PROBLEMS OF MERCHANT BANKERS -Mohith Sharma

As per SEBI guidelines, Merchant Bankers are authorized to undertake only issue related activities, which restrict their scope of activities. Issuing companies do not adhere to the schedule in allotment and refund of application money thereby creating trouble for the image of these bankers at the investors. Yet merchant banking is vast but should develop adequate expertise to provide a full range of merchant banking services

SEBI stipulates high capital adequacy norms for authorisation which prevents young, specialised professionals into merchant banking business Non co-operation of the issuing companies in timely allotment of securities and refund of application of money etc.. is another problem Yet merchant banking is vast but should develop adequate expertise to provide a full range of merchant banking services Minimum net worth of Rs.1 crore SEBI guidelines stipulate that a minimum net worth of Rs.1crore for authorization of merchant bankers. Restriction of merchant banking activities, SEBI guidelines have authorised merchant bankers to undertake issue related activities and made them restrict their activities or think of separating these activities from present one and float new subsidiary and enlarge the scope of its activities. Non co-operation of the issuing companies in timely allotment of securities and refund of application money is another problem faced by merchant bankers. Not many but some problems are faced by Indian merchant bankers. I. Industry compartmentalization: company which is in merchant banking business would have expertise in underwriting, hire purchase, leasing, and portfolio management, moneylending. But RBI does not permit merchant banking firms to get into these activities. So the

same promoters have to setup different companies for different purposes. Management cost increases and expertise pooling i.e. multiple use of same talent is not possible. II. Malafide practices: India corporate culture is bettering. but still many corporate have excessively friendly approach. Favored allotment of shares, tampering with project appraisal report to bankers is common. Corporate like to use merchant bankers for malafide intentions. This gives growth to more boutique fly-by-day firms. Giant professional or multinational merchant bankers are cautions in their approach to Indian market.

III. Regulations: though regulations are much better now, there is still scope for further improvement. Merchant bankers can be made more accountable and responsible. Professional qualification focused on merchant banking is not available. Industry is not well organized and all the players do not play the same tune. This is specifically evident in comparison with insurance industry and mutual funds industry.