Merchant Banking in India
A merchant bank deals with the commercial banking needs of international
finance, long term company loans, and stock
. A merchant bank
does not have retail offices where one can go and open a savings or
. A merchant bank is sometimes said to be a
, or in the business of
. This is because merchant
banks tend to deal primarily with other merchant banks and other large
The most familiar role of the merchant bank is stock underwriting
A large company that wishes to raise money from investors through the
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Merchant banks operate
behind the scenes and away from the spotlight.
Importance and Need of merchant banking
Important reason for the growth of merchant banking has been
developmental activity throughout the country, exerting excess demand on
the sources of funds for ever expanding industry and trade, thus, leaving a
widening gap under bridged between the supply and demand of
inventible funds. All Indian financial institutions and experienced resources
constraint to meet the ever increasing demands for funds from the corporate
sector enterprises. In the circumstances corporate sector had the only
alternative to avail of the capital market services for meeting their long-term
financial requirements through capital issues of equity and debentures. With
the growing demand for funds there was pressure on capital market that
enthused the commercial banks, share brokers and financial consultant firms
to enter into the field of merchant banking and share the growing capital
markets. With the result, all the commercial banks in nationalized and public
sector as well as in private sector including the foreign banks in India have
opened their merchant banking windows and are competing in this field.
There has been a mushroom growth of financial consultancy firms and
broker firms doing advisory functions as well as managing public issues in
syndication with other merchant bankers.
Notwithstanding the above facts, the need of merchant banking institutions
is felt in the wake of huge public savings lying still untapped. Merchant
banks can play highly significant role in mobilizing funds of savers to
investible channels assuring promising return on investments and thus can
Merchant Banking in India
3. Registration of Merchant Bankers
a.Application for grant of certificate
An application for grant of a certificate needs to be made to SEBI .
The application can be made for any one of the following categories of the
merchant banker namely:-
Category I, that is –
(i) to carry on any activity of the issue management, which will inter-alia
consist of preparation of prospectus and other information relating to the
issue, determining financial structure, tie-up of financiers and final allotment
and refund of the subscription; and
(ii) to act as adviser, consultant, manager, underwriter, portfolio manager.
Category II, that is, to act as adviser, consultant, co- manager,
underwriter, portfolio manager;
Category III, that is to act as underwriter, adviser, consultant to an
Category IV, that is to act only as adviser or consultant to an issue.
To carry on the activity as underwriter or portfolio manager a separate
certificate of registration needs to be obtained from SEBI.
b.Application to conform to the requirements
The application should conform to all the requirements under the SEBI
guidelines, otherwise it may be rejected.
c.Furnishing of information, clarification and personal