Page 251 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes 2. Corporate .......................... covers the entire field of merchant banking activities.
3. The validity period of certificate of registration is .......................... years from the date of
issue.

4. Development banks stress upon the .......................... of the enterprise.
5. A .......................... is a combination of two companies into a single company where one
survives and other loses its corporate existence.

6. The person whose registration is not current shall not carry on the activity as merchant
banker from the date of .......................... of validity period.
7. Without holding a certificate of registration granted by the .........................., no person can
act as a merchant banker.



Caselet Merchant Bankers Willing to Take Less for
PSU Offerings

Seek to Generate more Business
Merchant bankers continue to quote a nominal fee for book-running and lead managing
the public sector offering even after recent selection norm changes substantially lowered
the weight for bid price.
According to sources in the Government, one merchant banker had bid for the Coal India
IPO assignment at a fee as low as 0.000001 per cent. Public sector issuer sources said the
changed rules last month, which put greater weight (70 per cent) on quality - technical
expertise and experience - over that on quoted fees (30 per cent) has not influenced the
bidding pattern.
"The pool of registered merchant bankers sports almost similar qualitative standards.
Therefore, the quoted fee determines short-listing. Competitive pressure for public sector
offerings forces the merchant bankers to keep the fees low, often highly loss making or
stay out," said a top official of public sector enterprise.
Market sources say while the going rate for merchant banking fees for a private issuer of
a comparable size is around 3 per cent, the rate for PSU offerings remains close to zero.
"This is not a charitable exercise. Merchant bankers extract marketing mileage and seek
more future business from the Government-run organisations to serve their commercial
interest indirectly. But they also to make up for the huge cost, which runs into crores of
rupees, through other means, which are strictly not clean," said the managing director of
a listed private company.
Mr Prithvi Haldea, primary market expert and the Chairman of Prime Database, told
Business Line that the environment was not conducive to a fair and transparent method of
selecting quality services.
"The Government needs to pay a reasonable fee to merchant bankers for the best services
so that the issues do not suffer. In the context of the Government's plan to raise huge sum
(` 40,000 crore) in 2010-11 through several offloading of shares or fresh issues, the technical
qualification should be the primary criterion for selection of merchant bankers. Fixing of

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