“A STUDY ON

MERCHANT BANKING
SERVICES WITH
REFERNCE
TO SBI BANK”
 INDEX

CHAPTER NO. CONTENT PAGE NO

1 INTRODUCTION 1-45

2 RESEARCH AND METHODOLOGY 46 -48

3 REVIEW OF LITERATURE 49-51

4 DATA ANALYSIS AND INTERPRETATION 52-64

5 FINDINGS, SUGGESTIONS AND 65-67

CONCLUSION

68-69
6
BIBILOGRAPHY
 ABSTRACT
Merchant banking is a financial institution which provides service to their clients.
Merchant banking provides not only financial services but also guides them to move on right
path with the help of rules given by SEBI. Merchant banking provides share ownership instead
of loans. Merchant banking covers wide range such as portfolio management, customer
services, counselling etc. Merchant banking offer fee-based and non-fee-based services like
loan syndication, underwriting, project promotion, advisory to small and medium savers.
Merchant banking has a long-term approach than investment. This study helps to understand
the concept of merchant banking. This paper shows the linkage between intermediations
function and economic development in India. There should be collaboration between financial
institution and finance company to built a financial system in India. This study helps to
understand the prime objective, functions, role in the market and recent development in
merchant banking.
 CHAPTER 1
INTRODUCTION
 INTRODUCTION
A merchant bank is a company that conducts underwriting, loan services, financial
advising, and fundraising services for large corporations and high net worth individuals.

Unlike retail or commercial banks, merchant banks do not provide services to the
general public. They do not provide regular banking services like checking accounts and
do not take deposits. These banks are experts in international trade, which makes
them specialists in dealing with multinational corporations. Some of the largest merchant
banks in the world include J.P. Morgan, Goldman Sachs, and Citigroup. The dictionary
meaning of merchant banking refers to activities related to underwriting, corporate
securities and advisory services undertaken by an organisation this literally meaning
represents part of the merchant banking activities provided by merchant bankers in
the country. at present merchant banking deals with management of public issue, loan
syndication, project counselling, corporate counselling, portfolio management,
investment counselling, arranging international finance, mergers and amalgamation,
consultancy to stick units, and management by in and Buy-out. Merchant bank can be
generally described as, a financial service company with a private equity investment and
offering investment banking and ancillary services as well, because a merchant bank at
not on the end advisor and broker but also as a principal. A merchant bank has longer
term approach than a typical investment bank and his highly concern with the viability
of each investment opportunity and providing the right advice for a strong partnership
with each client company. In banking merchant bank is a traditional term for and
investment bank; it can also be used to describe the private equity activities of banking.

Merchant banking is the direct, negotiated investment of private money into

privately or publicly held companies by financial institutions or professional investors.
The investors make private placements of equity and, in return, receive private stock that
is not registered with financial regulators for trading on an exchange. In a way, they are
becoming financial partners of the companies. Merchant banking has been statutorily
brought within the framework of the "Securities and Exchange Board of India".

1
DEFINITION

The first authoritative definition for the term „Merchant Banker has been given in
the Rule 2 (e) of SEBI (Merchant Bankers) Rules, 1922. Accordingly,

“A Merchant Banker means any person who is engaged in the business of Issue
Management either by making arrangements regarding selling, buying or subscribing to
Securities as Manager, Consultant, Adviser of rendering Corporate Advisory Service in
relation to such Issue Management”.

Sec/5 (b) of the Banking Regulation Act, 1949 defines Banking as,

“Accepting, for the purpose of lending or investment of deposits of money from the
public, repayable on demand or otherwise and withdrawal by cheque, draft, order or
otherwise”.

The Notification of the Ministry of Finance defines a merchant banker as,

“any person who is engaged in the business of issue management either by making
arrangements regarding selling, buying or subscribing to the securities as manager,
consult, adviser or rendering corporate advisory service in relation to such issue
management”.

According to random house dictionary, “merchant bank is an organization that

underwrite securities for corporations’ advices search clients on mergers and it’s involved
in the ownership of commercial Ventures this organizations are sometimes banks which
are not merchant and sometimes merchant who are not banks and sometimes houses
which are neither merchants nor banks”

According to Charles p. kindle Berger, “merchant banking is the development of

banking from commerce which frequently encountered prolonged intermediate stage
known in England original as merchant banking”

2
 ORIGIN OF MERCHANT BANKING

The origin of merchant banking can be traced back to 13th century when a few families
owned and managed. Firms engaged in sale and purchases of commodities were also
found to be engaged in banking activity. These firms not only acted as bankers to the
kings of European States, financed coastal trade but also borne exchange risk.

In order to earn profits, they invested their funds where they expected higher returns
despite high degree of risk involved. They charged very high rates of interest for
financing highly risky projects. In turn, they suffered heavy losses and had to close down.
Some of them restarted the same activity after gaining financial strength. Thus, merchant
Banking survived and continued during the 13th century. Later, merchant Bankers were
known as “commission agents” who handled the coastal trade on commission basis and
provided finance to the owners or supplier of goods. They made investments in goods
manufactured by sellers and made huge profits. They also maximization by making
investments in risky projects. Then came the industrial revolution in England. The scope
of international trade widened to include North America and other continents. Many
people were attracted to take up merchant banking activities to transfer the machinemade
goods from European nations to other nations and colonies and bringing raw material
from other nations and colonies to Europe and to finance such trade. During the early
nineteenth century, merchants indulged in overseas trade and earned good reputation.
They accepted bills of the lesser reputed traders by guaranteeing the holder to receive full
payment on due date. This practice of accepting bills has grown over the years with
expansion in trade and has become part of the merchant banking activity.

3
 MERCHANT BANKING HISTORY

In late 17th and early 18th century Europe, the largest companies of the world were
merchant adventures. Supported by wealthy groups of people and a network of overseas.
Trading post, the collected large amount of money of finance trade across part of the
word. For example, The East India trading company secured a Royal Warrant from
England, providing the firm with official eights to lucrative trading activities in India.

This company was the forerunner in developing the crown jewel of the English Empire.
The English colony was starting by what we would today call merchant banker, because
of the firm involvement in financing, negotiating, and implementing trade transactions.
The colonies of other European countries were started in the same manner. For example,
the Dutch merchant adventurers were active in what are now Indonesia; the French and
Portuguese acted similarly in their respective colonies. The American colonies also
represent the product of merchant banking, as evidenced by the activities of the famous
Hudson Bay Company.one does not typically look at these countries and their progress
stem from the business of merchant banks, according to todays accepted sense of the
word.

Merchant banks, now so called, are in fact the original “Banks”. These were invented in
the middle ages by Italian grain merchants. As the Lombardy merchant and bankers grew
in stature on the back of the Lombard plains cereal crops many of the displaced Jews who
had fled persecution after 613 entered the trade. They brought with them to the grains
trade ancient practices that had grown to normalcy in the middle and far east, along the
silk Road, for the finance of long-distance goods trades.

The Jews could not hold land in Italy, so they entered the great trading piazzas and halls
of Lombardy, alongside the side the local traders, and set up their benches to trade in
crop. They had one greats advantage over the locals.

4
Christians were strictly forbidden the sin of usury. The Jewish newcomers, on the other
hand, could lend to farmers against crops in the field a high-risk loan at what would have
been considered usurious rates by the church, but did not bind the Jews. In this way they
could secure the grain sale rights against the eventual harvest. They then began to advance
against the delivery of grain shipped to distant ports. In both cases they made their profit
from the present discount against the future prices. This two-handed trade was time
consuming and soon there arose a class of merchant, who were trading grains debt instead
of grain.

TRADITIONAL MERCHANT BANKING

Merchant banking as the term has evolved in Europe from the 18th century to today
pertained to an individual or a banking house whose primary function was to facilitate
the business process between a product and the financial requirement for its development.
Merchant banking service span from the earliest negotiations from a transaction to its
actual consummation between and seller.

In particular, the merchant banker acted as a capital sources whose primary activity was
directed towards a commodity trader/cargo owner who was involved in the buying,
selling and shipping of goods. The role of the merchant banker, who had the expertise to
understand a particular transaction, was to arrange the necessary capital and ensure that
the transaction would ultimately produce “collectable” profits. Often, the merchant
banker also become involved in the actual negotiations between a buyer and seller in a
transaction.

5
WHO ARE MERCHANT BANKERS?

➢ Merchant banks are private financial institution.

➢ Their primary sources of income PIPE (private investment in public entities)
financial market speculation.
➢ Because they do not invest against collateral, they take far greater risks than
traditional banks.
➢ Because they are private, do not take money from the public and are international
in scope, they are not regulated.
➢ Anyone considering dealing with any merchant bank should investigate the bank
and its managers before their help.
➢ The reason that business should develop a working relationship with a merchant
bank is that they have more money than venture capitalists. Their advice tends to
be more pragmatic than venture capitalists.

FUNCTION OF MERCHANT BANKERS

➢ Consulting advice on going and international business.

➢ Advice and help in taking your company public. If they are unwilling to supply
investment banking bridge loans, they have a low-cost strategy for taking your
company public.
➢ They do PIPE (Private Investment in Public Equities.
➢ They can advise or help with a company M&A strategy.
➢ They are essential advice for companies seeking to become multinational
corporations.

6
 MERCHANT BANKING IN INDIA

Merchant banking services strengthen the economic development of a country as they act
as sources of funds and information for corporations. Considering the way, the Indian
economy is growing, the role of merchant banking services in India is indispensable.
These financial institutes also act as corporate advisory bodies to help corporations
rightly get involved in various financial activities.

