Merchant Banks vs commercial Banks

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Commercial Banks and Merchant Banks Group Members 1. Naveen M 2. Vijaykumar N 3. Sivarenjini P B 4. Lavanya E V 5. Sunil Salim 6. Sikha M S 7. Sukanya Issac 8. Joanne Mugemma 9. Leo Paul

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Merchant Banks vs commercial Banks

Transcript of Merchant Banks vs commercial Banks

Page 1: Merchant Banks vs commercial Banks

Commercial Banksand

Merchant Banks

Group Members1. Naveen M2. Vijaykumar N3. Sivarenjini P B4. Lavanya E V5. Sunil Salim6. Sikha M S7. Sukanya Issac8. Joanne Mugemma9. Leo Paul

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Contents

Commercial Banks and Nationalization (Naveen M) Roles of a Commercial Bank (Vijay) Products and Services Offered by SBI (Sivarenjini P B) Merchant Bank (Lavanya E V) Role of a Merchant Bank (Sunil Salim) Products and Services offered by SBI (Sikha M S) Difference between Commercial & Merchant banks (Sukanya) Conclusion (Joanne)

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Introduction

• We got an opportunity to visit SBI Main Branch as part of this course.

• We were able to visit Miss. Nimmy Kuruvila (Dy. Manager - ForEx) and Mr. Shyam Nanoo (Manager- NRI).

• Normal banking activities• Described about various merchant banking activities

undertaken by SBI• Specialized branches like Cochin, Mumbai, etc.

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Commercial Banks

Commercial Banks are like other financial institutions which are in the business of lending and borrowing of money or credit.

Commercial Banks are the most important credit institutions in the country in the business of lending and borrowing of money and credit creation.

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Structure of Banks in India

Commercial Banks

Indian Banks

Public Sector Banks

SBI & its Associate

Banks

Nationalised Banks

Regional Rural Banks

Private Sector Banks

New Private Banks

Old Private Banks

Foreign Banks

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• A commercial bank is owned by stockholders and operated for profit.

• Its primary functions are to receive, transfer, and lend money to individuals, businesses, and governments.

• Indian banks consist mostly of Scheduled Commercial Banks (SCBs), which includes both Public Sector Banks, and the Private Sector Banks. In Public Sector Banks, the government must retain a 51% stake.

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• Scheduled Commercial Banks in India are categorized into five different groups according to their ownership and / or nature of operation.

• These bank groups are – State Bank of India and its Associates– Nationalized Banks– Private Sector Banks– Foreign Banks and – Regional Rural Banks

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Nationalization of banks in India

• The process of transferring ownership and operational rights of a bank from private or trusts to the government of the country.

• In India also, 14 leading banks were nationalized on July 18, 1969.

• Each one’s deposits were more than Rs 50 crore.• Their share in total deposits and advances were

almost two third of all scheduled banks in nation

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• Nationalized banks were forced to follow directions and guidelines issued by government.

• At that time there were more than 645 banks having more than 4800 branches.

• They were serving only urban areas, big industrial houses at the cost of rural areas and small industries.

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• Indira Gandhi was the then P.M.• 6 more banks were nationalized in 1980.• National credit council was implementing

body.• In 1993 two banks were nationalized and no.

of nationalized banks is 19.

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Why Nationalisation ?

• To reduce concentration of economic powers with only a few industrial magnets and to prevent monopolies.

• Mobilize resources even from backward and rural areas

• To prevent lopsided regional development• To prevent corruption and misuse of firms: the

trustees were only benefiting from huge resources and it was at the cost of general development in the country.

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Why Nationalisation ? Contd

• To provide aid to the poor, small artisans and small scale industries. Small scale industries contributed 40% of industrial output but received only 4% of bank funds.

• To fulfil credit needs of farmers: hardly 2.2% of funds were available for agriculture.

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Why Nationalisation ? Contd

• To finance government’s development projects; specially five year plans

• To prevent giving loans to those firms were not existing in the priority list

• To prevent loan/advances to black marketers and hoarders.

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Roles of a Commercial Banks in Economic Development

• Provision of Finance and Credit• Financial Inclusion• Innovations• Implementation of Monetary Policy• Encouragement to Right Type of Industries• Development of Agriculture• Regional Development• Fulfillment of socio-economic objectives

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Functions of a Commercial Bank

• Accepting deposits • Advancing Loans • Discounting Bills of exchange • Agency services and • General services

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Accepting Deposits• Demand or Current Account Deposits– A depositor can withdraw it in part or in full at any

time he/she likes without notice– It carries no interest– Cheque facility is available

• Fixed Deposits or Time Deposits– Fixed deposits for 15days to few years– Withdrawn at expiry of term– High rate of interest– Risk less investment

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Accepting Deposits• Saving Bank Deposits– Small saving deposits – less rate of interest – money can be withdrawn through

cheques/ATM/by demanding

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Advancing Loans• This is the most important means of earnings

for the banks.• Giving loans to businessmen.• But it keeps a fine balance between deposits

and loans.• Banks profitability depends on this as well

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Two ways of advancing loans

• By allowing an over draft facility cheques are honoured even if deposits is less facility for businessmen only interest on overdraft amount.

