The word merchant bank does not have a fixed definition as this term is used differently in different countries. In United States these are called as “Investment Banks” and in UK they are called as “accepting and issuing houses”. The notification of Ministry Of Finance in India defines Merchant Banker as “any person who is engaged in the business of issue management either by making arrangements regarding selling, buying, or subscribing to the securities as manager, consultant, adviser in relation to such an issue management”. In general the merchant banks are the financial institution which provides financial services, solutions, & advice to corporate houses. Some of the world famous merchant banks are Goldman Sachs, Credit Suisse & Morgan Stanley etc. In India there are many banks which are into the field of merchant banking some of the banks are ICICI, State Bank Of India, Punjab National Bank etc.

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What is merchant banking?

A merchant banking is an institution that deals mostly in international finance, business loans for companies and underwriting. These banks are experts in international trade, which makes them specialists in dealing with multinational corporations.

History of Merchant Banking The history of merchant bank can be dated back to 17th & 18th centuries when it first started in Italy & France. This was started by the Italian grain merchants. It comprised of merchant bankers who intermediated or assisted in financing the transactions of other traders and their own trade too. With the passage of time the practices in evolved and the merchant banking in the modern era started from London where the merchants started to finance the foreign trade through acceptance of bill. Later they extended their services to the governments of under developed countries to raise the long term funds through the floatation of bonds in the London money market. Over the period they extended their services to loan syndication, underwriting the issues, portfolio management etc. The post war period witnessed huge increase in the merchant banking activities. Services of merchant banking: Listed below are some of the services provided by the merchant bankers to customers: Issue management : This service deals with issuing equity shares, preference shares, and debentures that acts as a partner for a high net-worth client by issuing shares and debentures to the general public.

: This service deals with issuing equity shares, preference shares, and debentures that acts as a partner for a high net-worth client by issuing shares and debentures to the general public. Portfolio counseling: It is a service where a merchant bank invests in different kinds of financial instruments on behalf of clients as well as manages the whole investment.

It is a service where a merchant bank invests in different kinds of financial instruments on behalf of clients as well as manages the whole investment. Project counseling: Project counseling also involves filling up application forms and trying to fund projects through banks or financial institutions.

Project counseling also involves filling up application forms and trying to fund projects through banks or financial institutions. Loan syndication: In this case the bank provides term loans for the projects that need money.

In this case the bank provides term loans for the projects that need money. Underwriting services: This is one of the main services offered by merchant bankers. It is a guarantee that states that if the subscription is below a specified level, then the merchant banker has to subscribe to the said amount. Merchant Banking in India Merchant banking activity was officially commenced into the Indian capital Markets when Grindlays bank received the license from reserve bank in 1967. Grindlays started its operations with management of capital issues, recognized the requirements of upcoming class of Entrepreneurs for diverse financial services ranging from production planning and system design to market research. Apart from this it also provides management consulting services to meet the Requirements of small and medium sector rather than large sector. Citibank Setup its merchant banking division in Indian in 1970.

Indian banks Started banking Services from 1972.

State bank of India started the merchant banking division in 1972

After that there were many banks which set up the merchant bank division such as;

ICICI

Bank of India

Bank of Baroda

Canara Bank

Punjab National Bank

UCO Bank The Merchant Bank got more importance in the year 1983 when there was a huge boom in the primary market where the companies were going for new issue. Merchant banking activities are organized and undertaken in several forms. Commercial banks and foreign development finance institutions have organized them through formation divisions, nationalized banks have formed subsidiary companies, share brokers and consultancies constituted themselves into public limited companies or registered themselves as private limited Companies. Some merchant banking companies have entered into collaboration with merchant bankers of foreign countries abroad with several branches. Functions of merchant bankers: The important functions of merchant banking are discussed below: Raising funds for clients: Merchant banking helps clients raise funds by issuing shares, debentures and bank loans. This helps clients raise funds both in the domestic as well as the international market.

Merchant banking helps clients raise funds by issuing shares, debentures and bank loans. This helps clients raise funds both in the domestic as well as the international market. Handling government consent for industrial projects: Any business requires Government permission for starting a project. Companies also require permission for expansion or modernization activities. Merchant banks do all this for their clients.

