ISSN: 2455-2631 © April 2021 IJSDR | Volume 6 Issue 4

MERCHANT BANKING - A COMPARATIVE ANALYSIS

OF PRIVATE AND GOVERNMENT SECTOR
1
Salluri Rachana, 2Dr. Seema Nazneen
1
MBA Student, 2Assistant Professor
Anurag Group of Institutions

Abstract: Amidst the swift changes sweeping the financial world, Merchant Banking has emerged as an indispensable
financial advisory package. Merchant banking is a service-oriented function that transfers capital from those who own to
those who can use it. They try to identify the needs of the investors & corporate sector & advice entrepreneurs what to do
to be successful. New players are entering in this field day by day. Merchant Banking in India has a great demand over the
globe. So many companies in India are trying their hands in this field. Some companies have built their strong image and
some are still in process to leave their mark in the international market.

1.1 Introduction:
A Merchant Bank is historically a bank dealing in commercial loans and investment. It refers to a financial institution that
conducts underwriting, services, financial advising, and fundraising services for large corporations and high-net-worth
individuals (HWNIs). Merchant banks are experts in international trade, which makes them specialists in dealing with multinational
corporations. Retail or commercial banks, merchant banks do not provide financial services to the general public.

1.2 Need of the study:

Merchant Banking has emerged as an indispensable financial advisory package. Merchant banking is a service-oriented function
that transfers capital from those who own to those who can use it. They try to identify the needs of the investors & corporate sector
& advice entrepreneurs what to do to be successful. New players are entering in this field day by day. Merchant Banking in India
has a great demand over the globe. So many companies in India are trying their hands in this field. Some companies have built their
strong image and some are still in process to leave their mark in the international market.

1.3 Scope of the study:

The main focus of the study would be on functioning of the Merchant Banking companies. The study would have information and
details of Merchant Banking of public sector and private sector companies and then an analysis will be done on the collected
information and finally a comparison between these two categories will be done. After comparison it would be find out which
category has more growth potential in present scenario as well as in future.

1.4 Objectives of the study:

● To compare the 5 years of Operating profits, Profit after tax, Gross profit of merchant banking in Private sector and
Public sector.
● To Study the services offered by Public sector & Private sector bank in merchant bank.
● To analyse the financial position of Public & Private sector.

1.5 Research Methodology

 The data type is secondary data. The companies chosen are both Public and Private
 In public I have choosen 3companies i.e.,
1. State Bank of India
2. Bank of Boroda
3. Bank of India
 In Private I have choosen 3companies i.e.,
1. HDFC Bank
2. AXIS Bank
3. ICICI Bank
 The time constraints: 5year data
 The tools which I have usen are MS. E

Review OF Literature:
Murthy (1993) in his paper examined the cost of raising capital from the public issues floated during 1992-93. During 1992-93,
an amount of Rs. 4677.74 crore was raised through514 public issues. The estimated expenses on these issues were Rs.473 crore.
Analysis of 506 public issues showed that issue expenditure as percentage of net public offer was 10.10% and the proportion of
issue expenses declined with the increase in offer size. The study found that smaller projects tend to spend a higher proportion as
issue expenditure compared to the larger ones. The researcher also compared the cost of raising capital of issues through the OTC
(over the counter) route and regular stock exchange option and found that the cost of raising capital through OTC route was lower
than the issues that opted for regular stock exchange route.

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Shah (1995) conducted an empirical study on the data set of 2056 Indian IPOs listed on the BSE from January 1991 to May 1995
with the objective to examine the under-pricing of IPOs and to establish the empirical regularities about India’s IPO market. He
examined six factors underlying under-pricing, namely asymmetric information between firms and investors, fixing the offer price
too early, the interest rate float, loss of liquidity on the amount paid at issue date (liquidity premium), building loyal shareholders
and merchant bankers rewarding favoured clients as an incentive to under-price. Empirical study found that the average price on
first listing day was 105.6%above the offer size, average delay between issue dates and listing day was 11 weeks and weekly excess
return on market index (BSE Sensex) was 3.8%.
Narta (1996) conducted a research study to find out the growth of new issue market and underwriting of capital issues in India, and
to analyses the cost of raising capital during the period 1970-71 to 1988-89. The study was based on the secondary data. The
researcher found that after independence, a large number of public financial institutions, investment institutions, merchant banking
divisions of commercial banks and investment consultancy agencies were engaged.
Kailani (1998) in her research work examined the marketing strategies and performance of merchant bankers during the period
1990-91 to 1997-98. The study was based upon 77 merchant bankers. 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,

