Overview of Merchant Banking in India
Merchant Banking
Merchant Banking
in India
in India
The term merchant banking came from the early years of banking
when only merchants required the facilities of finance. The term has
been retained because it reflects the nature of those banks which
provide financial services to the business community. Thus
merchant banking is exclusively a service function. The merchant
banker has to seek a client, establish good relations with him, offer
him the kind of services he needs and maintain a continuing
relationship with him. Informed and efficient service is an
indispensable condition of merchant banking.
•
Source: Jain & Khanna,(2013) Indian Financial System
SEBI’s authorization criteria would take into consideration mainly the
following
:
•
Professional Competence:
Whether a person or body requiring authorization
has the professional know-how and the competence to successfully run the
business smoothly.
•
Capital :
Whether they have adequate capital and ready financial resources.
•
Track Record
:
The amount of experience they have their general reputation and
fairness in all their transactions are also scrutinized.
•
Infrastructure:
The quality of their personnel and the basic foundation and
infrastructure are also considered by SEBI.
•
Net Worth:
SEBI lays down that all Merchant Banks must be worth at least Rs.1
Crore. However, this rule has now been amended for the benefit of merchant
bankers and now a varying net worth level has been introduced based on the
category that an applicant opts for.
•
Source: Jain & Khanna,(2013) Indian Financial System
Merchant Bank
Merchant Bank
ing in India
ing in India
Till early1960s there was no merchant banking in the Indian
Banking System. It was the Grindlays Bank which started Merchant
banking service as far back as 1967. After Grindlays Bank other
foreign banks, like Citibank and Chartered Bank, started merchant
banking services in India. Till 1970s the main services rendered
were management f share issues and sub-aspects of financial
consultancies. In mid 1970s , there was boom in the capital in the
capital market with the introduction of “Foreign Exchange
Regulation Act 1973”. This created an awareness in the investing
public about the capital market. This encouraged a few commercial
banks and financial institutions to set up Merchant Banking
Divisions. In additions, private financial brokers also started private
financial brokers also started private merchant banking
organisations.
•
Source: Jain & Khanna,(2013) Indian Financial System
Foreign Banks
Indian Banks
Financial Institutions
Private Merchant Banks
Subsidiary Institutions
A Division within the Ban
k
•
Project counseling
•
Syndication of loan and project finance
•
Issues management
•
Provision of Working Capital
•
Foreign currency loans
•
Portfolio management of Non-residents
•
Leasing business
•
Marketing
For the Merchant Banking Division the development of new services to
meet the changing market conditions is an ongoing process. Today, the
entire merchant banking industry in India is face with the challenge of
attracting non-resident Indian investment in India, particularly under the
scheme for portfolio investment through stock exchange. Despite the
several policy liberalization, the response from the non-resident Indians is
far below expectations. The reason for this is the lack of information with
the non-resident investors regarding the changing conditions in the Indian
stock markets. The merchant banking division is now in the process of
introducing a comprehensive portfolio advisory service which will try to
fill up this information gap, offer expert counseling on investment
opportunities, undertake to buy/sell orders, periodically evaluate the
portfolio and look after all the administrative formalities, such as attending
to tax returns, collection and remittance of dividend etc., in compliance
with the RBI and SEBI guidelines.
Merchant banking in India traces back to the early 1960s, with Grindlays Bank pioneering the services in 1967. Over the years, foreign and Indian banks, as well as financial institutions, have ventured into this sector, offering services like managing share issues and providing financial consultancies. The authorization process for merchant bankers involves criteria such as professional competence, capital adequacy, track record, infrastructure, and net worth as per SEBI regulations. Merchant banking divisions operate within financial institutions, banks, and as standalone entities, contributing to India's financial market development.
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Presentation Transcript
Merchant Banking in India B.A.(Hons) 6thSemester ECB-605E: Financial Market-II Dr. G.K. SINHA Assistant Professor Department of Economics Arya Mahila P.G. College(BHU) Varanasi
Merchant Banking The term merchant banking came from the early years of banking when only merchants required the facilities of finance. The term has been retained because it reflects the nature of those banks which provide financial services to the business community. Thus merchant banking is exclusively a service function. The merchant banker has to seek a client, establish good relations with him, offer him the kind of services he needs and maintain a continuing relationship with him. Informed and efficient service is an indispensable condition of merchant banking. Source: Jain & Khanna,(2013) Indian Financial System
Authorization for a Merchant Banker SEBI s authorization criteria would take into consideration mainly the following: Professional Competence: Whether a person or body requiring authorization has the professional know-how and the competence to successfully run the business smoothly. Capital : Whether they have adequate capital and ready financial resources. Track Record: The amount of experience they have their general reputation and fairness in all their transactions are also scrutinized. Infrastructure: The quality of their personnel and the basic foundation and infrastructure are also considered by SEBI. Net Worth: SEBI lays down that all Merchant Banks must be worth at least Rs.1 Crore. However, this rule has now been amended for the benefit of merchant bankers and now a varying net worth level has been introduced based on the category that an applicant opts for. Source: Jain & Khanna,(2013) Indian Financial System
Merchant Banking in India Till early1960s there was no merchant banking in the Indian Banking System. It was the Grindlays Bank which started Merchant banking service as far back as 1967. After Grindlays Bank other foreign banks, like Citibank and Chartered Bank, started merchant banking services in India. Till 1970s the main services rendered were management f share issues and sub-aspects of financial consultancies. In mid 1970s , there was boom in the capital in the capital market with the introduction of Foreign Exchange Regulation Act 1973 . This created an awareness in the investing public about the capital market. This encouraged a few commercial banks and financial institutions to set up Merchant Banking Divisions. In additions, private financial brokers also started private financial brokers also started organisations. Source: Jain & Khanna,(2013) Indian Financial System private merchant banking
Merchant Banking Divisions Merchant Banking Division Financial Institutions Foreign Banks Indian Banks Private Merchant Banks Subsidiary Institutions A Division within the Bank
FunctionsofMerchantBanks Project counseling Syndication of loan and project finance Issues management Provision of Working Capital Foreign currency loans Portfolio management of Non-residents Leasing business Marketing
Future For the Merchant Banking Division the development of new services to meet the changing market conditions is an ongoing process. Today, the entire merchant banking industry in India is face with the challenge of attracting non-resident Indian investment in India, particularly under the scheme for portfolio investment through stock exchange. Despite the several policy liberalization, the response from the non-resident Indians is far below expectations. The reason for this is the lack of information with the non-resident investors regarding the changing conditions in the Indian stock markets. The merchant banking division is now in the process of introducing a comprehensive portfolio advisory service which will try to fill up this information gap, offer expert counseling on investment opportunities, undertake to buy/sell orders, periodically evaluate the portfolio and look after all the administrative formalities, such as attending to tax returns, collection and remittance of dividend etc., in compliance with the RBI and SEBI guidelines.
