Merchant banking activity was officially commenced into the Indian capital Markets when Grindlays bank received the license from reserve bank in 1967. Apart from this it also provides management consulting services to meet the Requirements of small and medium sector rather than large sector. The reason for the very existence of merchant banking is illustrated by the need for specialized investment information and services. An experienced merchant banker knows exactly where strategic assets are located, and which organizations and strategies to ward off. With a merchant banker, a businessman enjoys the benefit of hiring a skilled and knowledgeable partner with a long-term commitment to the business. The real benefit here is that a merchant bank helps to lower the risks for a new firm.

The activities of merchant banks have a direct impact on the growth and liquidity of money markets. These relate to finance, including corporate loans, venture funding, and mergers & acquisitions advice. Today, merchant banking is an important part of the Indian business landscape. This blog will discuss the functions of a merchant banking firm and its role in the financial sector. Merchant Banking is a professional service which is provided by the merchant banks to their financial needs and requirements. Generally Merchant Banks are non-depository financial institutions and companies that work with international finance for multinational corporations.

This aims to promote entrepreneurship and investment in technology-driven sectors like e-commerce. The Indian market offers many opportunities to foreign and domestic investors. This can be in the form of senior loans, used to help companies expand or refinance their operations.

define merchant banking and explain its functions

The phrase merchant financial institution does not have a hard and fast definition as this term is used differently in several international locations. In United States these are called as “Investment Banks” and in UK they’re known as as “accepting and issuing houses”. In common the service provider banks are the monetary establishment which offers monetary companies, options, & advice to corporate homes. Some of the world famous service provider banks are Goldman Sachs, Credit Suisse & Morgan Stanley and so forth. Either by making arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant advisor or rendering corporate advisory services in relation to such issue management”. In short, “merchant bank refers to an organization that underwrites securities and advises such clients on issues like corporate mergers, involving in the ownership of commercial ventures”.

Merchant Banking in India

•Assistance to NRI investors – the NRI investors are brought to the notice of the various investment opportunities in the country. The Companies are given Working Capital finance, depending upon their earning capacities in relation to the interest rate prevailing in the market. They help them make informed decisions about their investments and finances. Generally underwriters are appointed by the issuing companies after consulting the reliable Merchant Bankers.

Merchant banking provides financial and advisory services to businesses. In India more than 120 Merchant Bankers financial institutions and Banks are registered with SEBI. Some of the most significant merchant banks of India are listed below. Merchant Banking helps in coordinating the operations of intermediaries, with respect to the issue of shares like registrar, advertising agency, bankers, underwriters, brokers, printers and so on. Further, it ensures compliance with the rules and regulations, of the capital market.

Many service provider bankers have also began making of purchased out deals of shares and debentures. The arrangements of working capital finance for a new venture is considered as another important function of a merchant bank. It helps business units to arrange their working capital requirements either by issuing shares or debentures or by raising loans from financial institutions. It also arranges trustees for the debentures in order to maintain a proper balance with bankers. Merchant banker is a person who provides assistance for the subscription of securities. The merchant banker plays an important role and carries a lot of responsibilities like, private placement of securities, managing public issue of securities, stock broking, international financial advisory services, etc.

The scope of merchant banking is very simple, it covers services that are targeted to small and medium scale companies. They cannot assist any other clients that do not fall under this category. Merchant banking can be defined as a skill-oriented professional service provided define merchant banking and explain its functions by merchant banks to their clients, concerning their financial needs, for adequate consideration, in the form of fee. It refers to the effective management of Securities i.e., the merchant banker helps the investor in matters pertaining to investment decisions.

• Merchant Banking may be outlined as an institution which covers a variety of actions such as underwriting of shares, portfolio administration, Project counseling, insurance and so on. The merchant bankers work is said to corporate investment, trade finance and real estate funding. According to Random House Dictionary, “merchant bank is an organization that underwriters securities for corporations, advices such clients on mergers and is involved in the ownership of commercial ventures. These organizations are sometimes banks which are not merchants and sometimes merchants who are not bankers and sometimes houses which neither merchants nor banks”. A portfolio manager helps businesses raise capital and secure growth and investment needs.

Merchant Banking

Merchant bankers also provide customized solutions to their client’s financial problems. Apart from this they also explore the refinancing alternatives of the client, and evaluate cheaper sources of funds. Rehabilitation and turnaround management is another area of advice.

Merchant banking is a type of banking where both commercial banks and investment banks can participate. It is involved in trading of unregistered securities including stock, bonds, and private equities. These banks are experts in international trade, which makes them experts in dealing with large corporations and industries. Merchant banking provides funds to the multinational businesses and large business entities in the country which helps to boost the country’s economic strength.

What they usually do is they offer their expertise for a certain amount. That is why it is very important that merchant bankers have all the knowledge and skills required for the job so that they can produce good results. If not, their clients will not be happy and may not continue with their services. Also, since merchant banks offer underwritings, which is like insurance, they need to make sure their services are good so the company there is handling will not incur losses and they will not have to pay for the damage.

  • But in case of investment banks, there are only a few banks or institutions that provide trade financing services to clients.
  • Basically, not everyone can avail of services from merchant banks but are only limited to small and medium scale businesses.
  • A merchant banking firm helps businesses access the capital they need to grow and expand.

It comprised of merchant bankers who intermediated or assisted in financing the transactions of other merchants and their very own commerce too. With the passage of time the practices in advanced and the service provider banking within the modern era started from London the place the retailers started to finance the overseas trade through acceptance of bill. A merchant banker works with clients to develop a strategy for new products in the market. This involves drafting prospectuses and conducting due diligence reviews. Publicizing offerings through marketing campaigns is also involved.

Merchant Banks Explained

The success of the fund raising activity basically depends upon the state of the financial market in general and the financial services organisation particularly the merchant banking companies. The management of the public issue of securities core of merchant banking. As per regulation 26 of ICDR merchant banker should ensure that draft offer letter is available for the public on SEBI and stock exchange website for at least 21 days from the date of filling. A public announcement is also needed to be made within 2 days of the filling of the offer document in an English and Hindi national newspaper inviting the public to give their comments to the SEBI.

define merchant banking and explain its functions

A business which has undertaken enough hiring for a long period is called a leasing business. Generally it is considered as a new dimension in which the merchant bankers have been working on; it enables industrial undertakings to carry on their business activities at a minimum fixed capitals. In the UK merchant banking refers to accepting and issuing houses in the USA. The word merchant sometimes applied to banks who are not merchants, sometimes to merchants who are not banks and sometimes to those intermediaries who are neither merchants nor banks.

What Is a Merchant Bank?

Merchant banks do not provide services to the general public; their services are limited to business entities and large business corporations. As mentioned earlier, Merchant Banks are divided into three sectors which include the public sector, the private one, and the international banks. The Merchant Bank got extra significance in the 12 months 1983 when there was an enormous boom in the major market the place the businesses have been going for brand new concern.

Expert Assisted Services

These banks are experts in international trade, which makes them specialists in dealing with multinational corporations. In fact, merchant banking is one of the most versatile and diverse services a firm can offer its clients. A merchant banking firm helps businesses access the capital they need to grow and expand. They provide various services, including financial advisory, lending, and securities trading. The banking activities performed by merchant banks is called Merchant Banking. In other words the banking system which is concerned with providing financial services to the business community is called Merchant Banking.