Merchant Banking In India

· Merchant Banking In India:

The merchant banker are those financial intermediary involved with the activity of transferring capital funds to those borrowers who are interested in borrowing.

The activities of the merchant banking in India is very vast in nature of which includes the following

a) The management of the customers securities

b) The management of the portfolio,

c) The management of projects and counseling as well as appraisal

d) The management of underwriting of shares and debentures

e) The circumvention of the syndication of loans

f) Management of the interest and dividend etc

Factors responsible for the Changes:

1) . Globalization of Indian Economy

It has made the whole economy open, which has more multinational player in the era of the financial services? This has resulted in to the emergence of the global investment in financial sector. Government has now open up the doors of investments especially in the area of banks and insurance, which leads to competitive environment for the present players. Now they have to bring something new which is efficient and best services to live in the competitive environment.

2). Competition arising out of Private Company Participation

It is due to the liberalization of the economy. Now along with the public/government players, private players are also offering financial services and instruments, which are more innovative and different than the earlier offering. All around, there is a fresh thinking on the financial products, structure of banking and insurance instruments with value creation. Financial markets are being redefined, reinvented and reconfigured on a persistent basis.

3). Changing Customer Demographics:

If we look at the all-growing economies like China, Germany and Brazil, India has 35% of the population in the age group of 15years to 34 years. It is estimated that by 130mn plus people get added to working population by 2009 with 55 million families (320 million people) will be added in the middle-income group (0.1 to 0.3 Million Rs). The demographic change leads to the change in the need of the customer.

4).Changing Customer Needs

Customers have larger segment in corporate decision-making they are the final judges of the every single activity offered by the marketer. Banks in India have traditionally offered mass banking products. Financial market has turned into a buyer’s market. Market focus is shifting from mass banking products to class banking with introduction of value added products. Today, financial institutions are co-designing the products/services with their customers and striving to provide them with global solutions

5).Technology Improvements

Technology is also helping market players redefine the way they have been operating in the market. In today’s time it becomes vary easy for a customer to transfer a fund from one location to another location with CLICK of Mouse. Availability of the concepts like phone banking, anytime banking etc. has become possible because of the technological developments only.

6).Government Reforms

Government is major decision player in the financial market. It decides the proportion of the investment limits as well as the regulation and control. In last ten years government is designing its policy with more liberal and competitive content. Which it are welcome trends for the emerging financial services.

7).Heightened focus on customer relation

Banks of the future has to be essentially a marketing organization that also sells banking products. New distribution channels are being used; more & more banks are outsourcing services like disbursement and servicing of consumer loans, Credit card business. Direct Selling Agents (DSAs) of various Banks go out and sell their products. They make house calls to get the application form filled in properly and also take your passport-sized photo.

Revolution in Banking Sector:

Banking in India originated in the first decade of 18th century with the General Bank coming into existence in 1786. Bank of Hindustan followed this. Both these banks are now defunct. The oldest bank in existence in India is the State Bank of India being established as the Bank of Calcutta in Calcutta in June 1806.

In the early 1990s the then Narasimha Rao government embarked on the policy of liberalization and gave license to small number of private banks, which came to be known as new generation tech-savvy banks such as ICICI Bank and HDFC Bank. Currently in 2005, banking in India is considered fairly matured in terms of supply, product range and reach-even though reach in rural India still remains a challenge for the private sector and foreign banks. With the growth of Indian economy expected to be strong for quite some time especially in its service sector, the demand for banking services specially retail banking, mortgage and investment services are expected to be strong.

· The emerging areas in banking services are;

2 in 1 Accounts

Overdrafts (OD)

ATMs

Net Banking

Credit Card

2 in 1 Accounts

2 in 1 accounts are available at many of the foreign and private banks. It amalgamates the features of a savings or a current account and a fixed deposit account. As soon as one opens 2 in 1 accounts with the bank, deposit starts earning a rate of interest higher than that of a plain savings account. The rate of interest can be equivalent to prevailing rates for Fixed Deposit. Customers can choose the sweep option – Term Deposit or Mutual Fund, based on their requirements.

Overdraft [OD]

Overdraft is the agreed amount by which a bank account can be overdrawn. When the amount of money withdrawn from the bank account is greater than the amount actually available in the account the excess is known as the overdraft and the account is said to be overdrawn. If agreed by the bank in advance this is essentially a form of loan facility and there is a particular interest rate attached with the overdrawn amount.