INDUSTRY PROFILE
Introduction to Financial System in India
The evolution of the financial system in India is nothing but the reflections of its political and economic history. The evolution
process has been influenced by the factors of urbanization of society, advent or large-scale industrialization, introduction of railways
and telegraphic communications in the 19th century, nationalization of financial institutions in20th century and implementation of
information technology on the eve of the 21st century. The growth of Indian Financial System is not the outcome of a normal
process of development; rather, it is created by the government and mainly expanded through its intervention. Government policies
have greatly influenced the interest rates, credit control and functions of financial intermediaries.
During the 274-year regime of the East India Company (1600-1874) the financial system of the country was not at all organized. It
was monopolized by the mercantile houses who were involved in banking business by providing loans, receiving deposits and
issuing currency. They are commonly known as ‗agency houses ‘who actually laid the foundation of modern banking. The formal
banking business was developed by establishment of three Presidency Banks, namely apart from these, some exchange banks and
Indian joint stock banks were set up. In 1858, as a consequence of Sepoy Mutiny, the administrative power of the East India
Company was transferred to the Governor General of India. The financial system of the country started to be organized during this
period. In 1861, the Central Government took the responsibility of issuing currency notes throughout the country. Between 1865 -
1905, nine joint stock banks, each with a capital of Rs.5 lakh and over were established. In1921, the three Presidency Banks were
amalgamated under a special legislation to form the Imperial Bank of India. The first central bank was established in 1935 in the
country which is known as the Reserve Bank of India. At the time of independence, banking system in India was controlled by RBI,
IBI, exchange banks, cooperative banks and Indian joint stock banks and the total deposits in these banks during 1948 were Rs.957
Crores

COMPANY PROFILE
SOME MERCHANT BANKS OF INDIA
● SBI Bank
● HDFC Bank
● ICICI Bank
● Bank of India
● Bank of Boroda
● Kotak Mahindra
● Canara Bank.

STATE BANK OF INDIA

State Bank of India (SBI) is the largest state-owned banking and financial services company in India. The bank provides banking
services to the customer. IN addition to the banking services, the bank through its subsidiaries, provides a range of financial services,
which include life insurance, merchant banking, mutual funds, credit card, factoring, security trading, pension fund management
and primary dealership in the money market.
The Bank operates in four business segments, namely Treasury, Corporate/ Wholesale Banking, Retail Banking and Other Banking
Business. The Corporate/ Wholesale Banking segment comprises the lending activities of Corporate Accounts Group, Mid
Corporate Accounts Group and Stressed Assets Management Group. The Retail Banking segment consists of branches in National
Banking Group, which primarily includes personal banking activities, including lending activities to corporate customers having
banking relations with branches in the National Banking Group.SBI provides a range of banking products through their vast network
of branches in India and overseas, including products aimed at NRIs. The State Bank Group, with over 16,000 branches, has the
largest banking branch network in India.

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HDFC BANK:
HDFC Bank was incorporated in August 1994. As of September 30, 2019, the Bank had a nationwide distribution network 5,314
branches and 13,514 ATM's in 2,768 cities/towns. The Housing Development Finance Corporation Limited (HDFC) was amongst
the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of
RBI's liberalisation of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank
Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in
January 1995.
HDFC Bank has its deposit programmes rated by two rating agencies - Credit Analysis & Research Limited. (CARE) and Fitch
Ratings India Private Limited. The bank's Fixed Deposit programme has been rated 'CARE AAA (FD)' [Triple A] by CARE, which
represents instruments considered to be "of the best quality, carrying negligible investment risk"

ICICI BANK
ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its wholly owned subsidiary.
ICICI's shareholding in ICICI Bank was reduced to 46% through a public offering of shares in India in fiscal 1998, an equity
offering in the form of ADRs listed on the NYSE in fiscal 2001, ICICI Bank's acquisition of Bank of Madura Limited in an all-
stock amalgamation in fiscal 2002, and secondary market sales by ICICI to institutional investors in fiscal 2002 and fiscal
2003.ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry.
The principal objective was to create a development financial institution for providing medium-term and long-term project financing
to Indian businesses. In the 1990s, ICICI transformed its business from a development financial institution offering only project
finance to a diversified financial services group offering a wide variety of products and services, both directly and through a number
of subsidiaries and affiliates like ICICI Bank. In 1999, ICICI become the first Indian company and the first bank or financial
institution from non-Japan Asia to be listed on the NYSE.

