SYNOPSIS ON ROLE AND NEED OF MERCHANT BANKERS IN IPO

Dissertation submitted in partial fulfillment of the requirements for the award of the degree of

Master of Business Administration Of Bangalore University By M.RAJASHEKAR (REG NO. 11SLCMA104) UNDER THE GUIDENCE OF MR.ARAVINDA.D

THE OXFORD COLLEGE OF BUSINESS MANAGEMENT 4th SECTOR H.S.R LAYOUT BANGALORE - 560102. 2011-13

Title of The study:

ROLE AND NEED OF MERCHANT BANKERS IN IPO

Introduction To the study:

A merchant bank deals with the commercial banking needs of international finance, long-term company loans, and stock underwriting. This type of bank does not have retail offices where a customer can go and open a savings or checking account. It is sometimes said to be a wholesale bank, or in the business of wholesale banking because these banks tend to deal primarily with other banks of the same kind, as well as large financial institutions. The most familiar role of the merchant bank is stock underwriting. A large company that wishes to raise money from investors through the stock market can hire this type of bank to implement and underwrite the process. The bank determines the number of stocks to be issued, the price at which the stock will be issued, and the timing of the release. It then files all the paperwork required with the various market authorities, and it is also frequently responsible for marketing the new stock, though this may be a joint effort with the company and managed by the merchant bank. For very large stock offerings, several banks may work together, with one being the lead underwriter. By limiting their scope to the needs of large companies, these banks can focus their knowledge and be of specific use to such clients. Some specialize in a single area, such as underwriting or international finance. Many of the largest banks have both a retail and a merchant division. The divisions are generally very separate entities, as there is little similarity between retail banking and what goes on in a merchant bank. Although the lives of most people are probably affected every day in some way by decisions made in this type of bank, many people are unlikely ever to visit or deal directly with one. They usually operate behind the scenes and away from the spotlight. Merchant banking primarily involves financial advice and services for large corporations and wealthy individuals.

MERCHANT BANKING ACTIVITIES: The Major Merchant Banking activities which the Bank offers to its clients are:

Issue Management - Management of Public Issues i.e. IPOs, FPOs, Right Issues, etc. as Book Running Lead Manager Bankers to the Issue Payment of Dividend Warrants / Interest Warrants / Refund Orders Debenture Trustee Underwriting Monitoring Agency

Besides promoting / marketing the above Merchant Banking Business in the Bank through specialized Capital Market Services Branches, Merchant Banking Cells and identified branches, the Merchant Banking Division also looks after the following activities:

Marketing of Merchant Banking Business Monitoring / Supporting Capital Market Service Branches Refund Paid / Payable

MERCHANT BANKERS ASSIGNMENTS: At present, the Bank is holding following Licenses from SEBI:

Merchant Banker Banker to the Issue Underwriting Debenture Trustee

1. Bankers to the Issue (Collecting Banker):

Being a licensed Banker to Issue registered with SEBI, enables us to provide Escrow Collecting Bank/services and refund Bank services related to Initial Public Offering (IPO), Follow on Public Offering (FPO) and Right Issue. The process of collections, needs a high degree of close co-ordination between various capital market intermediaries such as the Book Running Lead Manager, the Syndicate Members, the Registrar and most importantly the issuer Company. Our large network of branches and strong bonds with various capital market constituents enable us to offer better solutions for clients.

2. Payment Of Dividend Warrants / Interest Warrants (Paying Banker):

The Merchant Banking Division has also got enabled a functionality of a

new system in CBS branches for payment assignments, which is similar to Demand Draft Payable Account under Finacle. The product has the following unique features that ensure that the payment account of the corporate remains reconciled at any point of time: Facility for upfront uploads of the instruments issued by the companies into Core Bankin system

o Online payment of the instruments by CBS branches o Validation of instruments details by the system

o Online status update of paid instruments by the system o Online MIS on paid/unpaid instruments at any point of time o Facility to cancel lost instruments and to re-upload duplicate instruments issued in lieu thereof o MIS on cancelled instruments o 100% reconciliation of the corporate dividend / refund order payable by a/c by the system without manual intervention

