What is Merchant Banking? A merchant bank combines banking services with consultancy services. Consultants provide financial, marketing, managerial, and legal advice to clients. Providing advice, guidance, and services is what consulting is all about.
What is Merchant Banking?
An entrepreneur can use it to start a business. In addition to raising funds, it helps expand, modernize, and restructure a business. The review helps to determine if a business unit is sick. Additionally, it assists companies in registering, buying, and selling shares.
Merchant banks perform banking activities known as Merchant Banking. Financial services for businesses are provided by Merchant Banking.
Definition of Merchant Banking
The purpose of a merchant bank is to provide its clients with professional services regarding their financial affairs for a fee.
Mercantile banks are well suited for dealing with large companies since they are experts in international trade
Services of Merchant Banking
1) Portfolio management:
Merchant banks help clients buy and sell securities to increase their values. The company works with institutional investors to connect them with companies looking to raise money through the sale of private shares.
2) Underwriting services:
Merchant banks provide this service as they offer a guarantee that states that the bank will pay the stated expenses if the agreement is below the accepted level.
3) International transactions:
Nowadays, international transactions are easy to complete for the average person. You’re dealing with a company that automatically calculates the transaction for you. In bigger companies, it works differently. Currency exchanges and letters of credit are often managed by merchant banks in order for companies to make major purchases abroad.
4) Loan syndication:
Merchant banks are generally unwilling to lend to businesses big enough to need one, as the amount of money they borrow is generally much more than the average bank can offer. The companies borrow multiple loans from different banks rather than from one lender, a process known as loan syndication. Financing this type of project can be a complex process, which can be assisted by merchant banks.
5) Managing corporate issues:
Besides helping to integrate securities management, they act as intermediaries for capital transfers.
6) Management of Capital:
Securities, equity shares, debentures, and preference shares, are all sold to shareholders in this feature. Merchant bankers are responsible for developing a proper plan and financing expenses associated with working with underwriters.
Functions of Merchant Banking
1) Portfolio management:
Investors’ portfolios are managed and advised by merchant banks.
Bankers play a vital role in the development and functioning of the primary market. The bankers of an issue accept application money from prospective investors so that securities can be issued. In addition, they are responsible for refunding application money to applicants who could not receive security.
3) Money Market Operations:
Government bonds, commercial papers, and Treasury bills issued by the government were also dealt with by merchant bankers.
4) Debenture Trustee :
They watch over and protect the interests of debenture holders as trustees specifically appointed for that purpose. Debenture issuers appoint them before issuing the debenture. For any assignment as a debenture trustee, the trustee must be registered with SEBI as such.
5) Providing funds for clients:
Clients and businesses can raise capital through merchant banks by issuing securities on foreign and national markets. Businesses can expand and grow their businesses with the help of merchant banks.
6) Brokers on the stock exchange:
Stock exchanges are where merchant bankers act as brokers for their investors. In addition to advising clients on purchases, they can also help them avoid buying certain items.
Objectives of Merchant Banking
1) Funding projects or companies over the long term.
2) For the purpose of forming capital.
3) To provide investors with a high level of protection.
4) Maintaining high levels of professional competence.
5) Research market conditions, conduct re-investment surveys, and prepare project reports.
6) Making a capital structure decision.
7) To ensure a low cost of raising resources.
Merchant Banks in India 2023
Private Sector Merchant Bankers
1) Tata Capital Markets Ltd
2) Bajaj Capital Ltd
3) ICICI Securities Ltd
4) Axis Bank Ltd
5) Reliance Securities Limited
Public Sector Merchant Bankers
1) Punjab National Bank
2) Karur Vysya Bank Ltd.
3) Bank of Maharashtra
4) SBI Capital Markets Ltd.
5) State Bank of Bikaner and Jaipur
Foreign players in Merchant Banking
1) JP Morgan Chase & Co
2) Morgan Stanley
3) Bank Of America
4) Deutsche Bank
5) Goldman Sachs
6) FedEx Securities Ltd