definition of merchant bankers
Merchant banks are different from commercial banks. Their activities are very wide. Public issue management has to do complex and multi-faceted tasks and many organizations work on public issues the one who operates and controls all these organizations is called a merchant banker. In this way, for the management of a large issue, specially qualified persons and institutions are required and its operation and control are executed under the direction of the merchant bankers. Although merchant bankers also provide other services but their identity and main function is issue management and in present times their services have become indispensable in the public issue and it is playing an important role in the transfer of capital from owners to users. Therefore, merchant bankers are individuals and organizations engaged in the securities market, who do the work of buying and selling securities, issuing capital, allotting, soliciting, etc. What is the definition and functions of a merchant bank? a Merchant bank refers to such persons or institutions, who provide their services to any big industrial unit for the establishment of new ventures, promotion of new projects of new companies, planning, execution, etc.
Merchant banks mainly provide financial services. These services include securities issuance management, underwriting, financial advisory, project advisory, portfolio management, etc. Merchant banks deal in new issues in association with stock brokers, securities issuers, merchant banks, etc.
Growth of Merchant Banking in India?
Merchant banks in India have developed along with the capital market. The Foreign Exchange Regulation Act, 1973 (FERA) came into force with effect from January 1, 1974. As a result of this act, many foreign companies entered the capital market. Many companies were promoted by banks and long-term financial requirements were met for the expansion and modernization of business. Investors were attracted to invest. The need for such an institution was felt that could market securities, distribute, collect capital, give advice and suggestions for capital investment, and perform various financial functions. Merchant banking has contributed in this direction. The credit for starting merchant banking in India goes to foreign banks like 'Grindlej Bank', 'Citibank' etc. Merchant services are being provided by many commercial banks in India. Some other institutions and organizations, private companies, and technical consultancy organizations are also providing services.
what is merchant banking in financial services?
The following are the services of merchant bankers-
(1) Project Management - All services from planning to execution of a project, project, consultancy project, report, clearance from government departments and other agencies, foreign investment and technology acquisition, etc.
(2) Portfolio Management - With the help of their efficient system, they do the work of handling the investments of big investors for a fixed fee. This service occupies a very important place in the securities market.
(3) Advisory - Current investors are facing many investment-related problems as to where to invest? What would be their process? Merchant bankers work as a solution to all these problems, as well as many financial institutions working in the securities market are also facing many competitions and problems, which are easily overcome by merchant bankers.
(4) Issue Management - Under this, mainly two types of services are done - pre-issue service, under which printing of format, issue of prospectus and information to investors, etc. are done while after issue allotment and solicitation related management are done. And all the institutions working in this regard have to give advice and guidance.
Therefore suitable service is being provided by Merchant Bankers in India which is a highly commendable step due to which investors and many working individuals and organizations of the Stock Exchange have benefited.
At present, there is a great need for the services of merchant bankers in issue management, because in this regard, these bankers provide the following services-
(a) expansion of the capital structure;
(b) drafting of the prospectus;
(c) obtaining the permission of SEBI;
(d) obtaining the approval of the stock exchanges;
(e) arranging for the participation of institutions in the company's share capital through private and market arrangements;
(f) arranging for the underwriting of the issue by brokers, banks, and financial institutions;
(g) receiving applications for shares and debentures, allotment thereof, collection of currency and dispatch thereof to subscribers, or intimation thereof to shareholders and depositories;
(h) selection of managers, brokers, issue houses,, and bankers to issue for the issue of shares;
(i) to act as a self-arranger to the issue;
(i) To undertake the responsibility of publicity of the issue.
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Merchant bankers have an important place in public issues or issues and planning before issues and allotment etc. after issues are completed by merchant bankers, which the role of merchant bankers is important at present due to the widespread practice at present Because controlling the securities market is a difficult task, which is accomplished only by merchant bankers, therefore, merchant bankers have an important role in issuing tasks, which are as follows-
(1) Financial Constructor – It plays a special role in financial restructuring financial planning through an advisory in determining the quantum of capital gearing through assistance and specialized advice in determining pre-issue capital structure. After determining the capital structure, the form of securities plays an architectural role in the decision regarding price and quantity.
2) Compulsory Pilot Merchant bankers lead the issue like the pilot of an airplane. Due to their necessary knowledge, skill, and technical professional qualification, their services have been made mandatory by SEBI for conducting any issue.
(3) Due Diligence- Merchant bankers keep a close watch on all activities with due vigilance in respect of issue-related advice as well as compliance with formal requirements and execution as per rules.
(4) Co-ordinator - works for coordination between the investors and the executives of the stock exchange. This coordination is accomplished by advice, operation, direction, and control, as a result, coordination is established.
(5) The main part of SEBI- Merchant bankers are a main part of SEBI and the main work of any public issue is completed by it, due to which the work of SEBI is completed easily. Hence it would be extremely difficult to follow SEBI's guidance without merchant bankers
(6) Planning - Planning is an important task. Merchant bankers prepare many plans before the public issue so that the issue work can be completed easily, so the main work of planning is done by the merchant bankers.