BANK OF INDIA
Bank of India was founded on 7th September, 1906 by a group of eminent businessmen from Mumbai. The Bank was under private
ownership and control till July 1969 when it was nationalised along with 13 other banks.
Beginning with one office in Mumbai, with a paid-up capital of Rs.50 lakh and 50 employees, the Bank has made a rapid growth
over the years and blossomed into a mighty institution with a strong national presence and sizable international operations. In
business volume, the Bank occupies a premier position among the nationalised banks.
The Bank has over 5000 branches in India spread over all states/ union territories including specialized branches. These branches
are controlled through 55 Zonal Offices and 8 NBG Offices. There are 60 branches/ offices and 5 Subsidaries and 1 joint venture
abroad.
The Bank came out with its maiden public issue in 1997 and follow-on Qualified Institutions Placement in February 2008.

BANK OF BARODA
Bank of Baroda (BOB) was established on 20th July, 1908 in the princely state of Baroda by the great visionary, Sir
SayajiraoGaekwad III. The founder strongly believed that, "a bank of this nature would prove to be a beneficial agency for lending,
transmission and deposit of money and a powerful factor in the development of art, industries and commerce of the state as also of
adjoining territories". Unlike other state-owned bank, BOB could maintain its unique identity and established a strong national
presence even before independence, to all corners of the country. The Bank was led by eminent personalities and great bankers like
Shri V.D. Thakersey, WalchandHirachand, R.D. Birla, N.M. Chokshi, M.G. Parikh and others. BOB was amongst the first few
banks to venture overseas by opening a branch at Mombasa in 1953. Today it has significant international presence with a network
of 72 offices in 25 countries.
Bank of Baroda has 100 years of glorious performance and an uninterrupted profit record, serving generation after generation around
the globe.

KOTAK MAHINDRA BANK

Kotak Securities Ltd. 100 % subsidiary of Kotak Mahindra Bank is one of the oldest and largest broking firms in the Industry. A
subsidiary of Kotak Mahindra bank. Reconstruction from a private company to a public limited company effective from June 13,
2004. Act as a lead manager to several (IPO’s) & help in Client in accessing the public & private equity market.It is also a depository
participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).Kotak Securities
Limited has Rs. 2300 crore of Assets under Management (AUM) as of 31st March, 2013.

CANARA BANK
CANRA BANK is also one of the leading merchant bankers in India, offering specialize services to banks, PSUs, and State owned
corporation, Local statutory bodies, & corporate sector.It is SEBI register with CAT I Merchant banker to carry on issue
management (public, right, private placement), Underwriting Consultancy, Corporate advisory services.It have associated with
issue ranging from 1 crore to 1500 crore, involving various types of industries, banks , statutory Bodies etc. & have an edge in
handling Private Placement issue- Both Retail & HNIs.

Data Analysis:
1. To compare the 5 years of Operating profits, Profit after tax, Gross Profit of merchant banking in Private sector and Public
sector.

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Rs. In Crore
Year Operative Profit PAF GP
SBI HDFC BOI AXIS BOB ICICI
2014-15 15594 12949 16833 15594 16833 15159
2015-16 16104 13926 18093 16104 18093 15402
2016-17 17585 15167 18618 17585 18618 16289
2017-18 19005 17726 21708 19005 21708 19674
2018-19 23438 18478 25206 23438 25206 20164

Interpretation:- The Operating profits increases in SBI and decreases in HDFC and Profit after tax increases in BOI
and decreases in AXIS and Gross profit increasing in BOB and decreases in ICICI.

2. To Study the services offered by Public sector & Private Sector bank in merchant bank.

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3. To analyse the financial position of Public & Private sector.