Merchant banks serve a dual role within the financial sector. Through deposits or sales
of securities they obtain funds for lending to their clients (SEBI) forbids lending by
them): a function similar to most institutions. Their other role is to act as agents in return
for fee. SEBI envisages a mandatory role for merchant banks in exercising due diligence
apart from issue management, in buy-backs and public offer in takeover bids. Their
underwriting and corporate financial services are all fees rather than fund based and their
significance is not reflected in their total assets of the industry. SEBI has been pressing
for merchant banks to be primarily fee-based institutions.

According to the Ministry of Finance in India, a merchant banker is a person or body

engaged in selling, buying and subscribing to securities or in advising the corporations
on issue management. To learn more about the merchant banking setup in India, you
should go through the following discussion.

7
 INDIAN MERCHANT BANKING
The formal beginning of the merchant banking services in India began in 1967 when the
Reserve Bank of India provided license to the Grind lays Bank. The Grind lays Bank was
engaged in capital issue management and it provided diverse financial services to the
emerging section of entrepreneurs, especially those belonging to the small and medium
enterprise sector.

Citibank started the merchant banking services in 1970 and the State Bank of India
followed the same in 1972. After few years, the national merchant banks started
collaborating with their counterparts in different countries to start their merchant banking
divisions abroad.

After that there were many banks which set up the merchant bank division such as;

• ICICI

• Bank of India

• Bank of Baroda

• Canara Bank

The Merchant Bank got more importance in the year 1983 when there was a huge boom
in the primary market where the companies were going for new issue. Merchant banking
activities are organized and undertaken in several forms. Commercial banks and foreign
development finance institutions have organized them through formation
divisions, nationalized banks have formed subsidiary companies, share brokers and
consultancies constituted themselves into public limited companies or registered
themselves as private limited Companies. Some merchant banking companies have
entered into collaboration with merchant bankers of foreign countries abroad with several
branches.

8
 ORGANIZATIONAL SETUP / TYPES OF MERCHANT
BANKING ORGANIZATION IN INDIA
In India a common organizational set up of merchant bankers to operate is in the form of
divisions of Indian and Foreign banks and Financial institutions, subsidiary companies
established by bankers like SBI, Canada Bank, Punjab National Bank, Bank of India, etc.

Some firms are also organized by financial and technical consultants and professionals.
Securities and exchanges Board of India (SEBI) has divided the merchant bankers into
four categories based on their capital adequacy. Each category is authorized to perform
certain functions. From the point of Organizational set up India’s merchant banking
organizations can be categorized into 4 groups on the basis of their linkage with parent
activity. They are:

a) Institutional Base

Where merchant banks function as an independent wing or as subsidiary of various

Private/ Central Governments/State Governments Financial institutions. Most of the
financial institutions in India are in public sector and therefore such set up plays a role
on the lines of governmental priorities and policies.

b) Banker Base

These merchant bankers’ function as division/ subsidiary of banking organization. The

parent banks are either nationalized commercial banks or the foreign banks operating in
India. These organizations have brought professionalism in merchant banking sector and
they help their parent organization to make a presence in capital market.

c) Broker Base

In the recent past there has been an inflow of Qualified and professionally skilled brokers
in various Stock Exchanges of India. These brokers undertake merchant baking related
operating also like providing investment and portfolio management services.

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d) Private Base

These merchant banking firms are originated in private sectors. These organizations are
the outcome of opportunities and scope in merchant banking business and they are
providing skill oriented specialized services to their clients. Some foreign merchant
bankers are also entering either independently or through some collaboration with their
Indian counterparts. Private Sectors merchant banking firms have come up either as sole
proprietorship, partnership, private limited or public limited companies. Many of these
firms were in existence for quite some time before they added a new activity in the form
of merchant banking services by opening new division on the lines of commercial banks
and All India Financial Institution (AIFI).

CLASSIFICATION MERCHANT BANKING IN INDIA

Merchant Banking Divisions

Financial Private Merchant

Indian Banks Foreign Banks
Institutions Bank

Subsidiary Division in Bank

10
 MERCHANT BANKERS IN INDIA

As of now there are 135 Merchant bankers who are registered with SEBI in India. It
includes Public Sector, Private Sector and foreign players some of them are

Public Sector Merchant Bankers

❖ SBI capital markets ltd

❖ Bank of Maharashtra
❖ IFCI financial services ltd
❖ Karur Vysya bank ltd
❖ State Bank of Bikaner and Jaipur

Private Sector Merchant Bankers

❖ ICICI Securities Ltd

❖ Axis Bank Ltd (Formerly UTI Bank Ltd.)
❖ Bajaj Capital Ltd
❖ Tata Capital Markets Ltd
❖ ICICI Bank Ltd
❖ Reliance Securities Limited ❖ Kotak Mahindra Capital Company Ltd ❖
Yes Bank Ltd.

Foreign Players in Merchant Banking

❖ Goldman Sachs (India) Securities Pt. Ltd.

❖ Morgan Stanley India Company Pt. Ltd
❖ Barclays Securities (India) Pt. Ltd
❖ Bank of America, N.A
❖ Deutsche Bank
❖ Deutsche Equities India Private Limited
❖ Barclays Bank Plc
❖ Citigroup Global Markets India Pt. Ltd.
❖ DSP Merrill Lynch Ltd ❖ FEDEX Securities Ltd.

ORGANIZATION OF MERCHANT BANKING UNITS

The structure of organization of Merchant banks reveals certain similar characteristics

11
 ➢ A high proportion of professional to total staff;
➢ A substantial delegation of decision making;
➢ A short chain of command;
➢ Rapid decision making;
➢ Flexible organisation structure;
➢ Innovative approaches to problem solving; ➢ High level of financial
sophistication.

In the words of Skull, a merchant bank could be best defined as a financial institution
conducting money market activities and lending, underwriting and financial advice, and
investment services whose organization is characterised by a high proportion of
professional staff able to approach problems in an innovative manner and to make and
implement decisions rapidly.

Merchant banking activities are regulated by the following

❖ Guidelines of SEBI and Ministry of Finance,

❖ Companies Act, 1956 and
❖ Listing Guidelines of Stock Exchange and
❖ Securities contracts (Regulation) Act, 1956.

Functions of Merchant Banking Organizations

• Distribution of securities like equity shares, mutual funds, insurance

products and so on.
• Providing assistance to the enterprises to raise funds from the market.
• Loan syndication for the clients is another important function performed by
these organizations.
• Corporate advisory and project advisory services are other important
merchant banking services offered by these organizations.

IMPORTANCE OF MERCHANT BANKING IN INDIA

The need of merchant banking services in India arises from the fact that high level
industrialization is taking place in the country. So, there is need for skilled professionals

12
who can take care of various finance-related needs of the advanced industrial sectors.
These specialist services are also of great importance for the small and medium sized
enterprises to help them operate smoothly.

Most of the rural areas still lack industrial advancement and the main reasons for this
include lack of funds and information. The merchant banking services help the
entrepreneurs to come up with industrial setups in these areas. Besides, the merchant
banks help the entrepreneurs to explore the joint venture opportunities in the foreign
markets.

The above discussion highlights the ways merchant banks are promoting
industrial development in India. The government in the country plays a significant role
by issuing rules and regulations for merchant banks so that entrepreneurs can make most
out of these services.

Needs of Merchant Banking in India

Important reasons for the growth of merchant banks have been development activities
throughout the country, exerting excess demand on the sources of fund for ever
expanding industries and trade, thus leaving a widening gap unabridged between the
supply and demand of invisible funds. All financial institutions had experienced constrain
of resources to meet ever increasing demands for demands for funds frame corporate
sector enterprises. In such circumstances corporate sector had the only alternative to
avail of the capital market service for meeting their long-term financial requirement
through capital issue of equity shares and debentures. Growing demand for funds put
pressure on capital market that enthused commercial banks, share brokers and financial
consultancy firms to enter into the field of c merchant banking and share the growing
capital market. As a result, all the commercial banks in nationalized and public sector as
well as in private sector including foreign banks in India have opened their merchant
banking windows and in this field.

Need for merchant banking is felt in the wake of huge public saving lying untapped.
Merchant banker can play highly significant role in mobilizing funds of savers to
invisible channels assuring promising returns on investment and thus can assist in
meeting the widening demand for invisible funds for economic activity. With growth

13
of merchant banking profession corporate enterprises in both private sectors would be
able to raise required amount of funds annually from the capital market to meet the
growing requirement for funds for establishing new enterprises, undertaking
expansion, modernization and diversification of the existing enterprises. This reinforces
the need for a vigorous role to be played by merchant banking.

In view of multitude of enactment, rules and regulation, gridlines and offshoot press
release instructions brought out the government from time to time imposing statutory
obligations upon the corporate sector to comply with those entire requirements prescribed
there in the need of a skilled agency existed which could provide counselling in these
matters in a package form. A merchant banker with their skills updated information and
knowledge provide this service to the corporate units and advise them on such
requirement to be complied with for raising funds from the capital market under different
enactment viz. companies act, income tax act, foreign exchange regulation act, securities
contracts corporate laws and regulations. Merchant bank advice the investors of the
incentives available in the form of tax relief, other statutory relaxation, good return
on investment and capital appreciation in such investment to motivate them to invest
their savings securities of the corporate sector. Thus, merchant banks help industries and
trade to rise and the investors to invest their saved money in sound and healthy
concern with confidence, safety and expectation for higher yields. Finance is the
backbone of business activities. Merchant banker make available finance for business
enterprises acting as intermediaries between them raising demand for funds and the
supplies of funds besides rendering various other services.