ATMs

Automated Teller Machines has revolutionary’s entire banking sector. Currently there are more than 16000 ATMs in India fulfilling the daily requirement of money to a common man. The story of the humble cash-dispensing machine started around three decades back. Since then they have become common site in metros and semi metro cities. ATM allows a customer to do number of banking functions like withdrawing cash, making balance inquiries, transferring money from one account to another account, request for a Cheque book and statements, Utility Bill Payment – like electricity bills, Credit Card payments etc by using a plastic, magnetic strip card and personal identification number issued by financial institution.

Net Banking

Internet technology has invaded the portal of our banking institutions. No doubt innovation like ATM have considerably put customer at ease in the recent past, but with net banking the customer will be able to transact with the help of the mouse. The services offered enable one to check credit card transactions, paying bills, transferring fund between accounts in two different banks, and scheduling future payments and transfers. A gradual increase in net banking is logical as the need to minimize costs catches attention. A North American Internet Banking survey done by management consultancy Booz Allen & Hamilton in 2000 revealed that the cheapest way of banking is internet banking.

Credit Cards

It is estimated in the year 2004; the total credit card market in the country was at 17 million cards. The credit card industry is growing at 30 – 35 % per annum at present. The size of Indian credit card market is estimated to be around $4bn by end of 2010.

Four banks have now crossed the 2 million card base, with ICICI bank leading the pack at 4 million cards followed by Citi bank at 2.8 million, HDFC bank at 2.2 million and SBI card just over 2 million. Industry average for spends on credit a card two years ago was just around Rs 16,000 per card that has now increased to around 20,000 per card. Rapid Advancement in Technology, Easier access to knowledge and globalization have changed entire banking sector. Because of these factors today customer is sophisticated and well aware about the financial needs.

Leasing Services

The Indian company investors must be acknowledged that lease is that agreement under which the company or Indian firm acquire the exact right and make use of certain capital asset on the consideration of payment of rental charges. The Indian corporate company must equally known that it cannot equally know that it cannot acquire any kind of ownership to such an asset apart from making use of it. The user comparatively pays all the expected operating costs and also the maintenance expenses.

The main corporate companies must equally take into the consideration that developed countries like America, United Kingdom the companies of such a countries are commonly depending on the leasing factor. In India since the era of liberalization, many of the Indian companies have equally been involved in the leasing transactions. On the other side, many financial institutions and even the commercial banks in the Indian financial sector have comparatively been accepted over the same transactions.

Mutual Funds Services

The Indian corporate companies must equally be informed that the mutual funds comprises of the exact funds gained by pooling all the public savings. The mutual funds are comparatively invested in those portfolios, which are commonly diversified in nature with the main objectives of sharing the risk. The Indian small-scale investors cannot be able to get their funds from the comparative big corporate companies can equally gain there working funds from the mutual funds.

Interpretation:-

However, the modern concept of the mutual funds was developed in1968 in London by the foreign and colonial government trust of London. 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. For the Indian mutual funds to have good future there must be full support of SEBI better control of capital issue, better interest rate, good PE ratio, investors must have good choice, tax concessions, and many more.

Hire Purchase Services

In the hire purchase kind of transaction is that method of selling by which goods are left out on hiring by the Indian corporate company to the purchaser by which the hirer is comparatively required to the payment on an agreed sum of amount in the system of periodical installments. In the hire purchase the Indian corporate companies must know that the ownership of such kind of the property exactly remain under the control of the creditor who normally passes the right to hirer on the condition of payment of the last agreed sum of money in installment.

The Indian corporate company must know that legally, payment is made in installment over the agreed specified period, possession of the same right is delivered to the purchaser during the time of agreement, the property passes to the exact purchaser on the agreed last installment, and the hirer has a right to return the property without further installment. In addition to the above, the Indian corporate company must know that the agreement must comparatively contain the nature of the goods as described in manner so that to identify them easily, the nature of the hire purchase price, the date of commencement and finally the extend or number of installments.

Venture Capital Services

The venture capital is that investment in the new Indian enterprises without stability in growth. It’s that environment of capital, shareholding and even the setting up of small firms, which are comparatively specializing, in same new technological ideas in the commercial sectors.

The venture capital is equity participation, it’s of high risk in nature, it’s also available only for commercialization of new technologies and it’s the exact promoter of the projects, and it’s continuous in nature and input of the firm. The Indian corporate companies must equally know that venture capital involves the development of project idea, implementation, fledging or additional financing, and establishment stage.

