merchant banking amp small scale industry

7/27/2019 Merchant Banking Amp Small Scale Industry

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INDEX

TOPIC PAGE NO:

MERCHANT BANKING

(INTRODUCTION, DEFINITION & ORIGIN) 4

MERCHANT BANKS 5-6

MERCHANT BANKING IN INDIA 7

MERCHANT BANKING ACTIVITIES 8-9

FINANCING FOR SMALL SCALE UNITS

(INTRODUCTION & DEFINITION) 10

OBJECTIVIES & IMPORTANCE 11

WHY FINANCE SMALL SCALE UNITS? 12

REGISTERING OF SMALL SCALE UNITS &CREDIT FLOW

OF SMALL SCALE INDUSTRIES

13-14

CASE STUDY 15-16


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MERCHANT BANKING

INTRODUCTION:-Merchant banking means providing various services relating

to capital market and finance to corporate sector. Banks of

tomorrow will be seen as financial boutiques offering a bouquet of

securities activities, insurance activities and other financial services

through subsidiaries such as mutual funds and capital market or

merchant banking besides its traditional functions.

DEFINATION OF MERCHANT BANKING:-In banking, a merchant bank is a financial institution primarily

engaged in offering financial services and advice to corporations and

wealthy individuals on how to use their money. The term can also be

used to describe the private equity activities of banking.

ORIGIN OF MERCHANT BANKING:-The origin of merchant banking is to be traced to Italy in late

medieval times & France during the 17th & 18th centuries. The Italian

merchant bankers introduced up to England not only the bills of

exchange but also all the institutions & techniques connected with

an organized money market. In France, during 17th & 18th centuries

a merchant banker (i.e. merchand banquer) was not merely a trader

but an entrepreneur par excellence. He invested his accumulated

profits in all kinds of promising business to his merchant activities &

became a merchant banker.
http://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Private_equityhttp://en.wikipedia.org/wiki/Private_equityhttp://en.wikipedia.org/wiki/Bank


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MERCHANT BANKS

Merchant Banks are the financial intermediaries. They act asan intermediary for transfer of capital from those who own it tothose who use it

Merchant bankers provide assistance to the corporate houses

for setting up industries which ultimately reflects into the overall

economic development of the country. Merchant banks are expected

to perform several functions for corporate houses such as:

Issue management, underwriting, portfolio management, loan

syndication, consultant, advisor and host of other activities, while

banks assist industrial development by providing term loans &

guarantees for setting up units & working capital. Merchant bankers

play a different role by assisting industrial houses in the very

formation of the unit & their horizontal & vertical expansion. The

steps involved in the formation of a company is like setting up the

plant, meeting unforeseen, situation-legal & other provisions, raising

of capital require expert assistance in various fields. Merchant

bankers assist in this process of co-ordinating various opportunities

& financial options.


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These services do not come under the control of RBI, but SEBI

was made powerful to regulate the activities of merchant banks in

the best interest of investors and economy. However banks are

farming subsidiaries to undertake merchant banking activity & RBI

may be interested in verifying the books of banks subsidiaries.SBI

was the 1st Indian bank to set up a merchant banking subsidiary,

followed by CANARA Bank. A number of banks have set up

subsidiaries or separate departments for this business.

Apart, merchant banking was the necessity of banks

themselves which were in need of non-fund based income so as to

improve their profitability margins by all means in the changed

economic scenario. Although merchant banking services are no

longer a part of commercial banking operations in India a brief

account of these activities are provided in here. Now, it could be

anybody's anxiety to know whether merchant banks are performing

their duties honestly as they were expected to do. What duties they

performs most and in what capacity. Whether merchant banking

business helped banks them to improve their overall profitability.


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MERCHANT BANKING IN INDIA

Merchant banking activity was formally initiated into the

Indian capital markets when Grind lays bank received the license

from Reserve bank in 1967. Grind lays which started with

management of capital issue, recognized the needs of emerging class

of entrepreneurs for diverse financial services ranging from

production planning & system design to market research. A partfrom meeting specially, the needs of small scale units, it provided

management consultancy services to large & medium sized

companies. Following up the Grind lays bank, Citi bank also set up

its merchant banking division in 1970.The division took up the task

of assisting new entrepreneurs & existing units in the evaluation of

new projects & raising funds trough borrowing & issue of equity.