The following are some of the reasons why specialist merchant bank has a crucial role to
Play in India.

➢ Growing complexity in rules and procedures of the government.

14
 ➢ Growing industrialization and increase of technologically advanced
industries.
➢ Need for encouragement of small and medium industrialists, who require
specialist services.
➢ Need to develop backward areas and states which require different criteria.
➢ Exploring the possibility of joint ventures abroad and foreign market.
➢ Promoting the role of new issue market in mobilizing saving from.

Where merchant banks function as an independent wing or as subsidiary of various

private/central governments/ state government financial institution. Most of the financial
institution in India is in public sector and therefore such setup plays a role on the lines of
governmental priorities and policies.

SEBI Regulations on Merchant Bankers

SEBI has brought about effective regulative measures for the purpose of disciplining the
functioning of the merchant bankers in India. The objective is to ensure an era of
regulated financial markets and thus streamline the development of the capital market in
India. The measures were introduced by the SEBI in the year 1992. The measures were
revised by SEBI in 1997. The salient features of the regulative framework of merchant
banking in India are discussed below.

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Application for Grant of Certificate

An application by a person for grant of a certificate shall be made to the Board in Form
A. The application shall be made for any one of the following categories of the merchant
banker namely:

1. Category I- To carry on any activity of the issue management, which will interiliac
consist of preparation of prospectus and other information relating to the issue,
determining financial structure, tie-up of financiers and final allotment and refund of
the subscription; and to act as adviser, consultant, manager, underwriter, portfolio
manager.

2. Category II- To act as adviser, consultant, co-manager, underwriter, portfolio

manager.

3. Category III- To act as underwriter, adviser, consultant to an issue.

4. Category IV- To act only as adviser or consultant to an issue.

5. With effect from 9th December, 1997, an application can be made only for carrying
on the activities mentioned in category I. An applicant can carry on the activity as
underwriter only if he contains separate certificate of registration under the provisions
of Securities and Exchange Board of India (Underwriters) Regulations, 1993, and as
portfolio manager only if he obtains separate certificate of registration under the
provisions of Securities and Exchange Board of India (Portfolio Manager)
Regulations, 1993.

Conformance to Requirements

Subject to the provisions of the regulations, any application, which not complete in all
respects and does not conform to the instructions specified in the form, shall be rejected.

However, before rejecting any such application, the applicant will be given an
opportunity to remove within the time specified such objections and may be indicated by
the board.

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Furnishing of Information

The Board may require the applicant to furnish further information or clarification
regarding matter relevant to the activity of a merchant banker for the purpose of disposal
of the application. The applicant or its principal officer shall, if so required, appear before
the Board for personal representation.

Consideration of Application

The Board shall take into account for considering the grant of a certificate, all matters,
which are relevant to the activities relating to merchant banker and in particular whether
the applicant complies with the following requirements;

1. That the applicant shall be a body corporate other than a non-banking financial
company as defined by the Reserve Bank of India Act, 1934

2. That the merchant banker who has been granted registration by the Reserve Bank of
India to act as Primary or Satellite Dealer may carry on such activity subject to the
condition that it shall not accept or hold public deposit.

3. That the applicant has the necessary infrastructure like adequate office space,
equipment’s, and manpower to effectively discharge his activities.

4. That the applicant has in his employment minimum of two persons who have the
Experience to conduct the business of the merchant banker.

5. That a person (any person being an associate, subsidiary, inter-connected or group

Company of the applicant in case of the applicant being a body corporate) directly or
indirectly connected with the applicant has not been granted registration by the Board.

6. That the applicant fulfils the capital adequacy as specified.

7. That the applicant, his director, partner or principal officer has not at any time been
convicted for any offence involving moral turpitude or has been found guilty of any
economic offence.

8. That the applicant has the professional qualification from an institution recognized
by the Government in finance, law or business management.

17
9. That the applicant is a fit and proper person.

10. That the grant of certificate to the applicant is in the interest of investors.

Capital Adequacy Requirement

According to the regulations, the capital adequacy requirement shall not be less than the
net worth of the person making the application for grant of registration. For this purpose,
the net worth shall be as follows:

Category Minimum Amount

➢ Category I Rs.5,00,00,000
➢ Category II Rs.50,00,000
➢ Category III Rs.20,00,000
➢ Category IV Nil

Partnership firm or a body corporate, the value of the capital contributed to the business
of such firm or the paid-up capital of such body corporate plus free reserves as the case
may be at the time of making application.

Procedure for Registration

The Board on being satisfied that the applicant is eligible shall grant a certificate in Form
B. On the grant of a certificate the applicant shall be liable to pay the fees in accordance
with Schedule II.

Renewal of Certificate

Three months before expiry of the period of certificate, the merchant banker, may if he
so desired, make an application for renewal in Form A. The application for renewal shall
be dealt with in the same manner as if it were a fresh application for grant of a certificate.
In case of an application for renewal of certificate of registration, the provisions of clause
(a) of regulation 6 shall not be applicable up to June 30th, 1998. The Board on being
satisfied that the applicant is eligible for renewal of certificate shall grant a certificate in
form B and send intimation to the applicant. On the grant of a certificate the applicant
shall be liable to pay the fees in accordance with Schedule II.

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Procedure where Registration is not Granted

Where an application for grant of a certificate under regulation 3 or of renewal under

regulation 9, does not satisfy the criteria set out in regulation 6, the Board may reject the
application after giving an opportunity of being heard. The refusal to grant registration
shall be communicated by the Board within thirty days of such refusal to the applicant
stating there in the grounds on which the application has been rejected. Any applicant
may, being aggrieved by the decision of the Board, under sub regulation: -

• Apply within a period of thirty days from the date of receipt of such intimation to
the Board for reconsideration for its decision.

• The board shall reconsider an application made under sub-regulation.

• Communicate its decision as soon as possible in writing to the applicant.

Effect of Refusal to Grant Certificate

Any merchant banker whose application for a certificate has been refused by the Board
shall on and from the date of the receipt of the communication under sub-regulation
Regulation 10 ceases to carry on any activity as merchant banker.

Payment of Fees

Every applicant eligible for grant of a certificate shall pay such fees in such manner and
within the period specified in Schedule II. Where a merchant banker fails to any annual
fees as provided in sub-regulation (1), read with Schedule II, the Board may suspend the
registration certificate, whereupon the merchant banker shall cease to carry on any
activity as a merchant banker for the period during which the suspension subsists.

Guidelines for the Merchant Bankers

All merchant bankers should have qualification in finance, law or business management;

➢ They should have adequate office space, equipment and manpower;

➢ At least 2 merchant bank operations qualified persons to be appointed;
➢ A merchant banker should be fair in all transactions;
➢ SEBI will supervise the activities of merchant bankers.

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 ➢ SEBI has laid responsibility on merchant banks for the true disclosures and
factual statements made on the prospectus and the authenticity of such statements;

➢ SEBI has the power to suspend or cancel the authorization of merchant bankers
in case of any violation of the guidelines;
➢ Merchant bankers are required to send quarterly reports on the public issue and
rights issue on hand, the names of the companies, size of the issue, and other
details;
➢ Merchant bankers should abide by the code of conduct prescribed by SEBI;
➢ For the issue over Rs. 100 crores, the number of BRLMs should be 4 to 5;
➢ Merchant bankers should make an agreement with corporate bodies about their
mutual rights, liabilities and obligations etc.

Fees

Every merchant banker shall pay a sum of Rupees five lacs as registration fees at the time
of the grant of certificate by the Board. The fee shall be paid by the merchant a banker
within fifteen days from the date of receipt of the intimation from the Board under sub
regulation. Every Merchant banker shall pay registration fees as set out below:

1. Category I merchant banker; A sum of Rs. 2.5 lakhs to be paid annually for the
first two years commencing from the date of initial registration and thereafter for the third
year a sum of Rs. 1 lakh to keep his registration in force.

2. Category II merchant banker; A sum of Rs. 1.5 lakhs to be paid annually for the
first two years commencing from the date of initial registration and thereafter for the third
year a sum of Rs. 50,000 to keep his registration in force.

3. Category III merchant bankers; A sum of Rs.1 lakh to be paid annually for the
first years commencing from the date of initial registration and thereafter for the third
year a sum of Rs.25,000 to keep his registration in force.

4. Category IV merchant bankers; A sum of Rs.5,000/- to be paid annually for the

first two years commencing from the date of initial registration and thereafter for the third
year a sum of Rs.1000/- to keep his registration in force.

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Renewal Fees

Category I merchant bankers: A sum of Rs.1 lakh to be paid annually for the first two
years commencing from the date of each renewal and thereafter for the third year a sum
of Rs.20,000/- to keep his registration in force;

Category II merchant bankers: A sum of Rs.75,000/- to be paid annually for the first
two years commencing from the date of each renewal and thereafter for the third year a
sum of Rs.10,000/- to keep his registration in force;

Category III merchant bankers: A sum of s.50,000/ to be paid annually for the first
two years commencing from the date of each renewal and thereafter for the third year a
sum of Rs.5,000/- to keep his registration in force;

Category IV merchant bankers: A sum of Rs.5,000/- to be paid annually for the first
two years commencing from the date of each renewal and thereafter for the third year a
sum of Rs.2,500/- to keep his registration in force;

CODE OF CONDUCT FOR MERCHANT BANKERS

The SEBI regulations have outlined the following code of conduct for the merchant
banker’s operation in India;

• A merchant banker shall make all efforts to protect the interests of investors.