Balance sheet of SBI BANK

BALANCE SHEET OF Mar-20 Mar-19 Mar-18 Mar-17 Mar-16

STATE BANK OF INDIA (in
Rs. Cr.)
12 mths 12 mths 12 mths 12 mths 12 mths
EQUITIES AND LIABILITIES
SHAREHOLDER'S FUNDS
Equity Share Capital 892.46 892.46 892.46 797.35 776.28
TOTAL SHARE CAPITAL 892.46 892.46 892.46 797.35 776.28
Revaluation Reserve 23,762.67 24,653.94 24,847.99 31,585.65 0
Reserves and Surplus 2,07,352.30 1,95,367.42 1,93,388.12 1,55,903.06 1,43,498.16
Total Reserves and Surplus 2,31,114.97 2,20,021.36 2,18,236.10 1,87,488.71 1,43,498.16
TOTAL SHAREHOLDERS 2,32,007.43 2,20,913.82 2,19,128.56 1,88,286.06 1,44,274.44
FUNDS
Deposits 32,41,620.73 29,11,386.01 27,06,343.29 20,44,751.39 17,30,722.44
Borrowings 3,14,655.65 4,03,017.12 3,62,142.07 3,17,693.66 3,23,344.59
Other Liabilities and 1,63,110.10 1,45,597.30 1,67,138.08 1,55,235.19 1,59,276.08
Provisions
TOTAL CAPITAL AND 39,51,393.92 36,80,914.25 34,54,752.00 27,05,966.30 23,57,617.54
LIABILITIES
ASSETS
Cash and Balances with 1,66,735.78 1,76,932.42 1,50,397.18 1,27,997.62 1,29,629.33
Reserve Bank of India
Balances with Banks Money 84,361.23 45,557.69 41,501.46 43,974.03 37,838.33
at Call and Short Notice
Investments 10,46,954.52 9,67,021.95 10,60,986.72 7,65,989.63 5,75,651.78
Advances 23,25,289.56 21,85,876.92 19,34,880.19 15,71,078.38 14,63,700.42
Fixed Assets 38,439.28 39,197.57 39,992.25 42,918.92 10,389.28
Other Assets 2,89,613.55 2,66,327.70 2,26,994.20 1,54,007.72 1,40,408.41
TOTAL ASSETS 39,51,393.92 36,80,914.25 34,54,752.00 27,05,966.30 23,57,617.54
OTHER ADDITIONAL
INFORMATION
Number of Branches 22,141.00 22,010.00 22,414.00 17,170.00 16,784.00
Number of Employees 2,49,448.00 2,57,252.00 2,64,041.00 2,09,567.00 2,07,739.00
Capital Adequacy Ratios (%) 13 13 13 13 13
KEY PERFORMANCE
INDICATORS
Tier 1 (%) 11 11 10 10 10
Tier 2 (%) 2 2 2 3 3
ASSETS QUALITY
Gross NPA 1,49,091.85 1,72,753.60 2,23,427.46 1,12,342.99 98,172.80
Gross NPA (%) 6 8 11 7 7
Net NPA 51,871.30 6,58,947.40 1,10,854.70 58,277.38 55,807.02
Net NPA (%) 2.23 3 6 4 4
Net NPA To Advances (%) 2 3 6 4 4
CONTINGENT LIABILITIES,
COMMITMENTS
Bills for Collection 55,758.16 70,022.54 74,027.90 65,640.42 1,99,140.17
Contingent Liabilities 12,14,994.61 11,16,081.46 11,62,020.69 10,46,440.93 9,71,956.01

=2.956725
Interpretation: - It includes shareholders’ funds, capital assets and liabilities and to calculate the debt ratio with total liabilities
and total assets to solve the yearly balance in SBI Bank.

Balance sheet of AXIS BANK

BALANCE SHEET OF AXIS Mar-20 Mar-19 Mar-18 Mar-17 Mar-16
BANK (in Rs. Cr.)
12 mths 12 mths 12 mths 12 mths 12 mths
EQUITIES AND
LIABILITIES
SHAREHOLDER'S FUNDS
Equity Share Capital 564.34 514.33 513.31 479.01 476.57
TOTAL SHARE CAPITAL 564.34 514.33 513.31 479.01 476.57
Revaluation Reserve 0 0 0 0 0
Reserves and Surplus 84,383.51 66,161.97 62,931.95 55,283.53 52,688.34

Total Reserves and Surplus 84,383.51 66,161.97 62,931.95 55,283.53 52,688.34

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TOTAL SHAREHOLDERS 84,947.84 66,676.30 63,445.26 55,762.54 53,164.91

