Merchant banks are the financial institutions that offer financial services, solutions, & consultation to organisations. According to a notification of the Ministry of Finance in India, a Merchant Banker in India is defined as ‘any person engaged in the business of issue management either by making arrangements regarding selling, buying, or subscribing to the securities as manager, consultant, an adviser in relation to such an issue management’. Thus, a merchant banker provides its client’s consultancy for financial, marketing, managerial and legal matters.
What is Merchant Banking?
Unlike commercial banks who caters to the needs of the common man whereas merchant banks cater to the needs of corporate firms.
Merchant Banking is typically the provision of guidance and service to corporate for a fee, which can help an entrepreneur start a new venture, raise capital, expand and modernize the existing business, restructuring a business or help companies register, buy and sell assets (shares) at a stock exchange.
What are Merchant Banking Services?
Project Management: Merchant bankers prepare project reports to analyse the financing patterns to evaluate the cost of a project and appraising the same with financial institutions.
Management of Debt and Equity offers: One of the major functions of a merchant banker in India is assisting companies in raising funds from the investors. The main services offered are,
• Product designing • Pricing • Registration of documents • Guaranteeing support • Allocation and refund • Manage Stock exchange listing
Management of Issues: These bankers play an important role in the management of issue that involves the marketing of corporate securities like equity shares, preference shares and bonds offerings to the public.
Merchant banks act as a middle man in aiding transfer of capital from investors to their client. Per the SEBI guidelines in India, a merchant banker in India, organizes meetings between the company representatives and agents to settle arrangements related registration of prospectus, launching advertising campaign and fix board meetings to pass necessary resolutions. These bankers also consult companies in the Pricing of issues. The merchant bankers also provide Underwriting of Public Issue (not exceeding 15%).
Client Portfolio Management: Managing a diverse array of securities such as shares, bonds issued by different companies to ensure maximum return with minimum risk.
Placement and distribution: These bankers assist in the allocation and distribution of securities through the merchant banks institutional and retail network.
Corporate Restructuring: These bankers act as the middle agents in negotiations between the two companies and assisting the management of its client for various to restructure activities such as mergers and acquisitions, divestitures, management buyouts, joint venture and more.
Off Shore Funding: The merchant bankers help their clients manage joint ventures, foreign currency investment and foreign collaboration arrangements.
Loan Syndication: Merchant bankers assist clients in getting term loans for projects, obtainable from a single development finance institution, a syndicate or a consortium.
Corporate Counselling and Advisory Services: Corporate counselling is a comprehensive package of all merchant banking services, such as project counselling, restructuring, issue management, loan syndication, etc. Merchant bankers also offer their corporate customer’s customized solutions to financial difficulties along with attempts to refinancing alternatives, evaluating cheaper sources of funds.
However, one should note that to act as merchant bankers in India or firm, one must have the required certificate by SEBI the securities and exchange board of India.