• A Merchant Banker shall fulfil its obligations in a prompt, ethical, and

professional manner.

• A Merchant Banker shall at all times exercise due diligence, ensure proper care
and exercise independent professional judgment.

• A Merchant Banker shall Endeavour to ensure that enquiries from the investors
are adequately dealt with, grievances of investors are redressed in a timely and
appropriate manner, where a complaint is not remedied promptly, the investor is
advised of any further steps which may be available to the investor under the
regulatory system.

21
• A Merchant Banker shall ensure that adequate disclosures are made to the
investors in a timely manner in accordance with the applicable regulations and
guidelines so as to enable them to make a balanced and informed decision.

• A Merchant Banker shall endeavour to ensure that the investors are provided with
true and adequate information without making any misleading or
exaggerated claims or any misrepresentation and are made aware of the
attendant risks before taking any investment decision.

• A Merchant Banker shall endeavour to ensure that copies of the prospectus, offer
document, letter of offer or any other related literature is made available to the
investors at the time of issue of the offer.

• A Merchant Banker shall not make any statement, either oral or written, which
would misrepresent the services that the Merchant Banker is capable of
performing for any client or has rendered to any client.

• A Merchant Banker shall put in place a mechanism to resolve any conflict-

ofinterest situation that may arise in the conduct of its business or where any
conflict of interest arises, shall take reasonable steps to resolve the same in an
equitable manner.

• Merchant Banker shall make appropriate disclosure to the client of its possible
source or potential areas of conflict of duties and interest while acting as Merchant
Banker which would impair its ability to render fair, objective and unbiased
services.

• A Merchant Banker shall always endeavour to render the best possible advice to
the clients having regard to their needs.

• A Merchant Banker shall have internal control procedures and financial and
operational capabilities which can be reasonably expected to protect its
operations, its clients, investors and other registered entities from financial loss
arising from theft, fraud, and other dishonest acts, professional misconduct or
omissions

• A Merchant Banker shall not make untrue statement or suppress any material fact
in any documents, reports or information furnished to the Board.

22
• A Merchant Bankers shall maintain an appropriate level of knowledge and
competence and which may be applicable and relevant to the activities carried on
by it. The merchant banker shall also comply with the award of the Ombudsman
passed under Securities and Exchange Board of India (Ombudsman) Regulations,
2003.

• A Merchant Banker shall ensure that the Board is promptly informed about any
action, legal proceedings etc., initiated against it in respect of material breach or
non-compliance by it, of any law, rules, regulations, directions of the Board or of
any other regulatory body.

• A Merchant Banker or any of its employers shall not render, directly or indirectly,
any investment advice about any security in any publicly accessible media,
whether real-time, unless a disclosure of his interest including a long or short
position, in the said security has been made, while rendering such advice.

• A Merchant Banker shall demarcate the responsibilities of the various

intermediaries appointed by it clearly so as to avoid any conflict or confusion in
their job description.

• A Merchant Banker shall provide adequate freedom and powers to its compliance
officer for the effective discharge of the compliance officers duties.

• A Merchant Banker shall develop its own internal code of conduct for governing
its internal operations and laying down its standards of appropriate conduct for its
employees and officers in carrying out their duties. Such a code may extend
to the maintenance of professional excellence and standards, integrity,
confidentiality, objectivity, avoidance or resolution of conflict of interests,
disclosure of shareholdings and interests etc

• A Merchant Banker shall ensure that good corporate policies and corporate
governance are in place.

• A Merchant Banker shall ensure that any person it employs or appoints to conduct
business is fit and proper and otherwise qualified to act in the capacity so
employed or appointed

23
 • A Merchant Banker shall ensure that the senior management, particularly decision
makers have access to all relevant information about the business on a timely
basis.

• A Merchant Banker shall not be a party to or instrumental for creation of false

market; price rigging or manipulation; or passing of unpublished price sensitive
information in respect of securities which are listed and proposed to be listed in
any stock exchange to any person or intermediary in the securities market.

Services Provided by Merchant Banks

Below mentioned are the major services offered by Merchant Bankers;

• Project Counselling

• Management of debt and equity offerings

• Issue Management

• Managers, Consultants or Advisers to the Issue

• Underwriting of Public Issue

• Portfolio Management

• Restructuring strategies

• Off Shore Finance

• Non-resident Investment

• Loan Syndication

• Corporate Counselling and advisory services

• Placement and distribution

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1) Project Counselling

Project counselling comprises 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 and banks. It also includes filling up of application forms with
significant information for obtaining funds from financial institutions and obtaining
government approval.

2) Management of Debt and Equity offerings

This is the major function of the merchant banker. They assist the companies in raise
funds from the market. The main areas of work in this regard include;

• Instrument designing

• Pricing the issue

• Registration of the offer document

• Underwriting support

• Marketing of the issue

• Allotment and refund

• Listing on stock exchanges.

3) Issue Management

Management of issue involves marketing of corporate securities like equity shares,

preference shares and debentures or bonds by offering them too public. Merchant banks
act as an intermediary to transfer capital from those who own it to those who need it.
After taking action as per SEBI guidelines, the merchant banker organizes a meeting with
company representatives and advertising agents to finalize arrangements relating to date
of opening and closing of issue, registration of prospectus, launching publicity campaign
and fixing date of board meeting to approve and sign prospectus and pass the necessary
resolutions. Pricing of issues is done by the companies in consultant with the merchant
bankers.

25
4) Design of Capital Structure

Capital Structure of a firm has to be distinguished from financial structure. Capital

structure is financed by long term sources which consist of debt and equity. On the other
hand, a financial structure which includes all forms debt and equity covers all financial
resources. These include short term as well as long–term sources.

5) Managers, Consultants or Advisers to the Issue

The managers to the issue assist in the drafting of prospectus, application forms and
completion of formalities under the Companies Act, appointment of Registrar for dealing
with share applications and transfer and listing of shares of the company on the stock
exchange. Companies can appoint one or more agencies as managers to the issue.

6) Underwriting of Public Issue

Underwriting is a guarantee given by the underwriter that in the occurrence of under

subscription, the amount underwritten would be subscribed by him. Banks/Merchant
banking institutions cannot underwrite more than 15% of any issue.

7) Portfolio Management

Portfolio indicates investment in different types of securities such as shares, debentures

or bonds issued by different companies. Portfolio management means maintaining
proper combinations of securities in a move that they give maximum return with
minimum risk.

8) Restructuring Strategies

A merger is a blending of two companies into a single company where one survives and
other loses its corporate existence. A takeover is the purchase by one company obtaining
controlling interest in the share capital of another existing company. Merchant bankers
act as the middlemen in setting negotiation between the two companies. Merchant
bankers assist the management of the client company to successfully restructure various
activities such as mergers and acquisitions, divestitures, management buyouts, joint
venture among others.

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9) Off Shore Finance

The merchant bankers help their clients in the following areas involving foreign currency.

• Long term foreign currency loans

• Joint Ventures abroad

• Financing exports and imports

• Foreign collaboration arrangements

10) Non-Resident Investment

The services of merchant banker include investment advisory services to NRI in terms of
classification of investment opportunities, selection of securities, investment
management, and operational services like purchase and sale of securities.

11) Loan Syndication

Loan syndication is an assistance provided by merchant bankers to get mainly term loans
for projects. Such loans may be obtained from a single development finance institution
or a syndicate or consortium. Merchant bankers help corporate clients to raise syndicated
loans from banks and other financial institutions.

12) Corporate Counselling and Advisory Services

Corporate counselling involves the entire field of merchant banking activities such as
project counselling, capital restructuring, public issue management, loan syndication,
working capital, fixed deposit, lease financing acceptance credit, etc. Merchant bankers
also provide customized solutions to their client’s financial problems. Apart from this
they also explore the refinancing alternatives of the client, and evaluate cheaper sources
of funds. Rehabilitation and turnaround management is another area of advice. A
merchant banker advises the client on different hedging strategies and suggests the
appropriate strategy.

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13) Placement and Distribution

The merchant banker helps in distributing different securities like equity shares, debt
instruments, mutual fund products, fixed deposits, insurance products, commercial paper,
etc. The distribution network of the merchant banker can be classified as institutional and
retail in character. The institutional network consists of mutual funds, foreign
institutional investors, private equity funds, pension funds, financial institutions etc. The
size of such a network signifies the wholesale reach of the merchant banker.

Developments in Merchant Banking

• The recent developments in Merchant banking are due to certain contributory

factors in India. They are

• The Merchant Banking was at its best during 1985-1992 being when there were
many new issues. It is expected that in upcoming financial years 2012-13 and in
future is going to be party time for merchant banks, as many new issues are coming
up.

• The foreign investors – both in the form of portfolio investment and through
foreign direct investments are venturing in Indian Economy. It is increasing the
scope of merchant bankers in many ways.

• Disinvestment in the government sector in the country gives a big scope to the
merchant banks to function as consultants.

• New financial instruments are introduced in the market time and again. This
basically provides more and more opportunity to the merchant banks.

• The mergers and corporate restructuring along with MOU and MOA are giving
immense opportunity to the merchant bankers for consultancy jobs.