Management consultancy services were also offered.

Consequent to the recommendations of banking commission

in 1972, those Indian banks should start merchant banking services

as part of their multiple services they could offer their clients. State

bank of India (SBI) started the merchant banking division in 1972.In

the initial years the SBIs objective was to render corporate advice &

assistance to small & medium scale entrepreneurs.


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MERCHANT BANKING ACTIVITIESPunjab National Bank, Indias one of the Leading Nationalized

Bank established in 1895, serving over 3.5 crores customers

through 4520 branches and 439 extension counters is the largest

amongst Nationalized Banks. The Bank has recently been ranked

21stamong top 500 companies and 9th among top 50 brands by the

Economic Times. All the Branches of the Bank have been

computerized. The Bank has a concept of "Any Time, Any Where

Banking" through the introduction of Centralized Banking Solution

(CBS) and over 2511 offices have already been brought under its

scope.

The Bank is registered with SEBI as Category I Merchant

Banker for providing all the major Merchant Banking services. Ourcomplete range of Merchant Banking services includes:

1. Project counseling

2.Refund banker

3.Issue management

4.Portfolio management

5.Corporate counseling

6.Venture capital

7.Acquisitions & mergers

8.Management of fixed deposits of joint stock companies


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9.Underwriting of capital issues

10. Debenture trustee

11. Loan syndication

12. Bought out deals

13. other services such as leasing, counseling to small scale

industries & stick industrial units, amalgamations etc.

The Software for handling the Refund Banker is one of the best

systems in the industry. Its unique features provides online

payment of the instrument by our 2470 branches in 733 centers,

online status of paid instruments, 100% reconciliation at any point

of time etc. The Bank has an exclusive and specialized Capital

Market Service Branch at New Delhi for providing Merchant

Banking Services to the Corporate.


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FINANCING FOR SMALL SCALE UNITS

INTRODUCTION:-

Small-scale industries occupy a place of strategic

importance in Indian economy in view of its considerable

contribution to employment, production and exports. However,

since 1991 small-scale industries in India find themselves in an

intensely competitive environment due to globalization, domesticeconomic liberalization and dilution of sector specific protective

measures. This paper probes the implications of globalization and

domestic economic liberalization for small-scale industries and

analyses its growth performance in terms of units, employment,

output and exports. The paper concludes with policy

recommendations to ensure the sustenance and competitive growth

of small-scale industries in India.

DEFINITION:-Small scale industrial units are those engaged in the

manufacture, processing or preservation of goods and whose

investment in plant and machinery (original cost) does not exceed

Rs. 1 crore. These would, include units engaged in mining or

quarrying, servicing and repairing of machinery.


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OBJECTIVES:-1.To create vast employment opportunities for people2.To effect decentralization of industries by creating industrial

estate.3.Redistribution of economic power as well as income.4.To raise the STD of living of the people.5.To increase industrial production.6.To utilize the available resources.7.Promoting industrial development of backward areas.8.To facilitate mobilization of resources for capital and skill.

IMPORTANCE:-1.Labor intensive scheme.

2.Facilitates capital formation.

3.Production.

4.Training ground for local entrepreneur.

5.Mobilization of services.

6.Own identity.

7.Linkages.


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10

FINANCING:-1.Commercial banks.

2.State bank of India & its

subsidiaries.

3.State director of industries.

4.

State financial corporation

5.Small industries

development bank of

India(SIDBI)

--They sanction loans for

meeting working capital needs.

- -They sanction medium-term &

installment credit loans for

purchase of machinery &

construction of factory building.

They also provide working

capital for purchase of raw

materials

--They provide long-term under

state aid industries act/rules for

back capital.

--They provide long-term credit

for purchase of fixed assets.

