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Merchant Bankers License in India

  • Merchant Bank Business plan
  • Filling ofApplication before Security Exchange Board of India (SEBI)
  • Day to day basis

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What do you mean by Merchant Bankers?

The institution which primarily engages itself in underwriting & business loans, catering to the needs of large-scale enterprises & high net worth individuals is Merchant banker. It is also known as Investment Banking.

Because of their expertise in international trade they are specialists in dealing with various multinational entities &constructing strategic alliances. Large organization who do their business oversee can be granted finance from these merchant bankers. Corporation issue of securities through private placements can also be helped by Merchant Banks.

They alsogives corporate advisory services to the firms they invest in.

Function of Merchant bankers:

In order to explain the role of a Merchant Bank, assume a multinational corporation XYZ is considering tobuy a smaller company in somewhere else another country. The services of a merchant bank for advice on how to best approach the acquisition process will likely be solicited by Company XYZ. In extension of this, the merchant bank may also help in the financing of the acquisition, providing underwriting or loan services.

These are some examples of Merchant Bankers in India.

Canara Bank, KarurVysya Bank, ICICI Securities Ltd, IFCI Financial Services Ltd etc.

Legislation

SEBI (Merchant Bankers) Regulations, 1992

SEBI (Payment of Fees) (Amendment) Regulations, 2014

Fees applicable:

A non-refundable application fee of Rs. 50000/- is required to be paid at Mumbai for registration by way of demand draft drawn in favor of 'SEBI' byan applicant.

Initial Registration – 20 Lacs (whose validity is 5 years)

Permanent Registration – 9 Lacs

Normson Capital Adequacy

A minimum net worth of not less than 5 Crore is required to be maintained by merchant banker. To act as a Merchant Banker the eligibility is given only to a Body Corporate other than an NBFC.

 Different Categories of a Merchant Banker are:

  1. Category I:  To operate as adviser, consultant, manager, underwriter, portfolio manager whose Net worth is 5 Crores and to carry on the activity of issue management
  2. Category II: To operate as adviser, consultant, manager, underwriter, portfolio manager whose Net Worth is 50 Lakhs.
  3. Category III: To operate as underwriter, advisor or consultant to an issue whose Net Worth is 20 Lakhs.
  4. Category IV: To operate only as advisor or consultant to an issue. Whose Net Worth is NIL.

 What are the Change in Control?

Prior approval of SEBI is required to be obtained before effecting any change in control of management by Merchant Bankersas per section 9A. The effect is on the fresh registration also, they have to obtain fresh registration within 6 months from affecting the change under section 12.

 What does  RBI Mandate?

Banks are allowed to operate under merchant banking activities with the help of a separate subsidiary which would be required to comply with SEBI regulations issued in this behalf as per RBI's Master Circular on Para-Banking activities. As per the norms prescribed by RBI, as well as the statutory limits contained in Section 19(2) & (3) of the Banking Regulation Act, 1949, banking Institutions performing merchant banking activities are also required to follow the requirements laid down in the prudential exposure .

Eligibility

  • There is a requirement that an applicant should be a Body Corporate other than an NBFC.
  • The activitiesto be carried out by the applicant is allowed only the activities connected to the securities market.
  • Two employees having prior experience in Merchant Banking Applicant is the requirement of minimum employees.
  • There should be no activity of guilty of misconduct or an economic offense by the applicant.
  • Minimum capital of 5 Crores is required.
  • There should be no relation to any other entity which is already registered as a Merchant Banker by the applicant.

There is increasing need for corporate restructuring and easing of FDI norms due to factors such as the growth of the primary market,merchant banking has never been more relevant in India. Therefore,norms governing merchant banking are needed to be established, especially those related to capital adequacy and registration, and these norms should be relaxed in order to allow the entry of small players enter and further expand the exclusive club of merchant bankers in India.

 What are thee services provided by a Merchant Banker?

  • Counselling of Project
  • Debt & Equity Offerings management
  • Issue Management
  • Underwriting ofIssue made to public
  • Management of portfolio
  • Strategies Restructuring
  • Offshore finance
  • Loan Syndication
  • Investment made by Strategies.
  • Services related to advisory & corporate counseling.

SCHEDULE I: Forms

Form A –Application related to Grant of Certificate of Initial/Permanent Registration.
Form B- Certificate of Initial/Permanent Registration
Form C- Omitted by SEBI (ICDR) Regulations, 2009

SCHEDULE II:

FEES

SCHEDULE III:

Rules of conduct for Merchant Bankers

SCHEDULE IV:

Way to format the Half Yearly Report to be submitted by Merchant Bankers

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