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Development in Merchant Banking Establishment in India

1) Setting up of banks subsidiaries = In order to meet the growing demand for

broad based financial services from the corporate sector more effectively, the merchant
banking division of the nationalise banks have started forming independent subsidiaries.
These subsidiaries offer more specialised services with professional expertise and skills.
SBI capital market was incorporated as the first such subsidiaries of SBI on 2 July, 1986.
Then can bank financial services Ltd. was set up as wholly owned subsidiary of Canara
Bank in 1987. PNB Capital Market was promoted by PNB during mid-1988. Many more
subsidiaries are being set up by another nationalise banks.

2) Recognition of Private firms = Expecting tough competition from growing

number of merchant banking subsidiary of nationalised banks, private merchant banks
have also started reorganising their activities e.g., J.M. Financial & Investment
Consultancy Ltd., 20th Century finance corporation ltd., LKP Merchant Financing Ltd.
Are some of the private sector firms of merchant bankers who have taken step to
recognise their activities.

3) Establishment of SUA = In order to educate and protect the interest of investor,

to provide information about new issues of capital market, to evolve a code conduct for
underwriters & to render legal & other services to member & public, the
STOCKBROKER UNDERWRITER ASSOCIATION (SUA) was established in 1984.

4) Discount & Finance House of India = DHFI was incorporated as a company act
1956 with contributed by RBI, Rs. 16 crores by financial institutions & 33 crores by
public sector banks. It would also have line of credit from public sector banks, refinance
facility from the RBI in order to meet the working capital requirement. DFHI aims at
providing liquidity in money market as it deals mainly in commercial bills.

5) Credit Rating Information Services of India Ltd. (CRISIL) = CRISIL has

been set up in1987 to provide help to investors, merchant bankers, underwriters, brokers,
banks, & financial institutions etc. CRISIL rates various types of instruments such as
debt, Equity, & fixed return security offered too public. It helps the investor in taking
investment decisions.

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6) Stock-Holding Corporation of India ltd. (SHC) = SHC was set up in 1986 by
all Indian financial institutions to take care of Safe custody, delivery of shares &
collection of sale proceeds of the securities. The Setting up of SHC is bound to affect the
capital market in future.

The Challenges Faced by Merchant Bankers in India are

➢ SEBI guideline has restricted their operations to Issue Management

and Portfolio Management to some extent. So, the scope of work is limited.
➢ In efficiency of the clients are often blamed on to the merchant banks, so
they are into trouble without any fault of their own.
➢ The net worth requirement is very high in categories I and II specially,
so many professionally experienced person/ organizations cannot come into
the picture.
➢ Poor New issues market in India is drying up the business of the merchant
bankers. Thus, the merchant bankers are those financial intermediaries
involved with the activity of transferring capital funds to those borrowers
who are interested in borrowing.

The activities of the merchant banking in India are very vast in the nature of

➢ The management of the customers securities

➢ The management of the portfolio
➢ The management of projects and counselling as well as appraisal
➢ The management of underwriting of shares and debentures
➢ The circumvention of the syndication of loans ➢ Management of the interest
and dividend etc.

Problems of Merchant Bankers

As per SEBI guidelines Merchant Bankers are authorized to undertake only issue related
activities, which restrict their scope of activities. Issuing companies do not adhere to the
schedule in allotment and refund of application money thereby creating trouble for the
image of these bankers at the investors.

30
Yet merchant banking is vast but should develop adequate expertise to provide a full
range of merchant banking services.

SEBI stipulates high capital adequacy norms for authorisation which prevents young,
specialised professionals into merchant banking business

Non-co-operation of the issuing companies in timely allotment of securities and refund

of application of money etc is another problem.

Minimum net Worth of Rs. 1 Crore = SEBI guidelines stipulates that a maximum net
worth of Rs. 1 Crore for authorization of merchant bankers.

Non-co-operation of issuing companies = Non-co-operation of the issuing companies

in timely allotment of securities and refund of application money is another problem
faced by merchant bankers.

ROLE OF MERCHANT BANKING COMPANIES IN INDIA

Investment banking companies generally help their clients to access capital through
equity, debt and other kinds of investment products. These firms also trade in equities
and derivative products and also help companies with merger and acquisition deals.
About a couple of years back, when the world economy was reeling under a recession,
many investment banking firms either collapsed or were on the brink of closure. Even a
few firms in India were affected by this global downturn. This led to many sceptics
writing off the revival of these firms.

What is in the store for the Future?

The economic downturn revealed that only the strong can swim against the tide and still
remain afloat. Those sceptical must realize that the market has its own upheavals and
downturns. When you look at the financial strength of these companies, you just cannot
ignore them. No wonder, most of these firms bounced back once again. However, the
future of Investment banking companies in India looks good, even though we may see
new investment guidelines.

31
Expected Investment Guidelines

Considering what is happening after the economic crash in the United States, even our
policy makers may be tempted to bring in some stringent guidelines for investment
banking services in India. This may be done with a view to ensure better risk
management. Another option which the law makers may think of is tinkering with the
claw back option. This will certainly protect the investment companies against fraudulent
and unethical traders and companies who might trigger a market crash, thereby causing
huge losses. This provision will ensure recovery of their profits. Lastly, banks may be
advised to go slow on short term funding in order to reduce mismatch between assets and
liabilities.

FUTURE PROSPECTS OF MERCHANT BANKING IN INDIA

As planning and industrial policy of the country envisaged the setting up of new industries
and technology, greater financial sophistication and financial services are required. There
is a well proven link between economic growth and financial technology. Economic
development requires specialist financial skills: Savings banks to marshal individual
savings; finance companies for consumer lending and mortgage finance; insurance
companies for life and property cover; agriculture banks for rural development; and a
range of sophisticated government or government sponsored institutions. As new units
have been set up & business is expanding, they require additional financial services. A
public equity or debt issue is the logical source of fund in this situation & merchant banks
can tap this opportuity of growth.

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 MERCHANT BANKERS PLAY A VERY IMPORTANT ROLE IN
SUPPORTING THE ENTREPRENEURS

Growth of Primary Market = If the primary market grows and number of issues

increases, the scope for merchant banking will be enhanced.

Entry of Foreign Investors = Now Indian capital market directly taps foreign capital

euro issues. FDI increased in capital market. So, merchant bankers are needed to advise

them for their investment in India. The increase number of joint ventures also requires

expert services of merchant bankers. If more and more NRIs participate in capital market,

there will be great demand for merchant banker services.

Changing Policy of Financial Institutions = Now the lending policies of financial

institutions are based on project orientation, so the merchant banker services will be

needed by corporate enterprise to provide expert guidance.

Development of Debt Market = If the debt market is enhanced, there will be

tremendous scope for merchant bankers. Now the NSE and OTCEI are planned to raise

fund through debt instruments.

Corporate Restructuring = Due to liberalization and globalization, the companies are

facing lot of competition. In order to compete, they have to go restructuring, merger,

acquisitions, or disinvestments. This may offer good opportunity to merchant bankers.

33
 STATE BANK OF INDIA

The origin of the state bank of India goes back to the first decade of the nineteenth century
with the establishment of the bank of Calcutta in Calcutta on 2 June 1806. Three years
later the bank received its charter and was re-designed as the bank of Bengal (2 January
1809). A unique institution, it was the first joint-stock of British India sponsored by the
government of Bengal. The bank of Bombay (15 April 1840) and the bank of madras (1
July 1843) followed the bank of Bengal. These three banks remained at the apex of
modern banking in India till their amalgamation as the Imperial banks of India on 27
January 1921.

Primarily Anglo-Indian creations, the three presidency banks into existence either as a
result of the compulsions of imperial finance or by the felt needs of local European
commerce and were not imposed from outside in an arbitrary manner to modernise India
economy. Their evolution was, however, shaped by ideas culled from similar
developments in Europe and England, and was influenced by change occurring in the
structure of both the local trading environment and those in the relation of the Indian
economy of Europe and the global economy framework.

34
 Establishment

Group Photograph of Central Board (1921)

The establishment of the bank of Bengal marked the advent if limited liability, joint-stock
banking in India. So was the associated innovation in banking, viz. the decision to allow
the bank if Bengal to issue notes, which would be accepted for payment of public
revenues within a restricted geographical area. This right of notes issue was very valuable
not only issue was very valuable not only for the bank of Bengal but also its two siblings,
the banks of Bombay and Madras. It meant an accretion to the capital of the banks, a
capital on which the proprietors did not have to pay any interest. The concept of deposit
banking was also an innovation because the practice of accepting money for safekeeping
by the indigenous banker had not spread as a general habit is most of India. But, for long
time, and especially up to the time that the three presidency banks had a right of note
issue, bank note and government balance made up the bulk of the invertible resources of
the banks.

The three banks were governed by royal charters, which revised time, each charter
provided for a share capital, four-fifth of which were revised subscribed and the rest
owned by the provincial government. The member of the board of director, which
managed the affairs of each banks, were mostly proprietary director representing the large
European manages the affairs of houses in India. The rest were government nominees,
invariably civil servants, one

35
Business

The business of the banks was initially confined to discounting of bills of exchange or
other negotiable private securities, keeping cash account and received deposit and issuing
and circulating cash notes. Loans were restricted to Rs. One lakh and the period of
accommodation confined to three months only. The security for such loans was public
securities, commonly called company paper bullion treasure, plate, jewels, or goods ‘not
of a perishable nature’ and no interest could be changed beyond a rate of twelve per cent,
loan against goods like opium, indigo, salt woollens, cotton, cotton piece goods mule
twist and silk good were also granted but such finance by way of cash credits gained
momentum only from the third decade of the nineteenth century. All commodities,
including tea, sugar and jute, which began to be financed later, were either pledged or
hypothecated to the bank. Demand promissory notes were signed by the banks or on the
mortgage of houses land or other real property was however, forbidden.

