MUMBAI, May 30: The Securities and Exchange Board of India (SEBI) is planning to ban merchant bankers from doing other business. This means finance companies which are currently doing merchant banking business will have to set up new companies only for the merchant banking business.

Currently finance companies come under the purview of the Reserve Bank of India while their merchant banking activities are regulated by the SEBI. The SEBI move to segregate merchant banking business from other businesses is expected to create a stir among finance companies. If implemented, the number of merchant bankers are also likely to come down as it will not be profitable for small finance companies to float separate merchant banking firms.

Moreover, SEBI officials feel that the role of merchant bankers in the new scheme of things has increased as they are involved in launching issues, book building, underwriting and bought-out deals. Merchant bankers have to vet new issue applications before submitting it to the SEBI.

SEBI is also looking into allegations of price rigging in several leading companies using the money raised by CRB Mutual Fund. In another move, the market watchdog has decided to bring about major changes in merchant banking regulations.

CRB Mutual Fund which collected Rs 229 crore through its Arihant Mangal scheme later used this money to rig share prices of companies in the stock market.. ``We'll look into this allegation,'' SEBI chairman D R Mehta said.

``It was a quid pro quo arrangement. While these companies chipped in funds when CRB scheme opened for subscription, the understanding was that this money will be later used to rig up prices of these companies,'' sources said.Two panels M P Chitale & Co in 1995 and Kalyaniwala & Mistry in 1997 -- appointed by the SEBI to inspect the books of the CRB Mutual Fund had come out with reports indicting the actions of the fund.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.