies, project reports, design of capital structure, issue management, underwriting, loan syndication, mobilization of funds from Non-Resident Indians, foreign currency finance, mergers, amalgamation, takeover, venture capital, buy back and public deposits. A Category-1 merchant banker can undertake issue management only. Separate registration is not necessary to carry on the activity as underwriter. Characteristics of Merchant Banking:

High proportion of decision makers as a percentage of total staff. Quick decision process. High density of information. Intense contact with the environment. Loose organizational structure. Concentration of short and medium term engagements. Emphasis on fee and commission income. Innovative instead of repetitive operations. Sophisticated services on a national and international level. Low rate of profit distribution. High liquidity ratio.

Qualities of a Merchant Banker:

Ability to analyse Abundant knowledge Ability to built up relationship Innovative approach Integrity

Merchant Banking in India: Merchant banking activity was formally initiated into the Indian capital Markets when Grind lays bank received the license from Reserve Bank in 1967. Grind lays started with management of capital issues, recognized the needs of emerging class of entrepreneurs for diverse financial services ranging from production planning and system design to market research. Even it provides management consulting services to meet the requirements of small and medium sector rather than large sector. Citibank Setup its merchant banking division in 1970. The various tasks performed by this divisions namely assisting new entrepreneur, evaluating new projects, raising funds through borrowing and issuing equity. Indian banks Started banking Services as a part of multiple services they offer to their clients from 1972. State bank of India started the merchant banking division in 1972. In the Initial years the SBIs objective was to render corporate advice And Assistance to small and medium entrepreneurs. Merchant banking activities is OF course organized and undertaken in several forms. Commercial banks and foreign development finance institutions have organized them through formation divisions, nationalized banks have formed subsidiaries companies and share brokers and consultancies constituted themselves into public limited companies or registered themselves as private limited companies. Some merchant

banking outfits have entered into collaboration with merchant bankers abroad with several branches.

Investment Banking in India

Important reasons for the growth of merchant banks has been development activities throughout the country, exerting excess demand on the sources of fund for ever expanding industries and trade, thus leaving a widening gap unabridged between the supply and demand of invisible funds. All financial institutions had experienced constrain of resources to meet ever increasing demands for demands for funds frame corporate sector enterprises. In such circumstances corporate sector had the only alternative to avail of the capital market service for meeting their long term financial requirement through capital issue of equity shares and debentures. Growing demand for funds put pressure on capital market that enthused commercial banks, share brokers and financial consultancy firms to enter into the field of merchant banking and share the growing capital market. As a result all the commercial banks in nationalized and public sector as well as in private sector including foreign banks in India have opened their merchant banking windows and competing in this field. Need for merchant banking is felt in the wake of huge public saving lying untapped. Merchant banker can play highly significant role in mobilizing funds of savers to invisible channels assuring promising returns on investment and thus can assist in meeting the widening demand for invisible funds for economic activity. With growth of merchant banking profession corporate enterprises in both private sectors would be able to raise required amount of funds annually from the capital market to meet the growing requirement for funds for establishing new enterprises, undertaking expansion, modernization and diversification of the existing enterprises. This reinforces the need for a vigorous role to be played by merchant banking. In view of multitude of enactment, rules and regulation, gridlines and offshoot press release instructions brought out the government from time to time imposing statutory obligations upon the corporate sector to comply with those entire requirement prescribed there in the need of a skilled agency existed which could provide counseling in these matters in a package form. A merchant banker with their skills updated information and knowledge provide this service to the corporate units and advice them on such requirement to be complied with for raising funds from the capital market under different enactment viz. companies act, income tax act, foreign exchange regulation act, securities contracts corporate laws and regulations. Merchant bank advice the investors of the incentives available in the form of tax relief, other statutory relaxation, good return on investment and capital appreciation in such investment to motivate them to invest their savings securities of the corporate sector. Thus merchant banks help industries and trade to rise and the investors to invest their saved money in sound and healthy concern with confidence, safety and expectation for higher yields. Finance is the backbone of business activities. Merchant banker make available finance for business enterprises acting as intermediaries between them raising demand for funds and the supplies of funds besides rendering various other services.