Indian were the principal borrowers against deposit of company paper while the business
of discount on private as well as salary bills was almost the exclusive monopoly of
individuals Europeans and their partnership firms. But the main function of the three
banks, as far as the government was concerned, was to help the latter raise from time to
time and also provide a degree of stability to the prices of government securities.

Major change in the conditions

A major change in the of operation of the banks of Bengal, Bombay and Madras occurred
after 1860. With the passing of the paper currency Act of 1861, the right of note issue of
the presidency banks was abolished and the Government of the India assumed from 1
March 1862 the sole power of issuing paper currency within British India. The task of
management and circulation of the new currency notes was conferred on the presidency
banks the government undertook to transfer the Treasury balances to the banks at places
where the banks would open branches. None of the three banks had till then any branch
although the charters had given them such authority.

36
But as soon the three presidency bands were assured of the free use of government
treasury balance at places where they would open branches, they embarked on branch
expansion at a rapid pace. By 1876, the branches, agencies and sub agencies of the three
presidency banks covered most of the major part and many of the inland trade centres in
India. While the bank of Bengal had eighteen branches including its head office seasonal
branches and sub agencies, the banks of Bombay and Madras had fifteen each.

Employees

SBI is one of the largest employers in the country with 209,567 employees as on 31 march
2017, out of which 23% were female employees and 3,179 (1.5%) were employees with
disabilities. On the same date, SBI had 37,875 scheduled Tribes (8.1%) and 39,709 other
backward classes (18.9%) employees. The percentage of officers, associates and
subordinates was 38.6%,44.3% and 16.9% respectively on the same date. Around 13,000
employees joined the bank in FY 2016-17. Each employee contributed a net profit of Rs.
511000 (US%7200) during FY 2016-17.

Operations

SBI provides a range of banking products through its network of branches in India and
overseas, including product aimed at non-resident Indians (NRIs). SBI has 16 regional
hubs and 57 zonal offices that are located at important cities throughout India.

37
 SWOT ANALYSIS OF SBI

SBI has its root since 1806 which later transformed under various names, finally SBI was
established after the act in parliament on May 1955.In the year 1959 SBI took over 8
owned banks and since then it started to grow up carrying its heritage of servicing people
at various economic levels. SBI has roots since 1806 which was later transformed under
various names, finally, SBI was established after the act in parliament in May 1955. In
the year 1959 SBI took over and state-owned banks and since then it started to grow up
caring its heritage of servicing people at various economic levels.

STRENGTHS

➢ SBI is the largest bank in terms of market share, revenue and assets.
➢ As per recent data the bank has more than 17 .000 outlets and 43,515 ATM
centre.
➢ The bank has its presence in 34 countries engaging currency trade all over
the world
➢ SBI has the first mover advantage in commercial banking service.
➢ SBI has recently changed its vision and mission statement showing a sing
of inclination toward new age banking services.

WEAKNESS

➢ Lack of proper technology driven service when compared to private banks.

➢ Employees show reluctance to solve issues quickly due to higher job
security and customers’ waiting period is long when compared to private
banks.
➢ The bank spends a huge amount on its rented buildings.
➢ SBI has largest number of employees in banking sector, hence the bank
spends a considerable amount of its income in employee’s salary
compensation
➢ In spite of modernization, the bank still carries the perception of traditional
bank to new age customers.

38
OPPORTUNITIES

➢ The new taxation policy can significantly impact the way of doing business
and can open new opportunity for established players such as state bank of
India to increase its profitability.
➢ New customers from online channel- over the past few year the company
has invested vast sum of money into the online platform. This investment
has opened new sales channel for state bank of India. In the next few years,
the company can leverage this opportunity by knowing its customer better
and serving their needs using big data analytics.
➢ Opening up of new market because of government agreement the adoption
of new technology standard and government free trade agreement has
provided state bank of India an opportunity to enter a new emerging market.

THREATS

➢ Rising pay level especially movement such as $15 an hour and increasing
prices in the china can lead to serious pressure on profitability of state bank
of India.
➢ New technologies developed by the competitor or market disruptor could
be a serious threat to the industry in medium to long term future.
➢ They can face lawsuits in various market given different laws and
continuous fluctuations regarding product standard in those market.
➢ Rising raw material can pose a threat to the state bank of India profitability.

39
 DIFFERENT PRODUCTS OF SBI

DEPOSIT LOANS CARDS DIFFERENT

CREDIT CARDS

Saving account Home loans Consumer cards SBI international

cards

Life plus senior Loan against Credit card SBI gold cards
citizens saving property
account

Fixed deposits Personal loan Travel card SBI gold master cards
Security deposit Car loans Debit card Your city your cards
Recurring deposit Loans against Commercial card Partnership cards
securities

Tax-saver fixed Two wheelers Corporate card SBI employee cards

deposit

Salary Account Preapproved loans Prepaid card SBI advantage cards

Advantage Retail Asset Purchase card
Women
Saving
Account

Rural saving Farmer’s finance Distribution card

Account
People’s Business Instalment Business card
Savings
Account

Freedom Flexi cash Merchant

Savings

40
 SBI MERCHANT SERVICE

SBI merchant banking group is a strongly positioned to offer perfect financial solution to
your business. We specialize in the arrangement of various forms of foreign currency
credit for corporate.

State Bank of India is the nation’s largest bank. Tracing its roots back some 200 years to
the British East India company (and initially established as the bank of Calcutta in 1826),
the bank operates more than 13,500 branches and over 5,000 ATMs within India, where
it also owns majority stakes in seven associate banks. State bank of India has more than
50 office in nearly 35 other countries, including multiple locations in the US (California)
Canada, and Nigeria the bank has other units devoted to capital markets, fund
management, factoring and commercial services, and brokerage services. The reserve
bank of India owns about 60% of state bank of India

We provide the resources, convenience and service to meet your needs by arranging
foreign currency credits through:

• Commercial loans

• Syndicated loans

• Lines of credit from foreign banks and financial institution

• FCNR from export credit agencies

• Financing of imports.

We are internationally the most preferred bank by export credit agencies for guarantees
in case of the Indian clients of project.

SBI being an Indian entity has no India exposure ceiling. Our primary focus is on Indian
clients. SBI, s seasoned team of professional provides you with insightful credit
information and helps you maximize the value form the transaction.

41
Our products and service

➢ Arranging external commercial borrowings (ECB)

➢ Arranging and participating in international loan syndication
➢ Loans backed by export credit agencies
➢ Foreign currency loans under the FCNR (B) scheme
➢ Import finance for Indian corporate

STATE BANK OF INDIA – AN OVERVIEW

State bank of India is the nation’s largest bank. Tracing its roots back some 200 years to
the British east India company (and initially established as the bank of Calcutta in 1806),
the bank operates more than 13500 branches and over 5000 ATMs within India, where it
also owns majority stakes in seven associate banks. State bank of India has more than 50
offices in nearly 35 others countries, including multiple locations in the USA, Canada,
and Nigeria the bank has other units devoted to capital markets, fund management,
factoring and brokerage services. The reserve bank of India owns about 60%of state bank
of India. SBI being an Indian entity has no India exposure ceiling. Our primary focus is
on Indian clients. SBIs seasoned team of professionals provides you with insightful
credit information and helps you maximize the value from the transaction.

Not only many financial institution in the world today can claim the antiquity and
majesty of the State Bank Of India founded nearly two centuries ago with primarily intent
of imparting stability to the money market, the bank from its inception mobilized funds
for supporting both the public credit of the companies governments in the three
presidencies of British India and the private credit of the European and India merchants
from about 1860s when the Indian economy book a significant leap forward under
the impulse of quickened world communications and ingenious method of industrial
and agricultural production the Bank became intimately in valued in the financing
of practically and mining activity of the Sub- Continent Although large European and
Indian merchants and manufacturers were undoubtedly thee principal beneficiaries,
the small man never ignored loans as low as Rs.100 were disbursed in agricultural

42
districts against glad ornaments Added to these the bank till the creation of the Reserve
Bank in 1935 carried out numerous Central – Banking functions.

Adaptation world and the needs of the hour has been one of the strengths of the Bank, In
the post-depression exe. For instance – when business opportunities become extremely
restricted, rules laid down in the book of instructions were relined to ensure that good
business did not go post. Yet seldom did the bank contravene its value as depart from
sound banking principles to retain as expand its business. An innovative array of office,
unknown to the world then, was devised in the form of branches, sub branches, treasury
pay office, pay office, sub pay office and out students to exploit the opportunities of an
expanding economy. New business strategy was also evaded way back in 1937 to render
the best banking service through prompt and courteous attention to customers. A highly
efficient and experienced management functioning in a well-defined organizational
structure did not take long to place the bank an executed pedestal in the areas of business,
profitability, internal discipline and above all credibility an impeccable financial status
consistent maintenance of the lofty traditions if banking an observation of a high standard
of integrity in its operations helped the bank gain a pre-eminent status. No wonders the
administration for the bank was universal as key functionaries of India successive finance
minister of independent India Resource Bank of governors and representatives of
chamber of commercial showered economics on it. Modern day management
techniques were also very much evident in the good old days years before corporate
governance had become a puzzled the banks bound functioned with a high degree of
responsibility and concerns for the shareholders. An unbroken record of profits and a
fairly high rate of profit and fairly high rate of dividend all through ensured satisfaction,
prudential management and asset liability management not only protected the interests of
the Bank but also ensured that the obligations to customers were not met. The traditions
of the past continued to be upheld even to this day as the State Bank years it to meet the
emerging challenges of the millennium.

