Merchant banking is one of the fee based financial services which includes underwriting,
consultancy and other allied services to the business concern. The term merchant banking
has been used in different terms in different countries. In UK merchant banking is termed as
accepting and issuing house and in the USA it is known as investment banking.
A merchant banking is one who underwrites corporate securities and advises clients on
issue like corporate mergers. Merchant banking is basically service banking which provides
non financial services such as issue management, portfolio management, asset management,
underwriting of new issues, to act as registrar, share transfer agents, trustees, provide leasing,
project consultation, foreign credits, etc. The merchant bankers may function in the form
of a bank, financial institutions, company or firm.
Merchant Banking in India
In India, the first merchant banking services were started only in 1967 by National Grindlays
Bank followed by Citi Bank in 1970. In 1972 State Bank of India started a merchant banking
division, followed by ICICI Bank in 1973. Nowadays, most of the public sectors, private
sectors, commercial banks and financial institutions established a separate division of
merchant banking services.
Classification of Merchant Banking
According to the Securities Exchange Board of India regulations, merchant bankings are
classified into the following categories on the basis of their activities and capital adequacy.
The merchant banking must register themselves with Securities Exchange Board of India.
Functions of Merchant Banking
Merchant banking is one of the non financial services which provides to the corporate
sectors, commercial banks and financial institutions. The major functions of merchant
banking are explained as follows:
1. Management, Marketing and Underwriting of new issues.
2. Project finance and project promotion services.
3. Syndication of credit and other facilities.
4. Leasing including project leasing.
5. Corporate advisory services.
6. Investment advisory services.
7. Bought out deals.
8. Venture capital.
9. Mutual funds and off shore funds.
10. Investment Management.
11. Investment services for non resident Indians.
12. Management dealing in commercial paper.
13. Treasury management.
14. Stock broking.
15. Foreign Collaboration and foreign currency finance.
16. Counseling to Small Scale Industries.
17. Capital Structure counseling to cooperative sectors.
18. Meeting the working capital needs.