“Any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager-consultant, advisor or rendering corporate advisory services in relation to such issue management” – SEBI Merchant Bankers rules 1992
What is a Merchant Bank?
A merchant bank is a monetary organization that basically manages commercial banking needs of worldwide money, long haul credit for organizations, gives counseling services and endorsing of stock. It additionally goes about as a middle person between the issuers and definitive buyers of the securities in the essential market.
Despite the fact that the State Bank of India is the primary establishment to set up a different division for merchant Banking administrations in 1972, its services were begun in 1967 by National Grind lays Bank subsequently followed by CITI Bank in 1970.
The fundamental contrast between merchant banking and business banking is, business banking includes accepting deposits and giving credits and advances though merchant banking includes delivering of the services for a charge.
Scope of Merchant Bankers:
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- FI would require the services of Merchant bankers because of the Changing policy of FI.
- A good amount of capital will be raised through debt instruments. Hence there is a Development of the debt market.
- There are new Innovations in Financial Instruments.
- In order to get funds, Disinvestment is the reduction of some reasonably asset of a firm for the attainment of objectives.
- Merchant bankers can help in Cos. reviewing their strategies, structure and functioning etc. resulting in corporate restructuring.
- Indian market Domestic and foreign investors or FIIs are fixing their biz here. There are many public and private issues springing up which further leads to Growth in the new issues market.
Importance
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- They help in the Growth of Primary Markets.
- They help in Purchasing Securities.
- They ensure Capital Flow.
- They Promote Financial Surplus.
- The coordinating activities to the Share Issue.
- They work in Complying with Rules and Regulations.
Advantages
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- They give advice on ventures just as speculations on small customers.
- They help the independent company raise finance without any problem.
- Merchant banks approach organizations owned by dealers, monetary foundations, and customers
- They help business in the dissemination of benefits to the investors.
- They help in cash management and renting tasks too.
Disadvantages
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- One may not have access to each potential product.
- The account is dearer than a banking account.
- One can have no control over the interest rates or returns.
- One can get size considerations that must be met.
- One does not necessarily receive start-up funding.
Functions
1.Helps Clients In Fundraising:
Assistance is rendered to raise loans for projects after determining the promoter’s contribution. They also help companies in raising finance by way of public deposits. Credit Syndication alludes to getting advances from a development finance institution or an organization or consortium. Merchant Banks assist corporate customers with raising syndicated loans from commercials bank.
2. Going about as the Stock Exchange broker purchasing and selling securities for their clients goes under their obligations. They perform total point by point stock market research on the various securities on the lookout and aides their customers wherein to contribute for better development and benefit.
3. Helps In the Management of the Project
It incorporates preparation of Project Reports, it decides Upon the Financing Pattern, Appraising the Project regarding Its Technical Commercial and Financial Viability and It Includes Filling from Application Forms for Obtaining Funds from the institution.
4. Taking care of Companies Public Issues:
The board of issues includes the advertising of corporate securities, Value shares, preference offers and debentures by offering them to the public.
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- Post-issue exercises: It incorporates an assortment of application forms, screening of uses, choosing portion methodology, mailing of allocation letters, share authentications and discount orders
- Pre-issue exercises: They plan duplicates of prospectus and send it to SEBI and afterwards document them to Registrar of Companies they help the organizations in repairing the costs for their issues
5. Helps In Managing the Portfolio of Its Clients:
The merchant banker aides the investor in issues relating to investment choices. The viable administration of Securities Tax assessment and inflation are considered while prompting on investment in different securities. Investments are done in a way that ensures maximum returns and minimum risk.
6. Advisory Services:
Merchant banker goes about as mediators among offer or and offer, arranges method of installment. The merger is a blend of at least two organizations into one organization where one endures and the other loses its identity. Takeover is the buy by one organization procuring controlling revenue in the share capital of another organization.
The Bottom Line
The role of merchant banker is quite vast. Where commercial bank offers general banking facilities like opening a bank account, lending money to people, merchant banking, however, offers a wide spectrum of financial services to multinational corporations and high net worth clients.
Also, merchant bank provides financial services like fundraising for SMEs to scale their business to an upper level. The availability of merchant banks in India is less than commercial banks, despite they are in equal demand as commercial banks.