43
 ABOUT LOGO

THE PLACE TO SHARE THE NEWS ...……

SHARE THE VIEWS ……

Togetherness is the theme of this corporate loge of SBI where the world of banking

services meets the ever-changing customers needs and establishes a link

that is like a circle, it indicates complete services towards customers. The logo also

denotes a bank that it has prepared to do anything to go to any lengths, for customers.

The blue pointer represents the philosophy of the bank that is always looking for the

growth and newer, more challenging, more promising direction. The key hole indicates

safety and security.

MISSION STATEMENT:

To retain the Bank’s position as premiere Indian Financial Service Group, with world

class standards and significant global committed to excellence in customer, shareholder

and employee satisfaction and to play a leading role in expanding and diversifying

financial service sectors while containing emphasis on its development banking rule.

44
 . VISION STATEMENT:

Premier Indian Financial Service Group with prospective world-class Standard of

efficiency and professionalism and institutional values Retain its position in the country

as pioneers in Development banking. Maximize the shareholders value

through high- sustained earnings per Share. An institution with cultural mutual care and

commitment, satisfying and Good work environment and continues learning

opportunities.

VALUE:

Excellence in customer service Profit orientation Belonging commitment to Bank

Fairness in all dealings and relations Risk taking and innovative Team playing Learning

and renewal Integrity Transparency and Discipline in policies and systems

45
 CHAPTER 2
RESEARCH METHODOLOGY
 RESEARCH METHODOLOGY
Research methodology refers to the search for knowledge. It is a way to systematically
solve the research problem. In it we study the various steps that are generally adopted by
the researcher in studying his research problem along with logic behind them. Research
methodology concerning a research problem or study provide answers to various
questions like; why a research study has been undertaken, how the research problem has
been defined, what data have been collected and what particular method has been adopted
to collect the data, what technique has been used for analysing the data and a host of
similar other question.

DATA COLLECTION
There is lots of information available in journal, internet, and article about the merchant
banking such as challenges, problems, and role in economy. Secondary data is collected
through journals, internet, article etc.

PRIMARY DATA

The primary data was collected through structured unbiased questionnaire and personal
interviews of investors. For this purpose, questionnaire included were both open ended
&close ended &multiple-choice questions.

SECONDARY DATA

Secondary data is the data that have been already collected by and readily available from
other sources. Such data are cheaper and more quickly obtainable than the primary data
and may be available when primary data cannot be obtained at all. Secondary data can
be collected from different sources like information collected through censuses;
information collected by government departments, organizational records and that was
originally collected for other research projects.

46
 OBJECTIVE OF THE STUDY
❖ To understand the nature and prime objective of merchant banking of SBI
❖ To study and analysis the Merchant banking’s role in Indian economy.
❖ To understand the services provided by merchant banking
❖ To study merchant banking and its function ❖ Role of merchant banking as
financial intermediaries.
❖ Describing issue management in merchant banking. ❖ To appraise the
activities of merchant banking

SCOPE OF THE STUDY

❖ It would help us to develop the ability to study the functioning of merchant
banking in India & apply multi-disciplinary concept tools and techniques to solve
vital problem.
❖ It familiarize with the various services provided by merchant
❖ They would help us to draw comparison between public and private sector
companies engaged in Merchant banking activities
❖ Based upon the comparison, it would help us to determine which sector has more
growth potential & where should one invest his or her fund to maximise the return
at minimum risk

SIGNIFINANCE OF THE STUDY

❖ It would help us to develop the ability to study the functioning of Merchant
Banking in India & learn & apply multidisciplinary concepts, tools & techniques
to solve vital problems.
❖ It familiarizes with the various services provided by Merchant Bankers.
❖ They would help us to draw comparison between public & private sector
companies engaged in Merchant Banking activities.
❖ Based upon the comparison, it would help us to determine which sector has more
growth potential & where should one invest his/her funds to maximize the return
at minimum risk.

47
 LIMITATIONS OF THE STUDY
❖ Due to the lack of time, it was not possible for the researcher to approach all the
people.
❖ The respondents were asked to indicate their true responses to the questions being
asked, but rather than giving the response, they might have been in a form of
expert comments which might have based the result of the study.
❖ The results of the study may not be universally applicable due to regional
constraints
❖ Money was also considered as a major constraint during the research work.
❖ Personal biasness may be included in the research work.

48
 CHAPTER 3
LITERATURE REVIEW
 REVIEW OF LITERATURE
A review tells the reader that the researcher knows the research in the sea. A good review
increases a reader’s confidence in the researcher’s professional competence, ability and
background. A good review places a research project in a context and demonstrates its
relevance by making connections to a body of knowledge.

Sanjeev Kumar (2016): Merchant banking is financial institutions which provide

capital to the company in the form of share ownership.it also providing advice to the
corporate sector in which they invest money. Merchant banking is in not only advisor but
also principle. Merchant banking has a long-term approach than investment. It provides
right advice to each client. Merchant banking is a traditional term it also describes the
private equity. Merchant banking helps in the corporate sector which reflects into
economic development of the country. Merchant banking provide various function like
portfolio management, underwriting, counselling, loan syndication. Merchant banking is
combination of banking and consultancy services.

Waghmare Shivaji (2015): Globalization made whole Indian economy open which has
a multiple role in the financial services. Now a day’s government open the door of
investment in the area of insurance and bank. Which provide competitive environment
for present player? Merchant banking is an innovative term introduced by commercial
bank. The need for the merchant banking is pronounced by banking commission (1972).
Merchant banking offer fee-based and non-fee-based services like loan syndication,
underwriting, project promotion, advisory to small and medium savers. In India merchant
banking work under SEBI.

Rd. Singh and Rd. Saxena (2017): Merchant banking consists of wide range of financial
activities and financial institution. Merchant bank called “Accept and issue house”.
Because merchant banking acting as broker and principle. Merchant banking has a long
term approach concerned with each investment opportunity and provides right advice to
each client of the company.
49
Rd. Jyoti Lahoti (2016): Merchant banking is service provided by financial institution
which helps in the economic development of the country. Merchant banking provides
various services like portfolio management, loan syndication, and issue management.
Merchant banking is a combination of consultancy services and banking. It helps in the
business unit. It also helps to increase the fund and to expand the business.

CS Gowtham (2017): Merchant banking issue share, debentures, bank loan to their
clients. This finance is used for new business or to expand the business, to modify the
business. Merchant banking not only provides finance but also provide right path with
respect to SEBI.

Shreyas B.S: Merchant banking consist of wide range of financial activities. Merchant
bank is called “Accepting and issuing house” Merchant banking is rapidly growing in
Indian economy. The SEBI which gives overall view of present and past. Merchant
banking is oldest in the primary market and it has bright future in coming years.

Kailanni (2008) The researcher evaluated the performance of merchant bankers by

taking into account of both qualitative and quantitative dimensions. While qualitative
factors included skill in issue management and quality of personnel and services to the
clients, the quantitative factors included number and amount of public issue handled and
the activity profile of merchant bankers (fund based or non-fund based). The variables
taken for quantitative evaluation included projected and actual sales, profit before
interest, depreciation and taxes, profit after tax and earnings per share.

Shreyas (2014) focused on overall view of merchant banking in past as well as present
with respect to India. The study revealed that Merchant banking is one of the oldest and
specialized financial intermediaries in the primary market and its activity has developed
rapidly in the Indian capital market with more than 1450 merchant banker and more than
930 has registered with SEBI. Merchant banking in India has a very bright future in the
coming years and has all potential in competing with International countries.

50
Erik (2015) The demise of merchant banking by considering the impact of globalization
on the historical banking institution the pace of innovation and the necessity for securities
the transformation of domestic industry into financial supermarkets and the reason that
clearing banks failed in their attempts to become international players.

51
 CHAPTER 4
DATA ANALYSIS
AND
INTERPRETATION

52
 DATA ANALYSIS & INTERPRETATION

1) AGE

NO AGE SALES
1 Above 18 16
2 18-30 30
3 31-59 4
4 Above 59 0
Total 50

Sales

8% 0%

32% Above 18
18-30
31-59
Above 59
60%

INTERPRETATION: -
Out of total respondent,32% respondents are above 18,60% respondents are above 18 but
below 30 and 8% respondents are between 31 to 59,0% respondents are above 59.
2) GENDER

NO. GENDER PERSON

1 Male 28

2 Female 22

Total 50

Gender

44%
Male Female
56%

INTERPRETATION: -
Out of total respondent,56 respondents are male and 44% respondents is female.

52
3) OCCUPATION

NO. OCCUPATION PERSON

1 Students 15

2 Business 10
3 Service 20

4 Other 5

Total 50

Occupation

10%

30%
Students
Business
Servies
40% Other

20%

INTERPRETATION: -
Out of total respondent,30% respondents are students,20% respondents’ occupation is
business,40%respondent doing service and 10% respondents’ occupation is other.

53
4) DO YOU TAKE ANY FINANCIAL SERVICES FROM BANK?

NO. YES/NO COUNT

1 Yes 39

2 No 11

Total 50

22%

Yes No

78%

INTERPRETATION: -
Out of total respondent,39 respondent has taken financial service and rest 78% respondents
have not taken the financial service.