The main importance of venture capital to Indian, corporate companies are the reduction of risk, easy to analyze the business prospects and to assume the investors on affairs of the business. 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.

The main conditions of factoring that the Indian corporate companies must know are these must be assignment of debt that has to be in favour of the factor. The selling limits for the client, the factor must have recourse to the client in the case of non-payment by the customer; the factor will equally have recourse in case of non-payment, details on payment for the services, interest and limit of any overdraft facility charged. The Indian corporate companies must be well informed about the types of factoring as full service, recourse factoring, maturity, bulk, invoice, agency and also international factoring. At the same time the exact cost of factoring like the pricing, fee, discount, accounting system must be taken into consideration.

Forfeiting

Forfeiting is the French term means “to give something” or “give one’s right”. Generally the term forfeit is non-recourse purchase by the commercial bank or any other financial intermediaries or institutions receivables that equally arises from the export of the goods.

Securitization of Debt Services

The securitization is that process by which the liquidating of the liquid and the long term assets of the Indian corporate companies like the loans and receivables by the issuing marketable securities against the same. However, the Indian corporate companies must know that securitization is that technique by which the exact long term, non-negotiable instruments are equally converted into securities of such kind of small value in nature which can be easily transacted in the commercial capital market.

In India, apart from the above, there is low and unpopularity of securitization due to introduction of it as it’s a new idea or concept to India, heavy stamp duty and comparative registration fees imposed by the Indian government, complicated and also legal transfer procedure the difficulty in the assignment of debts. Also there is poor standard of loan documentation, problem of inadequate credit rating system, poor accounting procedure and lack of comprehensive guidance.

Derivatives

The derivatives are those instruments, which are commonly used to derive therein-exact value of underlying asset of the financial institutional corporate companies. The derivatives comparatively may involve the payment or receipt of the value or income created by the underlying assets. The main factors that are responsible for the slow growth of derivatives in India and high level of misconception of the derivatives, the derivatives lends themselves to leveraging, the nature of the off balance sheet, items, poor accounting system, speculative mechanism and finally poor infrastructure system.

Credit Rating Services

According to Moody’s Rating are designed exclusively for the purpose of grading bonds according to their investments qualities”. Also according to the Australian Ratings “A corporate credit rating provides lenders with a simple system of gradation by which the relative capacity of companies to make timely repayment of interest and principal on a particular type of debt can be noted”.

The main credit ratings in India are credit rating information service ltd (CRISIL), investment information and credit rating agency of India (ICRA), Credit Analysis and Research (CARE), and Duff Phelps Credit Rating Pvt. Ltd (DCR India).

Ranking of Merchant Banking in India:

Merchant Banker

OE

FSS

QPS

QM

INN

ICICI Securities

4.0

4.0

4.2

3.8

4.3

IDBI

4.2

3.2

4.5

4.0

4.8

SBI Caps

4.4.

3.9

4.6.

6.7

5.2

DPS

6.1

5.7

6.0

6.0

5.3

IFCI

6.1

5.7

6.0

6.0

6.3

Bank of Baroda

6.7

6.5

6.7

6.6

6.8

Jardine Fleming

5.8

6.2

5.9

5.0

5.5

JM Finance

6.0

6.5

5.5

5.9

5.4

ENAM

6.3

6.8

6.4

6.3

6.2

PNB Caps

6.8

6.8

6.7

6.8

6.8

Note:

OE: Overall Excellence; FSS: Financial Soundness ; QPS: Quality Product/Service; QM: Quality Management; INN: Innovativeness.

Objectives of Merchant Banking in Prevailing Economy:

* To study the significance of Merchant Banking towards the development of securities industry.

* To analyze issue management regulations.

* To analyze the functions of Merchant Banking in relation to rules and regulations of SEBI.

* To evaluate the performance of Merchant Bankers, both activity performance and operational and financial performance.

* To draw a conclusion and suggestions based on the analysis and experiences

· Comparison of Merchant Banking Services of INDBANK V/S CANARA BANK

About IndBank:-

Indian Bank, established in 1907, is a major Indian Commercial Bank headquartered in Chennai (Madras), India. It has 22,000 employees, 1,657 branches and is one of the big public sector banks of India. It has overseas branches in Colombo, Sri Lanka, Singapore, and 229 correspondent banks in 69 countries. The Government of India nationalized the bank, along with 13 other major commercial banks, on 19 July 1969.