The following are some of the reasons why specialist merchant bank have a crucial role to play in India.

Growing complexity in rules and procedures of the government. Growing industrialization and increase of technologically advanced industries. Need for encouragement of small and medium industrialists, who require specialist services. Need to develop backward areas and states which require different criteria. Exploring the possibility of joint ventures abroad and foreign market. Promoting the role of new issue market in mobilizing saving from.

Where merchant banks function as an independent wing or as subsidiary of various private/central governments/ state government financial institution. Most of the financial institution in India is in public sector and therefore such setup plays a role on the lines of governmental priorities and policies.
FUNCTIONS OF MERCHANT BANKER

The important functions of merchant bankers are: 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 undergoing tasks include instrument designing, pricing the issue, registration of the offer document, underwriting support, marketing of the issue, allotment and refund and listing on stock exchanges. Placement and Distribution: The merchant banker helps in distributing various securities like equity shares, debt instruments, mutual funds, insurance products, and 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. Corporate Advisory Services: Merchant bankers offer customized solutions to their clients financial problems. Financial structuring includes determining the right debt-equity ratio and the framing of appropriate capital structure theory. Project Advisory Services:

Merchant bankers help their clients in various stages of the project undertaken by the clients. They assist them in conceptualizing the project idea in the initial stage. Once the idea is formed, they conduct feasibility studies to examine the viability of the proposed project. Loan Syndication: Merchant bankers arrange to tie up loans for their clients. This takes place in a series of steps. Firstly, they analyze the pattern of the clients cash flows, based on which the terms of the borrowings can be defined. Then the merchant banker prepares a detailed loan memorandum, which is circulated to various banks and financial institutions and they are invited to participate in the syndicate. The banks then negotiate the terms of lending on the basis of which the final allocation is done. Providing Venture Capital Financing: Merchant bankers help companies in obtaining venture capital financing for financing their new and innovative strategies.

Organizational set up of merchant bankers in India

In India a common organizational set up of merchant bankers to operate is in the form of divisions of Indian and Foreign banks and Financial institutions, subsidiary companies established by bankers like SBI, Canada Bank, Punjab National Bank, Bank of India, etc. some firms are also organized by financial and technical consultants and professionals. Securities and exchanges Board of India (SEBI) has divided the merchant bankers into four categories based on their capital adequacy. Each category is authorized to perform certain functions. From the point of Organizational set up Indias merchant banking organizations can be categorized into 4 group on the basis of their linkage with parent activity. They are: a) Institutional Base:Where merchant banks function as an independent wing or as subsidiary of various Private/ Central Governments/State Governments Financial institutions. Most of the financial institutions in India are in public sector and therefore such set up plays a role on the lines of governmental priorities and policies. b) Banker Base:These merchant bankers function as division/ subsidiary of banking organization. The parent banks are either nationalized commercial banks or the foreign banks operating in India. These organizations have brought professionalism in merchant banking sector and they help their parent organization to make a presence in capital market.

c) Broker Base :In the recent past there has been an inflow of Qualified and professionally skilled brokers in various Stock Exchanges of India. These brokers undertake merchant baking related operating also like providing investment and portfolio management services. d) Private Base:These merchant banking firms are originated in private sectors. These organizations are the outcome of opportunities and scope in merchant banking business and they are providing skill oriented specialized services to their clients. Some foreign merchant bankers are also entering either independently or through some collaboration with their Indian counterparts. Private Sectors merchant banking firms have come up either as sole proprietorship, partnership, private limited or public limited companies. Many of these firms were in existence for quite some time before they added a new activity in the form of merchant banking services by opening new division on the lines of commercial banks and All India Financial Institution (AIFI).