--SIDBI provides finance for

new projects, expansion,

diversification, modernization,

rehabilitation. In addition it

provides refinance assistance to

other institutions engaged in

similar activities.


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REGISTERING OF SMALL SCALE UNITS:-The main purpose of Registration is to maintain statistics

and maintain a roll of such units for the purposes of providing

incentives and support services.

States have generally adopted the uniform registration

procedures as per the guidelines. However, there may be some

modifications done by States. It must be noted that small industries

is basically a state subject. States use the same registration scheme

for implementing their own policies. It is possible that some states

may have a 'SIDO registration scheme' and a 'State registration

scheme'.

CREDIT FLOW OF SMALL SCALE INDUSTRIES:-Under a scheme to be drawn up by the RBI, banks will be

encouraged to establish mechanisms for better co-ordination

between their branches and branches of SIDBI which are located in

50 clusters that have been identified by the Ministry of Small Scale

Industries, Government of India. Under the scheme of strategic

alliance


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(i) the existing branches of SIDBI redesignated as 'Small

Enterprises Financial Centers (SEFC) will take up co-

financing of term loan requirements of SSI units along

with the bank branches and the working capital

requirements of these units will be met by the banks;

(ii) The expertise of the SIDBI in appraisal of credit

requirements of SSI units will be leveraged by the

branches of commercial banks, by payment of a nominal

fee;

(iii) SIDBI will provide other expert services to help the

banks in simplifying the application forms,

documentation and disbursement procedures, etc.;&

(iv) The working of the scheme may be monitored and

modified to suit the local conditions by the State Level

Bankers' Committee (SLBC) and, depending on the

experience; the coverage of the scheme may be extended

to more clusters. The services of SEFCs will be available

for tiny industrial units also.

(v) The Nayak Committee Report was the most

comprehensive report to suggest several practical

measures for enhancing credit flow to the SSI sector.


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RBI asks banks to take measures to boost credit to small industries Mumbai, Aug 26: To back up Union finance minister P

Chidambaram's announcement on stepping up credit to small and

medium enterprises (SMEs), the Reserve Bank of India (RBI) has

asked banks to implement certain measures for improving credit to

the sector.

At present, a small scale industrial unit is an industrial undertaking

in which investment in plant and machinery, does not exceed Rs 1crore except in respect of certain specified items under hosiery,

hand tools, drugs and pharmaceuticals, stationery items and sports

goods where this investment limit has been enhanced to Rs 5 crores.

A comprehensive legislation which would enable the paradigm shift

from small scale industry to SMEs is under consideration of

Parliament. Pending enactment of the above legislation, current

SSI/tiny industries definition may continue.

Units with investment in plant and machinery in excess of SSI limit

and up to Rs 10 crores may be treated as medium enterprises (ME).

Only SSI financing will be included in priority sector.

Also all banks may fix self-targets for financing to SME sector so asto reflect a higher disbursement over the immediately preceding

year, while the sub-targets for financing tiny units and smaller units

to the extent of 40% and 20% respectively may continue. Banks may


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arrange to compile data on outstanding credit to SME sector as on

March 31, 2005 as per new definition and also showing the break up

separately for tiny, SMEs.

The central bank wants banks to initiate necessary steps to

rationalize the cost of loans to SME sector by adopting a transparent

rating system with cost of credit being linked to the credit rating of

enterprise.Sidbi has developed a credit appraisal & rating tool (Cart)

as well as a risk assessment model (RAM) and a comprehensive

rating model for risk assessment of proposals for SMEs. The banks

may consider by taking advantage of these models as appropriate

and reduce their transaction costs.

In order to increase the outreach of formal credit to the SME sector,

all banks, including regional rural banks may make concerted efforts

to provide credit cover on an average to at least 5 new SMEs at each

of their semi urban/urban branches per year.


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BIBLIOGRAPHY:-1.

Universal banking text book

By: - suman kalani

2.Wikipedia

3.Google.com

4.Financial marketing

By:-Gordon & natraj

merchant banking amp small scale industry

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