Outlines the diverse range of services provided, from issue management to corporate advisory and project financing.View Details the regulatory frameworks governing merchant banks, including SEBI guidelines and current challenges faced.View Discusses the emergence of merchant banking in India post-1991 reforms, its growth, and initial players in the sector.View Types of loans and credits, along with their characteristics, including consumer credit and the merchant banking role.View Understanding important banking abbreviations like RBI, SEBI, PNB and types of mergers relevant to financial services.View From its roots in barter systems to the sophisticated digital landscape of today, banking has continually transformed to meet the needs of its diverse population.
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India was then entering the phase of liberalization and decontrol which was to accelerate and gather momentum in the 1980s. However, it was only in 1992 after the formation of Securities and Exchange Board of India that it is defined and a set of rules and regulations in place. Today a merchant banker is who has the ability to merchandise that is, create or expand a need and fulfill capital requirements. Sushma is an expert in online money-making strategies with extensive experience in business. On 1st March, 1993 new policy guidelines have been formal merchant banking activity in india was originated in issued by SEBI for the merchant bankers to ensure greater transparency in their operations and to make them accountable so as to protect the investor’s interest. The guidelines relate to pre-issue obligations, underwriting, advertisements and post-issue obligations of the merchant bankers.
Merchant Bankers have reason to believe they will be handicapped without the marketing support. As a result of the ban, the small investor would be deprived of the opportunity to study the corporate profile of the Issuer. In the absence of adequate information, they will have to depend on manipulated facts and information fed by unreliable sources.
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The SEBI guidelines regulate merchant banks’ activities like public issue allotments and disclosure of non-core business income. Looking ahead, merchant banks will need to ensure their activities protect investors and promote healthy capital markets as the industry continues to evolve in India. The report discusses the concept of merchant banking in India, detailing its historical evolution, services, and significance in the financial sector. It highlights the role of merchant banks in providing financial services such as issue management, advisory services, and capital raising, which are crucial for corporate growth and economic development.
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- While their scope is limited compared to Category I and II, underwriters play a vital role in stabilizing the capital markets and mitigating risks for issuers.
- Merchant bankers play an important role in facilitating capital raising for companies and supporting the growth of financial markets.
- More recently, the services offered by Merchant Banks have ventured into the other areas of operations.
- They developed strong roots in depth of India’s economic, commercial and industrial structure.
It was in 1860 when the merchant’s interest in joint stock banking started growing and with their own investments they floated joint stock banks. Some new banks were founded which included Orient Bank in 1845, Chartered Bank of India and Asia in 1853, Chartered Merchantile Bank of India, London & China in 1857 and so on. During 19th century, foreign merchant bankers operated in India through ‘East India House’. They faced tough competition from Persian finance houses who were willing to grant credit to the trade with India. But merchant banks in India have been primarily operating as issue houses than full-fledged merchant banks as in other countries. They simply buy the securities in bulk with a purpose of selling the same shortly to the investors at large.
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(6) Fund management on behalf of clients, most typically pension funds, unit trust, investment trusts and wealthy individuals. Many more financial and investment institutions emerged at national and state levels e.g. LIC, RCI (Refinance Corporation for Industry), Industrial Development Bank of India (IDBI), Unit Trust of India (UTI), State Industrial Development Corporation (SIDC) etc. over the years.
Other banks also started these services such as PNB, Bank of India, UCO Bank, etc. The Second Chapter deals with the Registration and Certification of Merchant Bankers in India. It lays out certain Operational Capabilities and Capital Requirements that need to be fulfilled to register as a Merchant Banker in India. For e.g., Section 7 of the regulations state that a capital adequacy requirement of net worth of Rupees Five Crores needs to be fulfilled. In India, merchant banks are essential in guiding businesses through mergers and acquisitions, underwriting, and providing advisory services, thereby contributing significantly to the nation’s economic development.
- These firms not only acted as bankers to the kings of European States, financed coastal trade but also borne exchange risk.
- The Merchant Banker advices corporation and firms relating to opening of issues, receiving loans etc, Just as the management consultants .
- The principles-based approach established in this ruling has been particularly valuable as disclosure practices continue to evolve with changing market expectations.
- Institutions like HDFC Bank in 1994 and ICICI Bank in 1994 exemplified this trend, focusing on customer-centric services and advanced technology to enhance banking experiences.
- This includes sectors such as technology, renewable energy, and biotechnology, which are essential for sustainable economic growth.
While their scope is limited compared to Category I and II, underwriters play a vital role in stabilizing the capital markets and mitigating risks for issuers. These entities are responsible for coordinating with various stakeholders, such as regulators, stock exchanges, and investors, to ensure seamless execution of transactions. Prominent examples of Category I merchant bankers include ICICI Securities and SBI Capital Markets.
Leasing is a process by which a firm can obtain the use of certain fixed assets for which it must pay a series of contractual, periodic, tax-deductible payments. Leasing is an alternative to purchase that’s used for apartments and houses, automobiles and light trucks, and many types of equipment and machinery. The applicant should not have been involved in any securities scam or proved guilt for any offer. The applicant should be a body corporate and should have a minimum net worth of Rs.5 crores. Entities in this category often specialize in specific financial functions, providing tailored solutions to niche markets or sectors.
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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. By attracting foreign capital, merchant banks contribute to the overall economic development of the country, fostering job creation, and enhancing infrastructure. Furthermore, merchant banks play a critical role in the development of new and emerging industries by providing the necessary financial support and strategic guidance.
No doubt, Merchant Banking firms are subject to a host of control measures, regulations and rules framed and guided by SEBI. To some extent, frequent changes and /or amendments to policies and control measures, are needed for smooth working of the securities Industry. But it prove to be detrimental to the very existence of the Merchant Banking system in the country. The SEBI’s Act 1992 confers power upon SEBI to supervise and control the affairs of the Merchant Banking firms in India. It is an institution that primarily offers consultancy to its customers regarding financial, managerial, marketing, and legal concerns. They usually offer assistance to business loans for big companies, international finance, and underwriting.
The merchant banks mainly deal in new issues while the dealers, traders and brokers deal mainly in secondary market. In India, merchant banking services were started only in 1967 by National Grindlays Bank followed by Citi Bank in 1970. The State Bank of India was the first Indian commercial bank having set up a separate merchant banking Division in 1972.
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. Hence, commercial bankers set up their merchant banking subsidiaries to cater financial services for the corporate sector.
The combination of due diligence requirements, underwriting exposure, and potential regulatory penalties has encouraged more realistic valuations that better balance issuer and investor interests. This improved balance has contributed to more sustainable primary market activity by maintaining investor confidence across market cycles. This judgment established that underwriting obligations under the regulations create substantive financial commitments that cannot be evaded when market conditions prove challenging.