Any business requires Government permission for starting a project. Companies also require permission for expansion or modernization activities. Merchant banks do all this for their clients. Brokers in stock exchange: The merchant bankers act as brokers of a stock exchange. These brokers buy and sell shares on behalf of their clients.

The merchant bankers act as brokers of a stock exchange. These brokers buy and sell shares on behalf of their clients. Advice on expansion and modernization: The banks have executives who advice their customers on the expansion and modernization of businesses. They give expert advice on mergers and acquisitions and takeovers.

The banks have executives who advice their customers on the expansion and modernization of businesses. They give expert advice on mergers and acquisitions and takeovers. Managing public issue of companies: Merchant bankers advice and manage public issues of companies.

Merchant bankers advice and manage public issues of companies. Services to private sector units: merchant banks offer many services to public sector units and public utilities. They help in raising long term capital, marketing of securities and foreign collaboration and also managing long term finance.

merchant banks offer many services to public sector units and public utilities. They help in raising long term capital, marketing of securities and foreign collaboration and also managing long term finance. Special assistance to small companies: Merchant banks advice small companies on business opportunities, government benefits, incentives and policies.

Merchant banks advice small companies on business opportunities, government benefits, incentives and policies. Management of interests and dividends: Merchant bankers help their clients in the management of interest on debentures and dividends on shares. They also provide expert advice to the client on the rate of dividend and timing.

Merchant bankers help their clients in the management of interest on debentures and dividends on shares. They also provide expert advice to the client on the rate of dividend and timing. Money market operation: Merchant bankers deal with short term money market instruments like commercial paper issued by large corporate firms, government bonds, and treasury bills issued by the RBI and so on.

Merchant bankers deal with short term money market instruments like commercial paper issued by large corporate firms, government bonds, and treasury bills issued by the RBI and so on. Leasing services: Merchant bankers also help in leasing services where the lessor allows the use of specific assets to the lessee for a certain period on behalf of rentals or fees. See Also: What is SEBI (Securities Exchange Board of India)? Merchant Bankers in India As of now there are 135 Merchant bankers who are registered with SEBI in India. It includes Public Sector, Private Sector and foreign players some of them are:- Public Sector Merchant Bankers SBI capital markets ltd

Punjab national bank

Bank of Maharashtra

IFCI financial services ltd

Karur Vysya bank ltd,

State Bank of Bikaner and Jaipur Private Sector Merchant Bankers ICICI Securities Ltd

Axis Bank Ltd (Formerly UTI Bank Ltd.)

Bajaj Capital Ltd

Tata Capital Markets Ltd

ICICI Bank Ltd

Reliance Securities Limited

Kotak Mahindra Capital Company Ltd

Yes Bank Ltd. Foreign Players in Merchant Banking Goldman Sachs (India) Securities Pvt. Ltd.

Morgan Stanley India Company Pvt. Ltd

Barclays Securities (India) Pvt. Ltd

Bank Of America, N.A

Deutsche Bank

Deutsche Equities India Private Limited

Barclays Bank Plc

Citigroup Global Markets India Pvt. Ltd.

DSP Merrill Lynch Ltd

FEDEX Securities Ltd Merchant Bank Vs Commercial Bank Commercial banks are catering to the needs of the common man whereas the merchant banks cater to the needs of corporate firms.

Any person can open a bank account in the commercial bank whereas it cannot be done in the merchant bank.

Merchant bank deals with equities whereas the commercial bank deals with debt related finance which includes the activities like credit proposals, loan sanctions etc.

The merchant bank is exposed to the market so it is more exposed to risk as compared to commercial banks.

Merchant bank is related to the primary market whereas the commercial markets are more into secondary markets.

Merchant banking activities are capital restructuring, underwriting, portfolio management etc whereas the commercial banks play the role of financers.

The activities of merchant banks have a direct impact on the growth and liquidity of money markets.

Merchant Bank is management oriented whereas the commercial banks are asset oriented

The commercial banks generally avoid risks and on the other hand the merchant banks are willing to take the risks. Services Provided by Merchant Banks Below mentioned are the major services offered by Merchant Bankers; Project Counseling

Management of debt and equity offerings

Issue Management

Managers, Consultants or Advisers to the Issue

Underwriting of Public Issue

Portfolio Management

Restructuring strategies

Off Shore Finance

Non-resident Investment

Loan Syndication

Corporate Counseling and advisory services

Placement and distribution