Origin and Merchant Banking in India
Origin and Merchant Banking in India
Origin and Merchant Banking in India
London merchants in financing foreign trade through acceptance of bill. Merchants assisted to under developed country to rise funds in money market First merchant bank in India started by foreign bank National Grindlays bank in 1967 and City bank in 1970. Banking commission report in 1972 regarding setting up of merchant banker by commercial banks. SBI, ICICI, bank of Baroda, Canara Bank, UCO bank, Punjab National bank. Merchant banking gained prominence during 1983-84 due to the new issue boom.
Merchant Banking
Any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to the securities or acting as manager, consultant, advisor or rendering corporate advisory services in relation to such issue management.
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SEBI has the power to suspend or cancel the authorization in case of violation To ensure the transference and accountability in operation of the merchant banker and protect the investors. Inspections will be conducted SEBI to ensure that provisions of the regulation are properly complied. SEBI issued further guidelines classifying the merchant bankers into four categories based on the nature and range of activities.
Issue management
Issue management involves marketing of corporate securities viz., equity share, preference shares and debentures or bonds by offsetting them to public. Merchant banks act as intermediary whose main job is to transfer capital from those who own it to those who need it. Categories of securities issue Public issue Right issue Private placement
Right issue
When the shares are issued to the existing share holder on the privileged basis, it is called as right issue.
Private Placement
When the issuing company sells securities directly to the investors, especially institutional investors, it takes the form of private placement.
Book building
Book building is a process by which corporate determines the demand and the price of a proposed issue of securities through public bidding. According to the SEBI, there are two option available to a company, either 75 percent or 10 percent book-building process.
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The collection centers should be at least 30 which include all centers with stock exchanges. If minimum subscription of 90% has not been received, the entire amount is to be refunded to investors within 120 days The capital issue should be fully paid up within 120 days Underwriting has been made mandatory. Issues should make adequate discloser regarding the terms and conditions of redemptions, security conversion and other relevant feature of the new instruments.
Contd...
The company and book runner shall determine the issue price as per bids received. Appointing Collection centers. Allotment shall be made not later than 15 days from the closure of issue A final book of demand showing the results of allocation process shall be maintained by the book runners SEBI shall have the right to carry out an inspection of the records, books and documents relating to the book building process.