Merchant Bankers

Merchant Bankers..

As per SEBI’s guidelines, issued way back in 1992, a “merchant banker” means any person who is engaged in the business of issue management either by making arrangements regarding selling , buying or subscribing to securities as manager, consultant, adviser or rendering corporate advisory service in relation to such issue management.’

Recently,there was an article in FINANCIAL EXPRESS dated 27th May 2011 on the subject matter.It was titled :” Rating Those Merchant Bankers.”

To read the article,go to the following link:

http://www.financialexpress.com/news/column-rating-those-merchant-bankers/795860/0

I had sent my views on the topic to the Editor of FE .Todays issue of FE,carries my letter under the Letters to the Editor column.

Here is what is published in FE :L

etters to the editor

The Financial Express
Posted: Monday, Jun 06, 2011

 

Merchant bankers 
 
Apropos of the column ‘Rating those merchant bankers’ (FE, May 27), merchant bankers in India have often been criticised. Some of them have personal relationships with a company management’s top honchos; some don’t downgrade a company promptly enough after noting discrepancies; some suddenly lower a credit score of a company and which can result in a vicious cycle, since, by its action, not only interest rates for the company would go up but also other contracts under consideration with financial institutions are likely to be affected, causing not only an increase in expenditure but also a decrease in its credit worthiness. In light of the above, it is suggested that a system must be put in place whereby all major merchant bankers agree to sign a mandatory code of conduct. Let’s hope Sebi will show willingness to bind the merchant bankers.

JS Broca, New Delhi

To read the letter on FE’s website,go to the following link:

http://www.financialexpress.com/news/letters-to-the-editor/799681/

Your feedback will be appreciated.

  

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One Response
  1. J S Broca says:

    Dear Readers,here is the letter I had written to the Editor.The above is an edited version :
    Dear Editor,This refers to Shobhana Subramanian’s column titled :” Rating those merchant bankers”in FE of 27th May 2011.Merchant Bankers in our country have often been a subject of great criticism. Here is a list of some of the areas where Merchant Bankers have earned flak in the past :
    1.Some of them having too close and personal relationships with a company management’s top honchos !
    2.Not downgrading a company promptly enough after noting some discrepancies.
    3.Suddenly lowering a credit score of a company by a Merchant Banker can result in a vicious cycle since by its action,not only interest rates for the company would go up, but also other contracts under consideration with financial institutions are likely to be severely and adversely affected, causing not only an increase in expenditure but also a decrease in its credit worthiness.
    4. Sometimes Merchant Bankers are accused of being oligopolists, since barriers to market entry are very high and a merchant banker’s business itself is often reputation-based !
    5.Merchant Bankers have often made errors of judgment in rating structured products.
    In light of above it is suggested that GOI must also come out with an exhaustive report on Merchant Bankers,on the lines of USA, where as per the Sarbanes-Oxley Act of 2002, the Congress had ordered to come out with a report titled ” Report on the Role and Function of Credit Rating Agencies in the Operation of the Securities Markets”and seek public comments on various issues of the matter,before finalizing the guidelines.
    Further, a system must be put in place whereby all major Marchant Bankers should agree to sign on a mandatory Code of Conduct.
    Let us hope,SEBI will show willingness to bind the Merchant Bankers.
    J S BROCA
    NEW DELHI

    6th June 2011

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