Facility to provide MIS on paid / outstanding instruments in ASCII format, which can be suitably converted by the corporate for updating their inhouse database This new facility will help in solving the major problem in handling these assignments i.e. reconciliation of accounts. This will also help in reducing the cost of reconciliation, postage and handling cost. 3. Payment of Refund Orders:

The detailed guidelines / procedures to be followed. Powers of the Branches / Charges etc. for handling the assignments of Bankers to the Issue/ Payment of Dividend warrants / Refund Orders etc. are available in the circulars of the Division at the Banks website.

4. Underwriting:

Underwriting is a contingent liability and this is one sphere of Merchant banking where outlay of funds on the part of the bank may be involved. As such, it is necessary to be very careful in accepting / recommending such business. Proposals that pose clear risk of devolvement should be declined at

the outset unless there is sub underwriting tie up directly or indirectly with promoters and their related investment companies or a firm commitment of buy back on reasonable terms. Major aspects which need close scrutiny before underwriting can be considered are the project and its viability, project location, promoters and their track record, product and its marketability, past performance of existing companies in the same line, Government Policy, projected financial performance, capital market conditions, underwriting / sub underwriting / buy back arrangements, etc.

5. Debenture Trustee:

In terms of SEBI guidelines, all debenture issues (public rights) of the companies with the maturity period exceeding 18 months are required to have "Debenture Trustee" and its name must be stated in the prospectus of the issue. The necessity of creation of debenture trust is to organize the large number of debenture holders and facilitate interaction by the companies issuing debentures with a single entity rather than individual debenture holders. Merchant Bankers (holding valid Registration with SEBI as debenture trustee) act as Trustees for the debenture holders to accept security created by the company, to secure the repayment of principal and payment of interest thereon, taking action for safeguarding their interest and enforcing their rights in times of needs. As per SEBI guidelines lenders cannot act as Trustees to debentures/bond the issues of the Companies who are their borrowers. Therefore, branches of the Bank must not obtain 'Debenture Trustee' assignments of the parties/companies which are availing Credit facilities from our Bank.

6. Monitoring Agency:

In terms of SEBI (DIP) guidelines, the Company issuing the shares to public shall make arrangements for the use of proceeds of the issue to be monitored by one of the financial institutions, in case of issues, which exceed Rs.500 crores. Though, in terms of SEBI guidelines, it is mandatory for the issuers to appoint 'Monitoring Agency' if the issue size is more than Rs.500 crores, on the insistence of Merchant Bankers and Stock exchanges, the issuers of issues of less than Rs. 500 crores are also appointing monitoring agency. Utmost attention is required for monitoring the proceeds, submission of statement as per SEBI guidelines to the company reporting of defaults etc. after acceptance of the assignment.

. Scope of the study: Merchant banking activites: In channel sing the financial surplus of the general public into productive instruments avenues To ensure the compliance with rules and registration governing the securities

Chapter scheme:
Chapter 1: Introduction The study will equip the readers, who are not well versed with the area, to understand the report. It includes different area considered under study. Chapter 2: Research design The report will provide a plan of the study that includes statements of the problem, need for study, review of previous studies, objectives, scope of the study, hypothesis, operational definition of concepts, methodology, and limitations of the study and an overview of the chapter scheme. Chapter 3: Analysis and Interpretation of Data. The chapter will include analysis and interpretation of data and information will be provided by appropriate means of table, graphs and charts wherever necessary followed by the references. Chapter 4: Summary of Findings, Conclusions and Suggestions. The study will provide a summary of findings that will be compiled from the inferences drawn through the analysis of data. Conclusions and recommendations will be provided on the basis findings.

BIBLIOGRAPHY: This chapter deals with the list of various books, articles,
websites that are referred and used in the research on ROLE AND NEED OF

MERCHANT BANKERS IN IPO

www.wikipedia.com www.google.com

ANNEXURE: This chapter includes the data used for the calculations supporting
interpretation etc.