Merchant Banking at INDBANK

Indbank is a Category 1 Merchant Banker registered with Securities Exchange Board of India (SEBI) undertaking assignments

* Under various capacities like Lead Manager, Co-Manager, Advisor, Arranger etc. for public issues, rights issues and private placement.

* For acquisition of shares & takeovers under SEBI (Substantial Acquisition of shares and Takeovers) Regulations, 1997, SEBI (Buyback of Securities) Regulations, 1998 and SEBI (De-listing of Securities) Guidelines, 2003.

* For Employee Stock Option Scheme / Stock Purchase Scheme by Corporates under the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme), Guidelines, 1999.

Advisory Services

* Valuation of shares & other financial instruments

* Syndication of Loans

* Acquisitions

* Mergers & Amalgamations

* Project Counseling, appraisal and feasibility studies.

ABOUT CANARA BANK

Widely known for customer centricity, Canara Bank was founded by Shri Ammembal Subba Rao Pai, a great visionary and philanthropist, in July 1906, at Mangalore, then a small port in Karnataka. The Bank has gone through the various phases of its growth trajectory over hundred years of its existence. Growth of Canara Bank was phenomenal, especially after nationalization in the year 1969, attaining the status of a national level player in terms of geographical reach and clientele segments. Eighties was characterized by business diversification for the Bank. In June 2006, the Bank completed a century of operation in the Indian banking industry. The eventful journey of the Bank has been characterized by several memorable milestones. Today, Canara Bank occupies a premier position in the comity of Indian banks. With an unbroken record of profits since its inception, Canara Bank has several firsts to its credit. These include:

· Launching of Inter-City ATM Network

· Obtaining ISO Certification for a Branch

· Articulation of ‘Good Banking’ – Bank’s Citizen Charter

· Commissioning of Exclusive Mahila Banking Branch

· Launching of Exclusive Subsidiary for IT Consultancy

· Issuing credit card for farmers

· Providing Agricultural Consultancy Services

Merchant Banking Services In Canara Bank

Canara Bank is also one of the leading Merchant Bankers in India, offering specialised services to Banks, PSUs, State owned Corporations, Local Statutory bodies and corporate sector.

We are SEBI registered Category I Merchant Banker / Underwriter to carry on Issue Management (Public / Rights / Private Placement Issues), Underwriting, Consultancy and Corporate Advisory Services etc.

We also hold SEBI registration Certificate to act as “Bankers to an Issue” with network of exclusive Capital Market Service Branches to handle “Capital Market” related assignments.

We undertake “project appraisals” with resource raising plans from Capital Market/ Debt Markets and facilitate tie-ups with Banks / Financial Institutions and Potential Investors.

Our uniqueness is extending services under single window concept covering the following areas:

1. Merchant Banking

2. Commercial Banking

3. Investments

4. Bankers to Issue – Escrow Bankers

5. Underwriting

6. Loan Syndication

As leading Merchant Bankers in India, we have associated with issues ranging from Rs.1 crore to Rs.1500 crores, involving various types of industries, banks, statutory Bodies etc. and have an edge in handling Private Placement issues – both retail & HNIs.

SPECTRUM OF SERVICES :

* Equity Issue (Public/Rights) Management

* Debt Issue Management

* Private Placements

* Project Appraisals

* Monitoring Agency Assignments

* IPO Funding

* Security Trustee Services

* Agriculture Consultancy Services

* Corporate Advisory Services

* Mergers and Acquisitions

* Buy Back Assignments

* Share Valuations

* Syndication

ISSUE MANAGEMENT SERVICES :

* Project Appraisal

* Capital structuring

* Preparation of offer document

* Tie Ups (placement)

* Formalities with SEBI / Stock Exchange / ROC etc.,

* Underwriting

* Promotion /Marketing of Issues

* Collecting Banker / Banker to an issue

* Post Issue Management

* Refund Bankers

* Handling of Dividend Warrant/Interest Warrant Payments

* Debenture Trusteeship

OUR MARKETING EDGE / PRODUCTS TO RETAIL INVESTORS:

We constantly update the list of Potential Investors – Institutions, Provident, Pension & Gratuity Funds, High Net Worth Individuals and others and continuously assess their investment appetites and help issuers in effective marketing of the products.