Merchant Banking: The term ‘Merchant banker’ was used in relation to a wealthy merchant, who developed the functions of merchant banking in the banking side of one’s business, in England. In India, what is merchant banking definition is framed in SEBI rules 1992. It defines merchant banking in India as “any person who is engaged in the business of issue management either by making arrangement regarding selling, buying or subscribing to securities as manager, consultant, advisor or rendering merchant banking functions in relation to such issue management.”
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Merchant Bankin.
Merchant bankin. encompasses a range of services, including the management of securities, portfolio management, underwriting and insurance, financial advice, and project counseling, among others. Large brokers, mutual funds, venture capital firms, and investment banks are among the entities that offer merchant bankin. services.
The term “merchant bankin.” is used in varying ways in different countries. In the UK, it is known as accepting and issuing house, while in the USA, it is referred to as investment banking. Merchant banks primarily provide financial services in exchange for fees.
Merchant Bankin. in India
While the State Bank of India established a separate division for merchant bankin. services in 1972, merchant bankin. services were initiated in 1967 by National Grindlays Bank, followed by Citi Bank in 1970.
The fundamental distinction between merchant bankin. and commercial banking lies in their core functions. Commercial banking involves accepting deposits and granting loans and advances, whereas merchant bankin. is centered around providing services for a fee.
Functions of Merchant Ban.
- Underwriting of shares and debentures
- Management of public issues
- Portfolio management
- Credit syndication, involving the various steps associated with applying for a loan
- Corporate advisory services
- Management of offshore funds
- Leasing and financing
- Handling foreign collaborations and foreign currency management
- Investment services for non-resident Indians
- Offering guidance to small-scale business organizations
- Providing project finance and project promotion services
- Treasury management services
- Disbursement of dividends.
In India, merchant bankin. services are offered by
- Commercial banks
- Financial institutions
- Private consultancy firms.
Classification of Merchant Banks
In India, any entity providing merchant bankin. services must register with SEBI. SEBI classifies merchant bankers based on their capital adequacy and operational activities into different types.
| Category | Minimum Net Worth for Capital Adequacy | Activities Permitted by SEBI |
|---|---|---|
| Category – I | Rs. 5 Crore | 🏢 Issue Manager, 📋 Advisor, 🤝 Consultant, 💼 Underwriter, and 📈 Portfolio Manager |
| Category – II | Rs. 50 Lakhs | 📋 Advisor, 🤝 Consultant, 💼 Underwriter, and 📈 Portfolio Manager |
| Category – III | Rs. 20 Lakhs | 📋 Advisor, 🤝 Consultant, and 💼 Underwriter |
| Category – IV | -NIL | 📋 Advisor and 🤝 Consultant Service Only |
Merchant Banking – (FAQ)
Merchant bankin. involves offering a range of financial services, such as managing securities, portfolio management, underwriting, financial advice, and project counseling. These services are provided by institutions like large brokers, mutual funds, venture capital companies, and investment banks for a fee.
The term “merchant bankin.” is known as “accepting and issuing house” in the UK and “investment banking” in the USA.
