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Merchant Banking License

Merchant banker is a company and is combination of consultancy and banking services. Activities of merchant banker in India are regulated by SEBI (merchant banker) rule 1992.

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Introduction

Merchant banker is a company and is a combination of consultancy and banking services. Activities of merchant bankers in India are regulated by SEBI (merchant banker) rule 1992.

As per SEBI rule:

Any person who is engaged in the business of issue management either by making arrangements regarding buying, selling or subscribing to securities or acting as manager, consultant or rendering corporate advisory services in relation to such issue management.

It may perform some of its services like investment banks but can’t as regular banks. These are specialized banker accept and underwrite or syndicate equity or bond issues.

Services that Merchant Bankers Provide

  1. Issue Management
  2. Credit Syndication
  3. Project Appraisal
  4. Handles government consent for industrial projects
  5. Security Trustee Services
  6. Buy Back Assignment
  7. Share valuation
  8. Issuing and Paying Agent
  9. Capital Structuring
  10. Post Issue management
  11. Underwriting

 

Issue Management

Initially, merchant bankers mostly performed the function of handling new public issues of corporate securities of newly established companies or existing companies and foreign companies in the FERA equity dilution process. Here, they served as issue sponsors. They get permission from the Capital Issues Controller (which is now the SEBI). They also have many other services to ensure success in the securities marketing process. These services include prospectus preparation, underwriting arrangements, the appointment of registrars, banks, issue brokers, advertisement and advertisement arrangements, and compliance with the listing standards of the applicable stock exchanges, etc. A merchant banker serves as experts on the terms, type, and timing of the corporate securities issues and makes them appropriate for investors and gives the issuing companies independence and flexibility.

Credit Syndication

A merchant banker offers specialized services in the project planning phases, the loan applications required to collect short-term and long-term loans from various banks and financial institutions, etc. They help handle Euro-issues and collect funds overseas.

Handles government consent for industrial projects

A merchant banker completes all formalities regarding government approval to grow and modernize business (necessary for businesses) and launch new businesses (necessary for businesses).

Capital Structuring

Such merchant bankers 'activities include mergers, acquisitions (over existing units), unit sales, and disinvestment. Such procedures include careful discussions, an extensive review of various documents and lengthy legal formalities to be completed. On behalf of the clients, merchant bankers meet all of these formalities.

Categories of merchant banker

Category

Role

Fees charged

Category I

Minimum net worth

required 5 crore

issue management

Advisor

Consultant

Manager

Underwriter

Portfolio manager

 

2.5 lakh for first 2years

 

1.5 lakh for 3rd year

Category II

Minimum net worth

required 50 lakhs

Advisor

Portfolio manager

Consultant

Underwriter

Co-manger

 

1.5 years for the first 2 years

 

50000 for 3rd year

Category III

Minimum net worth

required 20 lakh

Underwriter​

Advisor

Consultant

Minimum 50000

Category IV

No minimum net worth required

Advisor

Consultant

Minimum 20000

Process, fee & forms for license of merchant banker

 

a. No person shall carry on the activity as a merchant banker unless he holds a certificate granted by SEBI

b. A merchant banker is required to have a minimum net worth of not less than 5 crore

c. An applicant required to send application form A along with additional information along with a non-refundable fee of 50000 by way of demand draft.

d. Every merchant banker is required to pay 20 lakh as registration fee (as per SEBI regulation, 2014) at the time of grant of certificate of initial registration by SEBI. And this certificate of initial registration remains for 5 years. The merchant banker must apply to SEBI for a permanent certificate, 3 months before the expiry of the validity of the initial registration certificate, if he wishes to continue as a merchant banker.

e. For permanent registration, the merchant banker is required to pay 9 lakh for the first block of 3 years towards permanent registration payable in term of schedule iii of SEBI regulation 1992.

f. Merchant banker is required to take SEBI’s prior approval for change in control.

ADDITIONAL INFORMATION SHEET

In addition to the information furnished in form A, the applicant is also required to furnish the detailed information on the following areas, as per the instructions contained therein.

a. MOA & AOA of company (Memorandum and Article of Association of the applicant company)

b. Provide the UIN obtained under MAPIN for the applicant.

c. Details of Directors/ Promoters & shareholding pattern

d. Details of Key personnel

e. Details of infrastructure facilities

f. Details regarding registration as NBFC

g.  Financial Accounts of the applicant

h. Report from principal bankers

i. Details of associated registered intermediaries

j. Undertakings

k. Enclosures

l. Declaration by at least two directors

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