7 TRANSFER OF INSTRUMENTS - Merchant bankers provide an important invisible service in passing the savings from the owners to the users through issue success. While on the one hand,, the investor takes pride in participating in the share capital, on the other hand, he also considers himself a partner in the process of development. This fund of capital flow is impossible without the cooperation of merchant bankers.
Banks play an important role in the activities of the capital market between investors and entrepreneurs. Banks, directly and indirectly, help in the development of the capital market through their various functions. Although to say that the banks make adequate efforts to do the tasks mentioned at their level, there are vast possibilities for improvement in the quality of these activities and their planned development. Funds are collected through banks from every corner of the country for various forms of capital markets, but still only about 5 percent of our gross savings go to the capital market. Investment is made in that which is only about one percent of the national income. In rural and semi-urban areas, where there is a lot of investment potential, the services of the capital market have not yet reached the banks. Even the latest technology and high-level methodology for the successful operation of capital market services have not yet been fully developed. After the process of reforms in the financial sector, the role of banks in the development of the capital market has increased even more. The important role of merchant banks in the development of the capital market can be explained as follows-
(1) Receipt of consultation to various parties – The functioning of the merchant bank is more detailed. It requires different types of staff who are experts in their respective fields. During the process of the first issue of a company, its plant machinery, assets, godowns, finished goods, etc. are scrutinized and for this, reports are obtained from chartered accountants, technical experts, industrial consultants, etc. Merchant banks play an important role in preparing such reports.
(2) Establishment of Issue House- In developed countries, this process became popular in the management of the capital market, which is called Issue House. In this process, the company taking capital in the capital market sells its issue to the issuing house. The issuing house again sells the issue to the investors from its own level and makes the funds available to the concerned company. Merchant banks also do this work. This benefited both the investor and the entrepreneur. While on the one hand, the cost for the company is reduced, on the other hand, the investors are assured of the quality of the issue
(3) Speeding up the services – Speeding up the various processes of output services is an important issue. Where earlier there were considerable delays in allotment and withdrawals and a large number of investors remained in a state of confusion resulting in frequent customer complaints, the mobility of these services has reduced the blocking of investors' funds and There has been more liquidity in the capital market.
(4) Use of the special method of stock investment- The payment method of issue of capital or debentures has been completely operated through banks so that there is convenience in payment. Stock Invest's special method has been adopted to facilitate the payment method, but still, a large number of investors are unable to use this method.
(5) Establishment of Mutual Funds- Earlier, investors had high expectations from the establishment and development of Mutual Funds, but due to some opposite factors, the investors had to remain disappointed, but the merchant banks adopted the complete technology and spread it widely. This brought great relief to small-scale, investors.
6) Complete information about the process related to the market - In the most important services of the capital market, the customer wants that he should get complete updated information about the process related to the capital market, all the proceedings of the investment process, and services related to investment management at one place. The Bank is developing some of its specialized branches by fully acquiring expertise in the development of these services.
7) Increased transparency in investors' transactions - Banks are now playing an important role in secondary market services as banks are now free to take stock exchange membership through their holding companies. In this way, along with transparency in the transactions of investors, they started getting fair value on their securities. The brokerage services of banks were developed in this direction.
(8) Promotion of services Services related to capital markets were earlier limited to metros or big cities because a large middle class remained deprived of these services due to lack of information, but now merchant banks have started providing services related to capital markets even in small towns. Informed people and creating awareness. Today, bank branches are fully connected to the remote rural areas of the country, so they are providing special contributions in this direction. Investors are provided with updated information from time to time through the promotion of services by merchant banks.
9) Assistance in performing administrative tasks - Merchant banks are adept in performing all types of administrative tasks. These provide information about terms and conditions related to the import-export license, industrial license, issues, etc. to the company. Foreign and subsidiary company coming under Foreign Exchange Regulation Act, Indian company which comes under the foreign joint venture, and foreign company which is located in India and is working here should get permission from the Reserve Bank and Ministry of Finance.,
(10) Development of Depository Services- Merchant banks have played an important role in the services of a registrar and transfer agency. Earlier, there was a lot of delay in this process which caused a lot of inconvenience to the investors. Therefore, such a procedure was adopted by which the transfers started taking place without any delivery of the forms. Depository services were also developed in this regard. In this direction, the system of paperless transactions is used in developed countries where transfer, endorsement, etc. are done only based on the instructions of the investor. This minimizes the chances of loss of forms, fraud, etc. The establishment of the Stock Holding Corporation has given some impetus in this direction.
FAQ
What is a Merchant Banking service?
Merchant banking provides services such as issuing loans, providing advice on mergers and acquisitions, and helping companies raise capital. On the other hand, investment banking focuses more on advising investors and helping them in buying and selling securities. [
When did merchant banking start?
Merchant banks were the first modern banks. They emerged from the Italian grain and cloth merchant community in the Middle Ages and began to develop during the great European fairs of St Giles (England) in the 11th century, then at the Champagne fairs (France).
Who is the first merchant bank of India?
State Bank of India was the first Indian commercial bank to set up a separate merchant banking division in 1973, followed by ICICI in 1974.
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