SEBI Regulations on merchant bankers:
SEBI has brought about a effective regulative measures for the purpose of disciplining the functioning of the merchant bankers in India. The objective is to ensure an era of regulated financial markets and thus streamline the development of the capital market in India. The measures were introduced by the SEBI in the year 1992. The measures were revised by SEBI in 1997. The salient features of the regulative framework of merchant banking in India are discussed below.
Registration of Merchant Bankers Application for Grant of Certificate
An application by a person for grant of a certificate shall be made to the Board in Form A. The application shall be made for any one of the following categories of the merchant banker namely:
1. Category I- To carry on any activity of the issue management, which will inter alliance consist of preparation of prospectus and other information relating to the issue, determining financial structure, tie-up of financiers and final allotment and refund of the subscription; and to act as adviser, consultant, manager, underwriter, portfolio manager.
2. Category II- To act as adviser, consultant, co-manager, underwriter, portfolio manager.
3. Category III- To act as underwriter, adviser, consultant to an issue.
4. Category IV- To act only as adviser or consultant to an issue. 5. With effect from 9th December, 1997, an application can be made only for carrying on the activities mentioned in category I. An applicant can carry on the activity as underwriter only if he contains separate certificate of registration under the provisions of Securities and Exchange Board of India (Underwriters) Regulations, 1993, and as portfolio manager only if he obtains separate certificate of registration under the provisions of Securities and Exchange Board of India (Portfolio Manager) Regulations, 1993.
5. Conformance to Requirements Subject to the provisions of the regulations, any application, which not complete in all respects and does not conform to the instructions specified in the form, shall be rejected. However, before rejecting any such application, the applicant will be given an opportunity to remove within the time specified such objections and may be indicated by the board.
6. Furnishing of Information The Board may require the applicant to furnish further information or clarification regarding matter relevant to the activity of a merchant banker for the purpose of disposal of the application. The applicant or its principal officer shall, if so required, appear before the Board for personal representation.
7. Consideration of Application: The Board shall take into account for considering the grant of a certificate, all matters, which are relevant to the activities relating to merchant banker
and in particular whether the applicant complies with the following requirements;
1. That the applicant shall be a body corporate other than a non-banking financial company as defined by the Reserve Bank of India Act, 1934.
2. That the merchant banker who has been granted registration by the Reserve Bank of India to act as Primary or Satellite Dealer may carry on such activity subject to the condition that it shall not accept or hold public deposit.
3. That the applicant has the necessary infrastructure like adequate office space, equipments, and manpower to effectively discharge his activities.
4. That the applicant has in his employment minimum of two persons who have the experience to conduct the business of the merchant banker.
5. That a person (any person being an associate, subsidiary, inter-connected or group Company of the applicant in case of the applicant being a body corporate) directly or
indirectly connected with the applicant has not been granted registration by the Board.
6. That the applicant fulfils the capital adequacy as specified.
7. That the applicant, his partner, director or principal officer is not involved in any litigation connected with the securities market which has an adverse bearing on the business of the applicant.
8. That the applicant, his director, partner or principal officer has not at any time been convicted for any offence involving moral turpitude or has been found guilty of any economic offence.
9. That the applicant has the professional qualification from an institution recognized by the Government in finance, law or business management.
10. That the applicant is a fit and proper person. 11. That the grant of certificate to the applicant is in the interest of investors.
8.Capital Adequacy Requirement According to the regulations, the capital adequacy requirement shall not be less than the net worth of the person making the application for grant of registration. For this purpose, the net worth shall be as follows:
Category Minimum Amount
Category I Rs.5, 00, 00,000
Category II Rs.50, 00,000
Category III Rs.20, 00,000
Category IV Nil
For the purpose of this regulation ‗net worth means in the partnership firm or a body corporate, the value of the capital contributed to the business of such firm or the paid up capital of such body corporate plus free reserves as the case may be at the time of making application.
Procedure for Registration The Board on being satisfied that the applicant is eligible shall
grant a certificate in Form B. On the grant of a certificate the applicant shall be liable to pay
the fees in accordance with Schedule II.
Renewal of Certificate Three months before expiry of the period of certificate, the merchant banker, may if he so desired, make an application for renewal in Form A. The application for renewal shall be dealt with in the same manner as if it were a fresh application for grant of a certificate. In case of an application for renewal of certificate of registration, the provisions of clause (a) of regulation 6 shall not be applicable up to June 30th, 1998. The Board on being satisfied that the applicant is eligible for renewal of certificate shall grant a certificate in form B and send intimation to the applicant. On the grant of a certificate the applicant shall be liable to pay the fees in accordance with Schedule II.
Procedure where Registration is not granted:
Where an application for grant of a certificate under regulation 3 or of renewal under regulation 9, does not satisfy the criteria set out in regulation 6, the Board may reject the application after giving an opportunity of being heard. The refusal to grant registration shall be communicated by the Board within thirty days of such refusal to the applicant stating therein the grounds on which the application has been rejected. Any applicant may, being aggrieved by the decision of the Board, under sub regulation (1), apply within a period of thirty days from the date of receipt of such intimation to the Board for reconsideration for its decision. The Board shall reconsider an application made under sub-regulation (3) and communicate its decision as soon as possible in writing to the applicant.
Effect of Refusal to Grant Certificate:
Any merchant banker whose application for a certificate has been refused by the Board shall on and from the date of the receipt of the communication under sub-regulation (2) of regulation 10 cease to carry on any activity as merchant banker.
Payment of Fees Every applicant eligible for grant of a certificate shall pay such fees in such manner and within the period specified in Schedule II. Where a merchant banker fails to any annual fees as provided in sub-regulation (1), read with Schedule II, the Board may suspend the registration certificate, whereupon the merchant banker shall cease to carry on any activity as a merchant banker for the period during which the suspension subsists.