MERCHANT BANKING

CONTENTS
 Definition
 Origin
 About
 Services
 Scope in India
 Merchant Banking Structure in India
 Main Merchant Banking Companies
 Commercial Banking Vs Merchant Banking
 Merchant Account
 Methods of processing credit cards
 How to start a merchant account
 Required documents
 How to apply for merchant account
 Merchant banker
 Categories of Merchant Bankers
 Qualities of Merchant Bankers
 DEFINITION

A merchant bank is a financial institution

providing capital to companies in the form of
share ownership instead of loans. A merchant
bank also provides advisory on corporate
matters to the firms in which they invest.
 What Is Merchant Banking ?
• Merchant Banking may be defined as an institution
which covers a wide range of activities such as
underwriting of shares, portfolio management,
Project counseling, insurance etc. They all render
these service for a fee. Both commercial and
investment banks may engage in merchant banking
activities.
• The original purpose of merchant banks was to
facilitate and/or finance production and trade of
commodities and hence the name “merchant”.
 Who Is A Merchant Banker?

• A merchant banker is one who is a critical link

between a company raising fund and the investors.
• Merchant banker is one who underwrites corporate
securities and advices on issues like corporate
mergers.
• The merchant banker may be in the form of a bank, a
company, firm or even a proprietary concern.
• Merchant Banker understands the requirements of
the business concern and arranges finance with the
help of financial institutions, banks, stock exchanges
and money market
 ORIGIN
 Merchant Banking started in Italy in the
middle ages.
 Reached in France during 17th century
 In England, Merchant Banking was introduced in
18th century.
 Merchant banking came to India through
Grindlays Bank in 1967 and Citi bank in 1970.
 SBI started the merchant banking division in
1972.
 Later ICICI setup its merchant banking division
followed by Bank of India, Bank of Baroda etc
 SERVICES
 Corporate counselling
 Project counselling
 Working capital finance
 Portfolio management
 Restructuring strategies
 Credit syndication
 Lease financing
 Other services
 Methods of Placements
  Underwriting is insurance for the new securities of the public. It is
one of the methods of marketing securities.
 The other methods are: Prospectus method, where the capital is
raised by this method is very prevalent in India. The distribution
expenses may be substantially saved.
 Offer for sale, where the sales are sold largely to the brokers/issue
houses. The issue house/brokers again sell the shares to the public at a
fixed price. This method saves the company the cost and the trouble of
selling the shares to the public. Here a Third party takes over the
responsibility.
 Private placement, where the funds are raised in the primary market
by selling the security issue to one investor or a small group of investors
without resorting to underwriting. The cost of the issue is minimal. It is
the most effective way of procuring the long term funds. There is no
need to follow the statutory formalities. The offer is made to select a
group of known persons.
 SCOPE IN INDIA
 Growth of new issue market
 Entry of foreign investors
 Changing policy of Financial Institutions
 Development of debt market
 MERCHANT BANKING STRUCTURE IN
INDIA
MERCHANT BANKS

INTERNATIONA
PUBLIC SECTOR PRIVATE SECTOR
L BANKS(10)

COMMERCIAL BANKS (10)

BANKS (24)

FINANCIAL FINANCE AND

INSTITUTION (6) INVESTMENT (231)

STATE INSTITUTIONS (4)

 MAIN MERCHANT BANKING
COMPANIES
PUBLIC SECTOR PRIVATE SECTOR FOREIGN PLAYERS
SBI capital markets ltd. ICICI securities ltd. Goldman Sachs(India)
securities pvt. Ltd.

PNB Axis bank ltd. Morgan Stanley India

company pvt. Ltd.

Bank of Maharashtra Bajaj capital ltd. Barclays securities (Indi)

pvt. Ltd.

Karur Vysya bank ltd. Reliance securities ltd. Bank of America

State Bank of Bikaner and Kotak Mahindra capital Citigroup Global Markets
Jaipur company ltd. India pvt. Ltd.

IFCI financial services ltd. Yes bank ltd. DSP Merril Lynch ltd.
 COMMERCIAL BANKING Vs
MERCHANT BANKING
COMMERCIAL BANKING MERCHANT BANKING

Catering needs of common man Catering needs of corporate firms

Anyone can open an account It cannot be done

Less exposed to risk More exposed to risk

Related to secondary market Related to primary markets

It’s asset oriented It’s management oriented

Plays the role of financers Plays different roles like underwriting,

portfolio etc.
 MERCHANT ACCOUNT

A Merchant Account is a type of bank account

that allows businesses to accept payments in
multiple ways, typically debit or credit cards.
 METHODS OF PROCESSING CREDIT
CARDS
 Credit card terminal
 Automated response unit
 Payment gateway
 Level 2 or 3 processing
 Merchant account marketing
 Marketing by banks
 Marketing by Independent Sales
Organization(ISO)
 HOW TO START A MERCHANT
ACCOUNT
 STEP 1: Research merchant account options from banks
in local area.
 STEP 2: Apply for the merchant account, providing all
necessary documentation and information.
 STEP 3: Submit to the bank a detailed list of the type of
business activities you conduct.
 STEP 4: Show proof of a website to the bank, if you are
conducting business online.
 STEP 5: Pay the application fee and any other required
upfront fees for setting up the merchant account.
 REQUIRED DOCUMENTS
 Business checking account
 Proof of identification
 Social security number or federal employer
identification number
 Detailed statement of business activities
 Tax returns and financial statements for
business
 Website(for online business)
 Secure check out system(for online
business)
 HOW TO APPLY FOR MERCHANT
ACCOUNT
 STEP 1: Check your credit history and rating before
applying for a merchant.
 STEP 2: Apply for an internet merchant account, if you
want to process transactions online.
 STEP 3: Enter your business name, address and phone
numbers.
 STEP 4: Provide your company details.
 STEP 5: List the type of services provided.
 STEP 6: Provide information about yourself as the
business owner.
 STEP 7: Enter references, if required.
 STEP 8: Submit your application to the processor and
await a decision.
 CATEGORIES OF MERCHANT BANKERS
CATEGORY ROLE
CATEGORY 1 •Issue management
•Advisor
•Consultant
•Manager
•Underwriter
•Portfolio manager

CATEGORY 2 •Advisor
•Consultant
•Manager
•Underwriter
•Co-manager

CATEGORY 3 •Underwriter
•Advisor
•Consultant

CATEGORY 4 •Advisor
•Consultant
 Capital Adequacy Norms

A merchant bank will be registered by SEBI in different

categories on the basis of capital adequacy norms in
terms of its “Net worth”.
Category Minimum amount
Category 1 5,00,00,000
Category 2 50,00,000
Category 3 20,00,000
Category 4 NIL
 Registration with SEBI
Application for grant certificate

Information furnishing, clarification and personal

Application consideration

Granting the certificate

Payment of Registration fees

 Registration Fee 
A ‘MB’ has to pay a fee at the time of original registration 
Category I Rs. 10 Lakhs
 Category II Rs. 5 Lakhs
 Category III Rs. 1 Lakh
 Category IV Rs. 5,000
 The certificate of registration granted under regulations
shall be valid for a period of three years from the date of its
issue to the applicant.
 The certificate of renewal granted under regulation 9,
shall be valid for a period of three years from the date of its
issue to the applicant.
 QUALITIES OF MERCHANT BANKERS
 Ability to analyse
 Abundant knowledge
 Ability to build up relationship
 Innovative approach