What is the definition of Merchant Bankers?
It is a financial institution which primarily engages itself in underwriting &
business loans, catering to the needs of large-scale enterprises & high net
worth individuals. It can also be called as Investment Banking.
They are experts in international trade which makes them specialists in
dealing with various multinational entities & forming strategic alliances. It
generally provides finances to large organizations that do oversee the
business. Merchant's Banks even help corporation issue securities through
private placements.
It also provides corporate advisory services to the firms they invest in.
What is Function of Merchant bankers?
To explain the role of a Merchant Bank, suppose a multinational
corporation XYZ is considering the purchase of a smaller company in
another country. Company XYZ will likely solicit the services of a merchant
bank for advice on how to best approach the acquisition process. In
addition, the merchant bank may also assist in the financing of the
acquisition, providing underwriting or loan services.
EXAMPLE of Merchant Bankers in India?
Canara Bank, Karur Vysya Bank, ICICI Securities Ltd, IFCI Financial
Services Ltd etc.
LEGISLATIONS
SEBI (Merchant Bankers) Regulations, 1992
SEBI (Payment of Fees) (Amendment) Regulations, 2014
FEES
For registration as a Merchant Banker, an applicant is required to pay a
non-refundable application fee of Rs. 50000/- by way of demand draft
drawn in favor of 'SEBI', payable at Mumbai.
Initial Registration – 20 Lacs (5 years validity)
Permanent Registration – 9 Lacs
CAPITAL ADEQUACY NORMS
A merchant banker is required to have a minimum net worth of not less
than 5 Crore. Only a Body Corporate other than an NBFC is eligible to act
as a Merchant Banker.
Categories of a Merchant Banker
1. Category I: To carry on the activity of issue management & to act as
adviser, consultant, manager, underwriter, portfolio manager (Net
worth – 5 Crores)
2. Category II: To act as adviser, consultant, manager, underwriter,
portfolio manager (Net Worth – 50 Lakhs)
3. Category III: To act as underwriter, advisor or consultant to an issue
(Net Worth – 20 Lakhs)
4. Category IV: To act only as advisor or consultant to an issue. (Net
Worth – NIL)
CHANGE IN CONTROL
As per section 9A, Merchant Bankers shall obtain prior approval of SEBI
before effecting any change in control of management. It shall also affect
the obligation to obtain fresh registration under section 12 within a period of
6 months from affecting the change.
RBI MANDATE
As per RBI's Master Circular on Para-Banking activities, banks are allowed
to undertake merchant banking activities through a separate subsidiary
which would be required to comply with SEBI regulations issued in this
behalf. Banking Institutions performing merchant banking activities are also
required to follow the requirements laid down in the prudential exposure
norms prescribed by RBI, as well as the statutory limits contained in
Section 19(2) & (3) of the Banking Regulation Act, 1949.
ELIGIBILITY
Applicant should be a Body Corporate other than an NBFC.
Applicant should not get engaged in any other activity other than
those connected to the securities market.
Applicant should have a minimum of two employees having prior
experience in Merchant Banking.
Applicant has not been found guilty of misconduct or an economic
offense.
Applicant should have a minimum capital of 5 Crores
Applicant must not be related to (directly or indirectly) to any other
entity which is already registered as a Merchant Banker.
Due to factors such as the growth of the primary market, increasing need
for corporate restructuring and easing of FDI norms, merchant banking has
never been more relevant in India. Therefore, it is need of an hour that the
restrictive norms governing merchant banking are established, especially
those related to capital adequacy and registration, should be relaxed in
order to allow small players to enter and further expand the exclusive club
of merchant bankers in India.
Services Provided By a Merchant Banker
Project Counseling
Management of Debt & Equity Offerings
Issue Management
Underwriting of Public Issue
Portfolio Management
Restructuring strategies.
Offshore finance
Loan Syndication
Non-resident Investment
Corporate counseling & advisory services.
SCHEDULE I: Forms
Form A – Application for Grant of Certificate of Initial/Permanent
Registration.
Form B – Certificate of Initial/Permanent Registration
Form C- Omitted by SEBI (ICDR) Regulations, 2009
SCHEDULE II:
FEES
SCHEDULE III:
Code of Conduct for Merchant Bankers
SCHEDULE IV:
Format for Half Yearly Report to be submitted by Merchant Bankers