54
5) DO YOU KNOW ABOUT MERCHANT BANKING?

NO YES/NO COUNT
1 Yes 40

2 No 10

Total 50

20%

Yes No

80%

INTERPRETATION: -
Out of total respondents, 80% respondents known about merchant banking and 20% respondent
not known about merchant banking.

55
6) ARE YOU SATISFIED WITH THE SERVICES PROVIDED BY
YOUR BANK?

NO YES/NO COUNT

1 Yes 45

2 No 5

Total 50

10%

Yes No

90%

INTERPRETATION: -
Out of total respondent,90% respondents are satisfied and respondents is not satisfied.

56
7) WHICH BANK WOULD YOU PREFER TO TAKE MERCHANT
BANKING?

INTERPRETATION: -
Out of total respondents, 20% respondents are preferring to ICICI bank,48% respondent is
preferring to SBI bank ,4% respondents are preferring to okta bank, 10% respondents are
preferring to BOI bank and remaining 18% respondents is preferring is prefer to other

57
8) WHAT IS THE POSITION OF MERCHANT BANKING IN PRIVATE
SECTOR?

NO POSITION COUNT

1 Good 35

2 Normal 15

3 Bad 0

Total 50

0%

30%

Good
Normal
Bad

70%

INTERPRETATION: -
Out of total respondent,70% respondents say good,30% respondents say normal,0%
respondents say bad.

58
9) WHAT IS THE POSITION OF MARCHANT BANKING IN PUBLIC
SECTOR?

NO POSITION COUNT

1 Good 26

2 Normal 24

3 Bad 0

Total 50

0%

Good

48% Normal
52%
Bad

INTERPRETATION: -
Out of total respondent,52% respondent says good, 48% respondent says normal,0%
respondents say bad

59
10) WHAT TYPE OF SECURITY HAVE YOU DEPOSITED?

NO TYPE COUNT

1 Banking security 38

2 Gold 7

3 Land paper 2

4 Third party security 3

Total 50

6%
4%

14%

Banking security

Gold

Land paper

76% Third party secuirty

INTERPRETATION: -
Out of total respondent,76% respondent deposited bank security,14% respondent deposited
gold,4% respondent deposited land paper,6% respondents deposited third party security.

60
 11) ARE YOU SATISFIED BY SECURITY MARGIN OF BANK?

NO YES/NO COUNT

1 Yes 43

2 No 7

Total 50

14%

Yes No

86%

INTERPRETATION: -
Out of total respondent, 80% respondent is satisfied by bank security margin,14% of
respondents are not satisfied with bank security margin.

61
12) NON -FINANCIAL INSTITUTIONS DEPENDS ON MERCHANT
BANKING ARE YOU SATISFIED?

NO YES/NO COUNT

1 Yes 33

2 No 17

Total 50

34%

Yes No

66%

INTERPRETATION: -
Out of total respondent 66% respondent is satisfied and 34% respondents is not satisfied.

62
13) WILL IT DIFFERENCE FROM INVESTMENT BANK?

No Yes/No Count
1 Yes 36
2 No 14
Total 50

28%

Yes

No

72%

INTERPRETATION
Out of total, 72% respondents says Yes and 28%respondents says N

63
 CHAPTER 5
FINDINGS, SUGGESTIONS &
CONCLUSION
 FINDING

❖ 80% of the respondent treat SBI caps as a merchant banking service option
❖ While dealing with the clients, it is found that medium level entrepreneur is more
interest in merchant banking service
❖ Business sector feels that merchant banking is an important criterion in their field if
work.
❖ The client would like to invest their money where they would get more security.
❖ The willingness to take up SBIC aps merchant banking as an investment option is
independent of the service provided by them.
❖ Due to liberalization of economy the sceneries have changed as many private merchant
banking companies have entered in the industry since then.
❖ SBI merchant banking companies service is facing stiff competition from the private
sector companies.

65
 SUGGESTION

❖ The performance of the merchant bank depends on the services provided by the
merchant bankers. But the future is uncertain so, the SBI caps (state bank of India
capital service) should take the following steps-
❖ Try to reduce fund charges, administration charges and other charges which would to
help gain more clients
❖ Different campaigns should be launched to educate people regarding merchant banking.
❖ From the findings, it is found that, the security is the main criteria for the investors. It
is suggested that this aspect would be reinforced while accessing the client.
❖ The expectation of the people from the merchant bank is high. So, a blue print of the
business service to pe provided should be prepared taking into consideration the
expectation of the people.

66
 CONCLUSION

This study helped me to understand details of merchant banking. The services provided
by merchant bankers to their customer such as loan syndication, portfolio management,
underwriting, counselling etc. They also work as an intermediary to share issue. All
merchant banks are registered under security exchange board of India (SEBI). Merchant
banking helps to grow Indian economy. Hence merchant banking is essential body in
Indian financial system.

The multifarious activities performed by the merchant bankers in India are discussed in
this chapter. In this regard, it is important to know how the activities performed by these
entities are regulated in India. Hence, an attempt has been made to discuss the historical
background of Securities and Exchange Board of India (SEBI) regulations. The merchant
banking business has increased over a short period of time and with continued economic
reforms. However, a stiff competition exists in this line and survival will depend upon
the financial skills and spectrum of financial services and instruments offered by the
Merchant Banker. Hence, Merchant Banking Service is taking shape for turbulent times.
Merchant banking is an activity initially undertaken by a few large commercial banks in
India, and it is now being adopted or undertaken by a few large commercial banks in
India, and it is now being adopted or undertaken by practically every commercial bank
through its Merchant Banking Department. The range of activities covered under
merchant banking very wide indeed.

The merchant banks offer a package of financial services. Unlike in the past, their
activities are non-fund base. Therefore, they do not require much capital. Position of
Indian merchant banking is as:

67
BIBILOGRAPHY

68
 BIBLIOGRAPHY

1.T. Sanjeev Kumar, Merchant banking India: Recent development in merchant banking
(2016), ISSN-2455-6602.

2. Rd. Waghmare Shivaji, Performance evaluation of merchant banking in India-A

study of SBI capital market limited (2015), ISSN-2347-9671.

3. Rd. Singh and Rd. Saxena- Significance of merchant banking in India (2017), ISSN
:2454-1362, www.onlinejournal.in.

4. Limb ore N.V, & Nalco A. P, A study of effectiveness and prospects of E-tailing with
special reference to Baramati Region, Asian Journal of Multidisciplinary Studies,
Volume1, Issue 5, December 2013, pp-1-9.

5. Ryotei Lahoti, Recent development in merchant banking and challenges ahead in

India, (2016), E-ISSN:2455-295X.

6. CS Gowtham, Merchant banking, ISSN-1314-3395, www.ijpam.eu

7. Farzana Huda, Merchant banking operation: A case study of selected merchant bank
in Bangladesh (2017), ISSN:1946-052X

8. Limb ore N.V, & Warble M.S, A Study of Effectiveness of Sales Promotional
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9. Shreyas V.S, Merchant banking past and present: Indian scenario (2014) ISSN-
23218916

10. Keyur Kumar, D., & M, Nayak Does Public Sector Merchant Banks Require Pills to
Survive? Indian journal of applied research .2015.

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12. K.V. Rao, Merchant Banking - New Challenges, Indian Banking Today and
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BOOKS

❖ Financial Institutions & Market By. Shashi K. Gupta, Nisha Aggarwal.

❖ Financial Services Book By. G.S. Batra, R.C. Dangal.
❖ Investment Banking By. Pratap G. Subramanyam.
❖ Modern Banking in India By. R.K. Uppal, Bishnupur Mishra.
❖ Performance Evaluation of Merchant Banks in India By. Rd. Biswajit Bhadra.
❖ The Indian Capital Market By.Lakshmanna ,B.C. Krishna naik ,C.N.
❖ The rise of Merchant Banking By. Stanley Chapmen. ❖ Indian Financial
System By. Maharaja, H.R.

WEBSITES

❖ http://www.sbicaps.com
❖ www.sebi.gov.in
❖ www.capitalmarket.com
❖ http://www.ijpam.eu
❖ www.economictimes.com
❖ www.jetir.org/JETIR1904602
❖ www.irjmsh.com

68
 QUESTIONNAIRE

1. AGE

2.GENDER

3.OCCUPATION

4.DO YOU TAKE ANY FINANCIAL SERVICES FROM BANK?

5.DO YOU KNOW ABOUT MERCHANT BANKING?

6.ARE YOU SATISFIED WITH THE SERVICES PROVIDED BY YOUR BANK?

7.WHICH BANK WOUID YOU PREFER TO TAKE MERCHANT BANKING

SERVICES?

69
8.WHAT IS THE POSITION OF MERCHANT BANKING IN PRIVATE SECTOR?

9.WHAT IS THE POSITION OF MERCHANT BANKING IN PUBLIC SECTOR?

10.WHAT TYPE OF SECURITY HAVE YOU DEPOSITED?

11.ARE YOU SATISFIED BY SECURITY MARGIN OF BANK?

12.NON –FINANCIAL INSTITUTIONS DEPENDS ONON MERCHANT

BANKING ARE YOU SATISFIED?

13.WILL IT DIFFERENT FROM INVESTMENT BANK?

14.WHICH IS THE BEST SERVICE PROVIDEED IN A PUBLIC

SECTOR MERCHANT BANK?

15.WHICH IS THE BEST SERVICE PROVIDED IN A PRIVATE

SECTOR MERCHANT BANK?

70
71