• Loans by creating a deposit – Banks give loans to people by charging interest – Bank asks for security – Simply opens an account in name of needy person

and issues a cheque book to transact – Loans granted mostly for business

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Discounting Bills of Exchange or Hundies

• If a seller sells some goods to a buyer who does not pay in cash. But the seller draws a bill of exchange which is signed by buyer.

• There is maturity or payment period, say one month.

• Now the seller can give this hundy to a bank which will give him/her cash against it.

• Bank charges interest on it till one month.

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Agency Services

• Collection of bills and cheques.• Collection of dividends, interest,

and premium.• Purchase and sale of shares and

debentures.• Payment of insurance premium.• Acts as trustee when nominated.

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General services

• Traveler's cheques, bank draft • Safe vaults for valuables• Supplying trade information • Economic surveys • Projects report preparation

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Products and Services Offered by SBI

• Deposit Schemes– Premium Savings Account– Current Account– Savings Plus Account– Yuva Savings Bank Account– Basic Savings Bank Account– Small Account– Savings Bank Accounts for Minors

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– SBI Tax Savings Scheme, 2006– Reinvestment Plan– SBI MODS– Recurring Deposit– Annuity Deposit Scheme– SBI Flexi Deposit Scheme

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• Loan Schemes– Home Loans– Automobile Loans

• SBI New Car Loan Scheme• SBI Combo Loan Scheme• Certified Pre Owned Car Loan• Car Loan Scheme For Used Car• 2 Wheeler Loan• SBI Loyalty Car Loan Scheme• SBI Nano Youth Car Loan Scheme• Super Bike Loan Scheme

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– Educational Loans• SBI Student Loan• Vocational Education & Training Loan

―Personal Loan• Xpress Credit Personal Loan• SBI Saral Personal Loan• Loans To Pensioners• Festival Loans

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– Loan Against Securities• Loan Against Shares Debentures• Loans To Employees To Purchase ESOPS• Loan for subscription to IPOs• Loans against units of SBI Debt Fund Series

―Gold Loans―Loans Against Property• Loan Against Mortgage Of Immovable Property• Rent Plus

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• Services– ATM– Internet Banking– Mobile Banking– DEMAT Services– Foreign Inward remittance– Gold Deposit schemes

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Merchant Bank

A merchant bank is a financial institution that provides capital to companies in the form of share ownership instead of loans.

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In India, Merchant bankers are a body corporate who carries on any activity of the issue management, which consist of preparing prospectus and other information relating to the issue. Merchant banks in India are not allowed to conduct any business other than that related to securities market. There is no official category in investment banking.

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According to Coax. Merchant banking is defined as “merchant banks are the financial institution providing specialist services which generally include acceptance of bills of exchange, corporate finance, portfolio management and other banking services”.

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• Merchant Banking came into existence in 17th & 18th century in Italy & France.

• Merchant banking in the modern era started from London; Merchants started to finance the foreign trade through acceptance of bill.

• Merchant Banking officially came to India through Grind lays Bank in 1967.

• Recognized the requirements of upcoming class of Entrepreneurs for diverse financial services.

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• Few Other Institutes who joined the bandwagon:-Citibank Setup its merchant banking division in

Indian in 1970.Indian banks Started banking Services from 1972.State bank of India started the merchant banking

division in 1972.Many other banks came after this like ICICI,

Canara Bank, UCO bank etc.

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• Bank that deals mostly in international finance, long-term loans for companies and stock underwriting.

• Merchant banking primarily involves financial advice and services for large corporations and wealthy individuals.

• Merchant banks do not provide regular banking services to the general public.

• Merchant banks invest their own capital in client companies & provide services for mergers and acquisitions.

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• A merchant bank is sometimes said to be a wholesale bank, or in the business of wholesale banking.

• It’s because merchant banks tend to deal primarily with other merchant banks and other large financial institutions.

• As of today there are 135 Merchant bankers who are registered with SEBI, India.

• This includes Private, Public & Foreign players.

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Roles of a Merchant Bank

• Corporate counseling.• Project counseling.• Working Capital Finance• Credit syndication.• Issue management.• Underwriting of public issue.• Portfolio management.• Lease financing.• Restructuring strategies.

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Services Corporate Counseling:

Set of activities undertaken for efficient running of an enterprise.

