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Merchant Banking[1]

Merchant Banking[1]

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Published by mukeshdilse

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Published by: mukeshdilse on Aug 22, 2009
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05/11/2014

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ORIGIN OF MERCHANT BANKINGORIGIN OF MERCHANT BANKING(EVOLUTION(EVOLUTION
))
In banking a merchant bank is a traditional term for anIn banking a merchant bank is a traditional term for aninvestment bank. The so called merchant banks, were in factinvestment bank. The so called merchant banks, were in factthe original ‘banks’.the original ‘banks’.These were invented in the middle ages by Italian grainThese were invented in the middle ages by Italian grainmerchants.merchants.Merchant bankers were individuals or banking houses whoseMerchant bankers were individuals or banking houses whosemajor objective was to provide capital for commodity traders,major objective was to provide capital for commodity traders,cargo owners, and buying, selling and shipping of goods. Theycargo owners, and buying, selling and shipping of goods. Theycarried out their lending operations from a bench, which incarried out their lending operations from a bench, which inItalian term was known as ‘banco’. Thus the merchant bankingItalian term was known as ‘banco’. Thus the merchant bankingcame into existence. Later on, the centre of merchant bankingcame into existence. Later on, the centre of merchant bankingoperations was shifted from Italy to Amsterdam and thereafter operations was shifted from Italy to Amsterdam and thereafter to London.to London.
 
 
INTRODUCTIONINTRODUCTION
Section 2(e) of SEBI Act, 1992 definesSection 2(e) of SEBI Act, 1992 definesmerchant banker as ‘any person who ismerchant banker as ‘any person who isengaged in the business of issue managementengaged in the business of issue managementeither by making arrangements regardingeither by making arrangements regardingselling, buying, or subscribing to securities asselling, buying, or subscribing to securities asmanager, consultant, adviser or renderingmanager, consultant, adviser or renderingcorporate advisory service in relation to suchcorporate advisory service in relation to suchissue management’.issue management’.
 
 
Merchant Banks - ConceptMerchant Banks - Concept
There is no statutory or any authoritative definition for theThere is no statutory or any authoritative definition for theterm Merchant Banking. For many, it just meansterm Merchant Banking. For many, it just meansmanagement of capital issues of companies. Some confusemanagement of capital issues of companies. Some confusethis with investment banking and an issue house. Yetthis with investment banking and an issue house. Yetanother group of persons mean it to what a merchant banker another group of persons mean it to what a merchant banker does. In this situation, let us try to settle for a workabledoes. In this situation, let us try to settle for a workabledefinition of this term.definition of this term.
 Merchant banking… Merchant banking…
is the financial intermediation thatis the financial intermediation thatmatches the entities that need capital and those that havematches the entities that need capital and those that havecapital. It is a function that facilitates the low of capital incapital. It is a function that facilitates the low of capital inthe market.the market.

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