Study on "Emergence of Merchant Banking"


By

H. Kamalini
Lecturer
Department of Management Studies
SSM College of Engineering
Komarapalayam
 


Introduction:

The  Progress of any economy mainly depends on the efficient financial system of the country. Indian economy is no exception of this. This importance of the financial sector reforms affirms an effective means for solving the problems of economic, financial and social in India and elsewhere in the developing nations of the world. The progress of the securities Industry of any country depends mainly on the flow of funds.Infact, Capital generation is the lifeblood of the capital market without which the health and soundness of the financial system cannot be geared up and for which well-developed capital market as well as money market is essential.

Reports in Merchant Banking  in present trend:

A report document on "Merchant Banking under SEBI guidelines A study of Regulators in Developing Capital Markets"  is the significant contribution of sarker De and sushil Kanna. The regulations in question applied to investment or Merchant Banking Services required for corporate issues of long-term securities in India.

Significant recommendations of the study:

* Regulation requiring all issues to be managed and certified by a Merchant Banker chould be relaxed in case of rights offerings.

* The set of issues, which are placed through a public offering, will include all high and low quality issues, will be placed through a  rights offering.

* For the set of issues, which are placed through a public offering, further screening can be  achieved by making underwriting optional.

* For the screening mechanism in the preceding recommendation to be effective, the current 90% subscription rule should be strengthened.

* SEBI's objectives of improving disclosure of private information and investor protection can be achieved.

Ranking of Merchant Banking in India:

Merchant Banker

OE

FSS

QPS

QM

INN

ICICI  Securities

4.0

4.0

4.2

3.8

4.3

IDBI

4.2

3.2

4.5

4.0

4.8

SBI Caps

4.4.

3.9

4.6.

6.7

5.2

DPS

6.1

5.7

6.0

6.0

5.3

IFCI

6.1

5.7

6.0

6.0

6.3

Bank of Baroda

6.7

6.5

6.7

6.6

6.8

Jardine Fleming

5.8

6.2

5.9

5.0

5.5

JM Finance

6.0

6.5

5.5

5.9

5.4

ENAM

6.3

6.8

6.4

6.3

6.2

PNB Caps

6.8

6.8

6.7

6.8

6.8


Note: OE: Overall Excellence; FSS: Financial Soundness ; QPS: Quality Product/Service; QM: Quality Management; INN: Innovativeness.

Objectives of Merchant Banking in Prevailing Economy:

* To study the significance of Merchant Banking towards the development of securities industry.
* To analyze issue management regulations.
* To analyze the functions of Merchant Banking in relation to rules and regulations of SEBI.
* To evaluate the performance of Merchant Bankers, both activity performance and operational and financial performance.
* To draw a conclusion and suggestions based on the analysis and experiences.

Conclusion of the study:

A new competition has started among Merchant Banking outfits in approving higher and higher premium to attract the business. In many cases their pricing emphasis is one qualitative actors like promoters experience, marketing network, brand name and export potential and performance.

Finally, it has been concluded that, there is no uniform pricing methodology and no Lead Manager is following the same methodology for all the issues handled.

References:

* Bhat, V.V., Japan: Main Bank system and India: Lead Bank system, International Journal banks, vol. 12, No.1, 1992 and  the world bank, 1990.
* Verma, V., "Merchant Banking", 1995
* SEBI, "Indian Securities Market Agenda for Development and Reform A Discussion Paper".
* SEBI: Merchant Banking Regulations, 1992.
* G.B. Desai, " stock Market Reforms," The stock Exchange Review, March 1993 (Speech delivered by Shri. G.B. Desai, President), BSE, at the seminar on "Stock Market  Reforms" at the Indian Merchant Chamber on 13 th February 1993.
* Manchiraju, H.R., "Merchant banking Principles and Practice, New Age International (p) Limited Publishers, New Delhi.
* The Economic Times, "SEBI plans to triple Merchant Bankers Net worth Criteria," June 25, 1997.
* The Financial Express, "SEBI lists 120 errant Merchant Bankers list," May 24,1997.
 


H. Kamalini
Lecturer
Department of Management Studies
SSM College of Engineering
Komarapalayam
 

Source: E-mail March 14, 2007

       

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