Identifying areas of growth & diversification.Guiding clients on aspects like locational

factors, organizational size, investment decision, choice of product.

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ServicesProject Counseling

It’s a part of corporate counseling & deals with analysis of project viability .

Comprises of preparation of project report & deciding finance pattern for cost of project.

Filling up of application form with significant information for obtaining funds.

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ServicesWorking Capital Finance

Meeting the day-to-day expenses of an enterprise is working capital finance.

Assessment of working capital requirements.Preparing necessary application to negotiation for

sanction of appropriate credit facilities.

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Services Credit Syndication

Relates to activities connected with credit procurement & project financing.

Estimates total cost of the project Drawing up of financial plan which conforms

requirements of promoters & their collaborators. Selecting institutions for participation for financing.

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Services Portfolio Management

• Making decisions for the investment of cash resources of a corporate enterprise in marketable securities.

• Decides quantum, timing & type of security to be bought.

• Help in achieving maximum return with minimum risk by proper combination of securities.

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Services Restructuring Strategies• Deals with Mergers & Acquisitions.• It’s a specialized service of Merchant bankers

wherein they act as middle-men in negotiating between two companies.

• Offers expert evaluation regarding identification organizations with matching characteristics.

• Obtaining approvals from various authorities.

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Services Lease Financing

• It’s an important alternative source of financing a capital outlay.

• Involves letting out assets on lease for use by the lessee for a particular period of time.

• Providing advice on viability of leasing & choice of favorable rental structure.

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Products and Services offered by SBI

• Working Capital Finance• Project Finance• Deferred Payment Gaurantees• Corporate Term Loans• Structured Finance• Dealer Financing• Channel Financing• Equipment Leasing• Loan Syndication• Financing Indian Firms Overseas Subsidiaries or JVs• Construction Equipment Loan

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Working Capital Finance

• SBI offers working capital finance to meet the entire range of short-term fund requirements that arise within a corporate's day-to-day operational cycle.

• The SBI working capital loans can help corporate's company in financing inventories, managing internal cash flows, supporting supply chains, funding production and marketing operations, providing cash support to business expansion and carrying current assets

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Project Finance

• The SBI has formed a dedicated Project Finance Strategic Business Unit to assess credit proposals from and extend term loans for large industrial and infrastructure projects.

• Project finance covers green field industrial projects, capacity expansion at existing manufacturing units, construction ventures or other infrastructure projects.

• Capital intensive business expansion and diversification as well as replacement of equipment may be financed through the project term loans.

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Deferred Payment Guarantees

• SBI can extend deferred payment guarantees to industrial projects for obtaining imported equipment. The DPG is a standby credit guaranteeing deferred payments, usually for payments for capital goods, turnkey contracts etc.

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Corporate Term Loan

• The SBI corporate term loans can support the company in funding ongoing business expansion, repaying high cost debt, technology upgradation, R&D expenditure, leveraging specific cash streams that accrue into the company, implementing early retirement schemes and supplementing working capital.

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Structured Finance

• SBI structured finance involves assembling unique credit configurations to meet the complex fund requirements of large industrial and infrastructure projects

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Dealer Financing

• SBI extends financial support to the corporate distribution networks, by providing both working capital finance and term loans to select dealers of identified companies. This gives dealers to leverage their business relationship with major corporates to avail low cost credit.

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Channel Financing

• Channel financing is an innovative finance mechanism by which the bank meets the various fund necessities along the client’s supply chain at the supplier's end itself, thus helping him/her sustain a seamless business flow along the arteries of the enterprise.

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Equipment Leasing

• The SBI's has deployed a dedicated Strategic Business Unit for lease financing that is richly experienced in arranging lease contracts for procuring expensive equipment for the enterprise. At SBI, we arrange lease agreements as stand alone contracts or as part of a structured package.

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Loan Syndication

• The SBI leverages its vast network of relationships to arrange syndicated credit products for corporate clients and industrial projects.

• With its rich experience and strong reputation, SBI's syndication desk can assemble large loan packages involving a ring of reputed financial entities, domestic and international, that match the large credit requirements of infrastructure projects.

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Commercial Banking Merchant Banking

Catering needs of common man

Catering needs of corporate firms.

Anyone can open an A/c. It cannot be done.

Less exposed to risk. More exposed to risk.

Related to secondary markets.

Related to Primary markets.

It’s asset oriented. It’s management oriented.

Plays the role of financers. Plays different roles like underwriting, portfolio etc.

Difference between Commercial & Merchant banks

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Conclusion

Commercial Banks and Nationalization Roles of a Commercial Bank Products and Services Offered by SBI Merchant Bank Role of a Merchant Bank Products and Services offered by SBI Difference between Commercial & Merchant banks

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