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SERVICES PROVIDED BY MERCHANT BANKS

Broadly a merchant bank provides the following services: [1]

1. Corporate Counselling:It covers the entire field of merchant banking activities i.e., project counselling,

capital restructuring, portfolio management and the full range of financial engineering

including venture capital, public issue management, loan syndication, working

capital, fixed deposits, lease financing, acceptance credit, etc.

However, the scope of corporate counselling is limited to giving suggestions and

opinions leaving it to the client to take corrective actions for solving its corporate

problems.

2. Project Counselling:Project counselling is an important merchant banking service which includes

preparation of project reports, deciding upon the financing pattern to finance the cost

of the project and appraising the project report with the financial institutions/banks.

Project reports are prepared to obtain government approval of the project, for

procuring financial assistance from financial institutions and banks & for ensuring

market for the proposed product, for planning public issues, etc. While rendering

project counselling services, the merchant banker has to appraise the project

considering the various aspects as to the type of the project, location, technical,

commercial and financial viability of the project.

Financing the project cost is an important aspect of project counselling. The two

sources of funds available to finance the project cost are internal sources of funds (or

owners' funds) which includes promoter's contribution and retained earnings; and

external sources of funds which refers to the borrowed funds in the form of loans

from banks, private investors and financial institutions and in the form of debentures

from the public. Merchant banker has to decide the financing mix of the internal and

external sources of funds keeping in view the rules, regulations and norms prescribed

by the government or followed by the term lending financial institutions.

3. Credit Syndication:Once the clients company has decided about the project proposed to be undertaken,

the next step is looking for the sources wherefrom the funds could be procured to

implement the project. Merchant banker has to locate the sources of funds and comply

with the formalities required to procure the funds. This service rendered by the

merchant banker in arranging and procuring credit from financial institutions, banks

and other lending and investment organizations for financing the clients' project cost

as loan syndication or credit syndication.

4. Issue Management and Underwriting:

1www.wikipedia.org

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Management of capital issues is a professional service rendered by the merchant

bankers. Public issue management involves marketing of corporate securities by

offering the securities to the public, procuring private subscription to the securities

and offering securities to existing shareholders of the company. A merchant bankers

post issue activities include final allotment and/or refund of subscription amount,

calculation of underwriters liability in case of under subscription and complying thenecessary statutory requirements for listing of securities on the stock exchange.

5. Under-writing of Public Issue:A fully underwritten public issue spells confidence to the investing public, which

ensures a good response to the issue. Keeping this in view, companies which float a

public issue usually, desire a full underwriting of the issue. Underwriting is only the

guarantee given by the underwriter that in the event of under subscription, the amount

underwritten would be subscribed in proportion by the underwriter.

6. Bankers to the Issue:The function of a banker to the issue is to accept application forms from the public

together with subscription money and transfer them to the account of the controlling

branch. The merchant banker can automatically become the banker to the issue in the

following cases:

The bank is a broker to the company It has given underwriting commitments. It acts as a manger to the issue

7.

Portfolio Management:

Portfolio management refers to managing efficiently the investment in the securities

held by professionals to others. Merchant bankers take up management of a portfolio

of securities on behalf of their clients, providing special services with a view to ensure

maximum return by such investments with a minimum risk of loss of return on the

money invested in securities. A merchant banker while performing the services of

portfolio management has to enquire of the investment needs of the client, the tax

bracket, ability to bare risk, liquidity requirements, etc. they should study the

economic environment affecting the capital market, study the securities market and

identify blue chip companies in which money can be invested.

8. Advisory Services Relating to Mergers and Takeovers:Merchant bankers role is specific and specialized in handling the mergers and

takeover assignments. Being a professional expert, the merchant banker is apt to

safeguard the interest of the shareholders in both the companies and as such his

assistance is useful for both the companies, i.e. the acquirer as well as the acquired

company.

Based on the purpose of business objective, the search of the acquirer company will

start for a merger partner company. If the objective of merger is growth oriented i.e.

seeking expansion in production and market segments, utilization of existingcompanies or optimum utilization of resources, then the acquirer company will select

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a business related company as a merger partner. If the objective is diversification in

production line or business activities, then it will select a non-related company as a

merger partner. Once the merger partner is proposed the merchant banker has to

appraise the merger/takeover proposal with respect to financial viability and technical

feasibility. He has to negotiate with the parties and decide the purchase consideration

and mode of payment. He has to comply with the legal formalities like gettingapproval from the Government/ RBI; drafting the scheme of amalgamation; getting

approval of company Board, financial institution, high court if required; arranging for

the meeting etc.

9. Venture Capital Financing:Financing an emerging high-risk project is called venture capital financing. Many

merchant bankers are entering into this area. The financing is by subscription to the

equity capital, while repayment is by selling the equity through stock market when the

shares are listed.

10.Leasing:Leasing is a viable source of financing while acquiring capital assets. The services

include arrangement for lease finance facilities for leasing companies, legal;

documents and tax consultancy.

11.Non Resident Investment:To attract NRI investments in the primary and secondary markets, the merchant

bankers provide investment advisory services to the NRIs in terms of identification of

investment opportunities, selection of securities, portfolio management, etc. they also

take care of operational details like purchase and sale of securities securing the

necessary clearance from RBI under FERA for repatriation of dividends and interest,

etc.

12.Arranging Offshore Finance:The merchant bankers help their clients in the following areas involving foreign

currency financing:

a.

Financing Of Exports And Importsb. Long Term Foreign Currency Loansc. Joint Ventures Abroadd. Foreign Collaboration Arrangements

13.Management of Fixed Deposits of Companies:Recently, merchants bankers have begun to structure and mobilize fixed deposits for

their corporate clients. They take care of the procedural and legal aspects, and also

mange the collection and subsequent servicing of the deposits. They advice with

regard to the amount to be raised, interest charges, terms of deposits and other related

issues are also offered to the client.

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14.Relief to Sick Industries:The services offered by merchant bankers to sick industries can be summarized as

follows:

a. Assessment of capital requirements and counselling on capital restructuring.b. Appraisal of technological, environmental, financial and other factors causing

sickness.

c. Preparations of programs and packages for rehabilitation of sick units.d. Providing necessary assistance where the rehabilitation package involves

mergers or amalgamation.

e. Obtaining necessary approval for implementation the rehabilitation packagefrom the statutory authorities.

f. Monitoring the implementation of the scheme of rehabilitation.