These are different from the commercial banks in the sense that they do not accept deposits or provide loans to the general public. Merchant banks contribute significantly to the industrial growth of India by providing essential financial services to corporations. Hence, the Thesis focuses on the challenges and advantages, which India gets and will get in future by merchant banking activities. The researcher exposed several services provided by Merchant Bankers & the role of Merchant bankers in providing those services to the business world. In addition to supporting corporate growth, merchant banks also promote foreign investments. They act as intermediaries between foreign investors and Indian businesses, providing advisory services that help navigate the regulatory environment and identify attractive investment opportunities.
Professional Merchant Banking Houses
The regulatory framework governing merchant banks in India is primarily overseen by the Securities and Exchange Board of India (SEBI). SEBI has established various guidelines and regulations to ensure that merchant banking activities are conducted transparently and efficiently. These regulations include requirements for registration, maintaining capital adequacy, and adhering to ethical standards.
- British banks set-up separation or subsidiary to offer their customers Merchant Banking services.
- The first category comprises merchant bankers who carry on any activity of issue management, determining financial structure, tie-up of financiers, advisor or consultant to an issue, portfolio manager and underwriter.
- To some extent, frequent changes and /or amendments to policies and control measures, are needed for smooth working of the securities Industry.
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Commercial Banks can undertake some of the merchant banking activities like Issue Management whereas Merchant Banking Units cannot undertake commercial banking activities. However, the functions of Merchant Banking may not widely vary from Investment Banking. The Merchant Banker mainly deals with Issue Management, post issue services, corporate adviser services etc. The Investment Banker undertake trading in securities, Investment advises and bought out deals which are not the main activities of Merchant Bankers. The merchant banker primarily came into being as corporate counsellors for restructuring base of capital, thereafter for issue management and underwriting of the same.
Reasons for growth of Merchant Banking
However, despite displaying clear terms on our sites, sometimes users scan work that is not their own and this can result in content being uploaded that should not have been. The Merchant Banking scenario in developed countries like USA and UK are different from Indian Merchant Banking activities. So it becomes increasingly necessary for us to look at this business in a more holistic manner.
Formal merchant banking activity in india was originated in Over the years, merchant banking has played a critical role in shaping the economy of the country, especially the corporate industry. With the speculation about the growth of the Indian economy in the coming years, merchant banking is expected to impact the country’s business and economic sectors. Over the years, merchant banking has played a critical role in shaping the economy of the country, especially the corporate industry. The industrial boom in India has led to major growth in the need for merchant bankers.
The second category cannot indulge in Issue Management alone, they act as Co-Managers. Merchant Banking as a concept can be traced back to the 17th and 18th Centuries to countries like France and Italy where grain merchants intermediated or assisted other merchants in financial matters for a small fee. It developed further in countries such as the UK and USA where it was adopted by many as their profession. The modern concept of merchant banking started in the city of London where it was practiced on a large scale by merchants. In United Kingdom, Merchant Banks arrived in the late eighteenth century and early nineteenth century. Rich merchant houses which made their fortunes in a colonial trade diversified into banking.
What are Merchant Banks?
At present no organisation can act as a ‘merchant banker’ without obtaining a certificate of registration from the SEBI. This category of Bankers is allowed to act as Advisors, Consultants and Underwriters only. The Securities and Exchange Board (SEBI), which was established as a regulatory body to protect the interests of investors in the securities market in 1992 framed some guidelines for the Merchant Banks operating in India. These are known as the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992, and have been regularly amended to keep up with the changing market conditions.
Several companies’ came in the early part of the 1980s and successfully raised large resources from the market especially through debt instruments, which further sustained investor interest. There were several changes in Government policy, which appreciably influenced industry and aided the market. India was then entering the phase of liberalization and decontrol which was to accelerate and gather momentum in the 1980s.
By leveraging their expertise in financial management, merchant banks help companies optimize their capital structure, enhance their market value, and achieve strategic objectives. Merchant banks must obtain a certificate of registration from SEBI to operate in India. This ensures that only qualified and competent entities engage in merchant banking activities, protecting the interests of investors and maintaining market integrity. Merchant Banks are financial institutions which provide services such as issue management, consultancy, portfolio management and underwritings.
- Now 50 million potential investors are deprived of official and authentic information given by the Issuer.
- For example, the Internet search engine Lycos was a 1998 investment of Chase Manhattan’s venture-capital arm.
- The capital adequacy is expressed in terms of minimum net worth, i.e., capital contributed to the business plus free reserves.
- The interplay of colonial influences and post-independence reforms has shaped a robust banking framework, fostering inclusivity and accessibility.
- Consequently, Amsterdam merchants became the first masters of the various financial techniques and developments which, in the course of time, became identified with the emergent profession of ‘Merchant Bankers’.
Secondly Merchant Bankers started raising the capital for foreign Government. In many cases, the Merchant Banks have been trading in the countries concerned and gained the confidence of Governments and other authorities in those countries. Thus the second principal ingredient of Merchant Banking became and raising of capital through the issue of stocks and bonds. More recently, the services offered by Merchant Banks have ventured into the other areas of operations.
Merchant Bankers are classified into 4 categories as shown in the above table according to their nature and range of activities and their responsibilities to SEBI, investors and issuers of securities. The first category comprises merchant bankers who carry on any activity of issue management, determining financial structure, tie-up of financiers, advisor or consultant to an issue, portfolio manager and underwriter. The second category consists of those authorized to act in the capacity of co-manager/advisor, consultant, and underwriter to an issue or portfolio manager. The third category consists of those authorized to act as underwriter, advisor or consultant to an issue. This includes sectors such as technology, renewable energy, and biotechnology, which are essential for sustainable economic growth. The future of merchant banking in India looks promising, with expected growth driven by economic expansion and technological advancements.
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Merchant banks render numerous financial services, advice, consultation, management, counseling, and solutions to big corporate houses. Furthermore, they help them to expand, modernizing, and restructuring the business. They also grant support in registering, buying, and selling shares at the stock exchange.
In the absence of adequate information, they will have to depend on manipulated facts and information fed by unreliable sources. With the advent of SEBI, an organisation that was brought into existence to guard the interest of the small investor, hopes ran high that the small investor would now have a safe playing field. The latest fiat of EBI bans corporate advertising after the receipt of acknowledgement card by a company wanting to go public.
The market is comprised of 24 stock exchanges transacting long-term debt; debentures and equity shares both electronic and physical forms. The number of firms listed on the Indian Stock Exchange is more than the USA. Market Capitalization of listed firms is 1980s was similar to Brazil, Malaysia, Singapore and Denmark. Thus, there is a steady flow of deals but there is now a shortage of talent to do the job.
The need for specialized merchant banking services was felt in India with the rapid growth in the number and size of the issues made in the primary market. The merchant banking formal merchant banking activity in india was originated in services were started by foreign banks, namely the National Grindlays Bank in 1967 and the City Bank in 1970. The Banking Commission in its report in 1972 recommended the setting up of merchant banking institutions. The inception of merchant banking in India can be traced back to the early 1960s when the need for sophisticated financial advisory services became apparent. They only accept deposits and offer loans only to a few clients and not to the general public.