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Merchant Banking in
      India


Presented by
Rajesh Mandalik
Kumar Gaurav
Pranay Kargaonkar
Abdul Qadir Saify
Pavan Kumar Reddy
Mukesh Sahu
Merchant Banking

The Dictionary of Banking and Finance
defines a merchant bank as “ a bank which
arranges loans to companies, deals in
international finance, buys and sells shares
and launches new companies on the stock
exchange, but does not provide normal
banking services to the general public ”.
Financial services-final-21-jan-09
Bird’s eye view of Merchant Banking :

Merchant Banking is a fee-based service.
It arranges funds rather than providing them.
Originally Merchant Banking business was started in Italy
and France.
Later on, it came into existence in the U.K., and the U.S.A.
In India, it has become popular from 1983-84.
Merchant Banking In India
   The Grindlays Bank initiated the merchant banning
    activity in Indian Capital Market in 1969.


   It’s business forms was on the management of Public
    Issues and Financial Consultancy.


   City Bank introduced its merchant banking division in
    1970.
Functions of Merchant Banking
  Corporate Counseling

  Portfolio Management

  Venture Capital Financing

  Mergers and Amalgamations

  Project Counseling

  Underwriting

                                6
Contd....

      Functions of Merchant Banking
  Export Financing for capital goods

  Hire purchasing

  Equipment leasing

  Investment trust

  Valuation of assets

  Financial management



                                        7
Financial services-final-21-jan-09
Private Investment Bankers




                            Lehman Brothers
                            Merrill Lynch etc.




Bought loans that fall outside the specs of agencies.
Financial services-final-21-jan-09
Who’s to blame?

Borrower:

    Buy a house with 20% down payment to live in and later sell at a profit.
    If this works out well, then …
    Buy a house with 0% down payment to live in and later sell at a bigger
    profit. If this works out well, then …
    Buy two houses with 0% down payment and sell at a profit?

Investors

    Buy a subprime loan and sell at a profit because losses less than
    expected. If this works out well, then …
    Buy risky piece – lower rated tranches – of pool of subprime loans and
    sell at a bigger profit because losses less than expected.
Core Business Portfolio


                               Non-fund
                                Based

 Merchant Banking                                  Advisory and
     Services                                 transaction Services in

 ->Management of                               ->Project Financing.
Public Offers of Equity
and debt Instruments.                           ->Syndicated loans.

   ->Rights issues.                          ->Private Equity/Venture
                                                     Capital.
  ->Buyback Offers.
        Etc.                                 ->Business Advisory. Etc.
Core Business Portfolio




         Fund Base                                   Allied Businesses


                                               ->Asset Management services.
        ->Underwriting.                                --Mutual Funds.
       ->Market making.                           --Portfolio Management
      ->Bought Out Deals.                           --Venture capital etc.
->Trading in Equities, bonds and
           derivatives.                         ->Secondary Market Services.
                                                         --Brooking
                                                     --Equity Research.
. Securities and Exchange Board of India (SEBI) has divided
merchant bankers into four categories, which are as follows: -
Financial services-final-21-jan-09

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Financial services-final-21-jan-09

  • 1. Merchant Banking in India Presented by Rajesh Mandalik Kumar Gaurav Pranay Kargaonkar Abdul Qadir Saify Pavan Kumar Reddy Mukesh Sahu
  • 2. Merchant Banking The Dictionary of Banking and Finance defines a merchant bank as “ a bank which arranges loans to companies, deals in international finance, buys and sells shares and launches new companies on the stock exchange, but does not provide normal banking services to the general public ”.
  • 4. Bird’s eye view of Merchant Banking : Merchant Banking is a fee-based service. It arranges funds rather than providing them. Originally Merchant Banking business was started in Italy and France. Later on, it came into existence in the U.K., and the U.S.A. In India, it has become popular from 1983-84.
  • 5. Merchant Banking In India  The Grindlays Bank initiated the merchant banning activity in Indian Capital Market in 1969.  It’s business forms was on the management of Public Issues and Financial Consultancy.  City Bank introduced its merchant banking division in 1970.
  • 6. Functions of Merchant Banking  Corporate Counseling  Portfolio Management  Venture Capital Financing  Mergers and Amalgamations  Project Counseling  Underwriting 6
  • 7. Contd.... Functions of Merchant Banking  Export Financing for capital goods  Hire purchasing  Equipment leasing  Investment trust  Valuation of assets  Financial management 7
  • 9. Private Investment Bankers Lehman Brothers Merrill Lynch etc. Bought loans that fall outside the specs of agencies.
  • 11. Who’s to blame? Borrower: Buy a house with 20% down payment to live in and later sell at a profit. If this works out well, then … Buy a house with 0% down payment to live in and later sell at a bigger profit. If this works out well, then … Buy two houses with 0% down payment and sell at a profit? Investors Buy a subprime loan and sell at a profit because losses less than expected. If this works out well, then … Buy risky piece – lower rated tranches – of pool of subprime loans and sell at a bigger profit because losses less than expected.
  • 12. Core Business Portfolio Non-fund Based Merchant Banking Advisory and Services transaction Services in ->Management of ->Project Financing. Public Offers of Equity and debt Instruments. ->Syndicated loans. ->Rights issues. ->Private Equity/Venture Capital. ->Buyback Offers. Etc. ->Business Advisory. Etc.
  • 13. Core Business Portfolio Fund Base Allied Businesses ->Asset Management services. ->Underwriting. --Mutual Funds. ->Market making. --Portfolio Management ->Bought Out Deals. --Venture capital etc. ->Trading in Equities, bonds and derivatives. ->Secondary Market Services. --Brooking --Equity Research.
  • 14. . Securities and Exchange Board of India (SEBI) has divided merchant bankers into four categories, which are as follows: -