Mumbai, June 1: After two years of total lack of business, 130 merchant bankers now face suspension of their licences. The market regulator will soon shoot off show cause notices seeking explanations as to why their licences should not be cancelled for failing to meet underwriting commitments made earlier. During 1996-97, only 12 merchant bankers had to face Sebi wrath for not meeting underwriting commitments. In the first quarter of the 1997-98, the list has jumped to 130. Considered to be part of Sebi's constant reviewing activities of capital market intermediaries, this step is most likely to be followed soon thereafter by drastic changes in the regulations for merchant bankers that will completely overhaul the highly ``over-banked'' industry.

``The list is being finalised and will be sent to the respective merchant bankers,'' D R Mehta, chairman said. According to Mehta, the merchant banking regulations will be made more stringent. As a result, the networth requirements may be increased from the current level of Rs 5 crore. This will be mandatory following the code of conduct suggested by Ambi, tighten the due diligence requirements, and also disassociate the inter-linkages of corporates and their merchant banking firms. ``This entire process will lead to sharp pruning of the list of merchant bankers,'' Mehta said adding, ``The balance will have to be more careful if they want to remain in business.''The shrinking issue management business over the last two years has forced a large number of merchant bankers to undertake underwriting commitments.However, a majority of the issues that came thereafter, had either bombed or were announced successful through various means, including promoters funding. Hoping that the underwriters to the issue will be forced to stick to their commitments, the lead managers had bailed the promoters out of their own pockets.

However, in a declining market, underwriters have been reneging on their commitments. Given the sluggish conditions in the primary capital market, it is unlikely that most of these underwriters will be able to pay their dues. Most of them will only be too glad to lose the licence than pay large sums of underwriting commitments they had taken in the hey days of the primary market boom.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.