FUNDS
Deposits 6,40,104.94 5,48,471.34 4,53,622.72 4,14,378.79 3,57,967.56
Borrowings 1,47,954.13 1,52,775.78 1,48,016.14 1,05,030.87 99,226.38
Other Liabilities and Provisions 42,157.90 33,073.12 26,245.45 26,295.47 15,108.77
TOTAL CAPITAL AND 9,15,164.82 8,00,996.53 6,91,329.58 6,01,467.67 5,25,467.62
LIABILITIES
ASSETS
Cash and Balances with 84,959.24 35,099.03 35,481.06 30,857.94 22,361.15
Reserve Bank of India
Balances with Banks Money at 12,309.04 32,105.60 7,973.83 19,398.24 10,964.29
Call and Short Notice
Investments 1,56,734.32 1,74,969.28 1,53,876.08 1,28,793.37 1,22,006.20
Advances 5,71,424.16 4,94,797.97 4,39,650.30 3,73,069.35 3,38,773.72
Fixed Assets 4,312.90 4,036.64 3,971.68 3,746.89 3,523.17
Other Assets 85,425.16 59,988.01 50,376.62 45,601.87 27,839.08
TOTAL ASSETS 9,15,164.82 8,00,996.53 6,91,329.58 6,01,467.67 5,25,467.62
OTHER ADDITIONAL
INFORMATION
Number of Branches 4,528.00 4,050.00 3,703.00 3,304.00 2,904.00
Number of Employees 74,140.00 61,940.00 59,614.00 56,617.00 50,135.00
Capital Adequacy Ratios (%) 18 16 17 15 15
KEY PERFORMANCE
INDICATORS
Tier 1 (%) 14 13 13 12 13
Tier 2 (%) 3 3 4 3 3
ASSETS QUALITY
Gross NPA 30,233.82 29,789.00 34,248.64 21,280.48 6,087.51
Gross NPA (%) 5 5 7 5 2
Net NPA 20,802.68 18,351.00 16,592.00 8,626.60 2,522.14
Net NPA (%) 1.56 2 4 2 1
Net NPA To Advances (%) 2 2 4 2 1
CONTINGENT
LIABILITIES,
COMMITMENTS
Bills for Collection 47,842.76 51,972.86 49,565.60 81,055.36 80,764.78
Contingent Liabilities 9,22,968.76 7,55,765.27 0 0 5,87,961.04

Debt ratio=Total Liabilities /Total Asset

=1.14894865
Interpretation: - It includes shareholders funds, capital assets and liabilities and to calculate the debt ratio with total liabilities
and total assets to solve the yearly balance in AXIS Bank.

Findings:
● The total income of both SBI and HDFC has been increasing over the years, but the increasing rate of HDFC bank is
higher than SBI.
● The net interest income of both SBI and HDFC has been increasing over the years and mean of net interest income of
SBI is higher than HDFC.
● The net profit of SBI has a fluctuating trend ie, both increasing and decreasing trend over the last five years from
2014-15 to 2018-19 but SBI has incurred net loss in the year 2017-18.
● Large no. of companies takes financial services from SBI than other banks.
● Out of total respondents, 50% respondents Say Good, 35% Say Normal and rest 15% respondents say badly about
banking in private sector.
Suggestions:
● Merchant bank should attract customers in rural areas to use banking services for their agricultural and other transactions
for security.
● Merchant bank shall develop new schemes in order to attract customers to deposit gold in the bank.
● Merchant bank should implement effective plans for short term deposits in order to improve liquidity.
● Merchant banking should implement electronic machines for transacting the Demand draft and cheques.
● Merchant bank should conduct the awareness programmes to make awareness of Internet and Mobile banking.

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Conclusion:
● Longstanding client relationships
● Strong positions in high-growth client and product niches.
● Multiple revenue growth initiatives are in place with detailed and concrete action plans, and with rigorous follow-up
mechanisms.
● Growth is controlled by a sound Risk Management System and disciplined cost management.
● Small & Medium scale enterprises SMEs need immediate attention from merchant bankers to get access to finance.
● SMEs are facing stiff competition from large scale companies

BIBLIOGRAPHY
BOOKS
1. Siddique S.A, “Financial Analysis” (2010), Laxmi publications, New Delhi.
2. Pandey I.M, “Financial Management”(2010), Vikas publishing house Pvt Ltd, New Delhi.
3. Tulsian P.C, “Financial Analysis”(2008), Pearson education, Delhi.
4. Kothari C.R, “Research Methodology”(2014), New age international,

WEBSITES:

1. http://unionbankofindia.co.in

2. http://sbi.co.in

3. http://www.icicibank.com

4. http://www.pnbindia.in

5. http://bankof baroda.in

6. http://canarabank.com

7. www.idbibank.in

8. www.moneycontrol.com

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