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Defining Merchant Banking

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DEFINITION
NOTIFICATION OF MINISTRY OF FINANCE DEFINES MERCHANT BANKER AS ANY PERSON WHO IS ENGAGED IN BUSINESS OF ISSUE MANAGEMENT EITHER BY MAKING ARRANGEMENTS REGARDING SELLING,BUYING OR SUBSCRIBING TO THE SECURITIES AS MANAGER,CONSULTANT,ADVISOR OR RENDERING CORPORATE ADVISORY SERVICE IN RELATION TO SUCH ISSUE MANAGEMENT. THERE IS NO UNIVERSAL DEFINITION OF MERCHANT BANKING. IT IS AN INSTITUTION WHICH COVERS A WIDE RANGE OF FUNCTIONS SUCH AS MANAGEMENT OF CUSTOMER SERVICES, PORTFOLIO MANAGEMENT, CREDIT SYNDICATION, ACCEPTANCE CREDIT, COUNSELLING, INSURANCE ETC.

ORIGIN OF MERCHANT BANKING MERCHANT BANKING ORIGINATED THROUGH ENTERING OF LONDON MERCHANTS IN FINANCING FOREIGN TRADE THROUGH ACCEPTANCE OF BILLS. LATER THESE MERCHANTS ASSISTED GOVT. IN RAISING LONG TERM FUNDS THROUGH FLOTATION OF BONDS. LATER ON THEY EXTENDED THEIR ACTIVITIES TO SYNDICATION OF LONG TERM/SHORT TERM FINANCE, UNDERWRITING, ACTING AS REGISTRARS, DEBENTURE TRUSTEES, PORTFOLIO MANAGERS, NEGOTIATING AGENTS FOR MERGERS AND TAKEOVERS. THUS THE INSTITUTION OF MERCHANT BANKERS CAME TO STAY.

MERCHANT BANKING IN INDIA


IN INDIA PRIOR TO ENACTMENT OF INDIAN COMPANIES ACT 1956 MANAGING AGENCY HOUSES WERE ISSUE HOUSES FOR SECURITIES. FEW SHARE BROKING FIRMS ALSO FUNCTIONED AS MERCHANT BANKERS. THE NEED FOR MERCHANT BANKERS WAS FELT WHEN NUMBER OF ISSUES IN PRIMARY MARKET WERE INCREASING. MERCHANT BANKING SERVICES WERE STARTED BY FOREIGN BANKS NATIONAL GRINDLAYS AND CITY BANK IN 1970, THE BANKING COMMISSION IN ITS REPORT 1972 RECOMMENDED THAT COMMERCIAL BANKS AND FINANCIAL INSTITUTIONS SHOULD START THEIR MERCHANT BANKING WING.THIS MARKED SPECIALISED MERCHANT BANKING DIVISIONS..

BEGINNING
TO BEGIN WITH MERCHANT BANKING SERVICES WERE OFFERED ALONGWITH OTHER TRADITIONAL BANKING SERVICES. IN MID 80S BANKING REGULATION ACT WAS AMENDED PERMITTING COMMERCIAL BANKS TO OFFER A WIDE RANGE OF FINANCIAL SEERVICES THROUGH THE SUBSIDIARIES. SBI WAS THE FIRST AND THEN ICICI,BANK OF INDIA, BANK OF BARODA,CANARA, PUNJAB,UCO BANK FOLLOWED. THE MERCHANT BANKING GAINED PROMINENCE DURING 1083-84 DUE TO NEW ISSUES BOOM

MERCHANT BANKS AND COMMERCIAL BANKS


DIFFERENCE IN APPROACH,ATTITUDE AND AREAS COMMERCIAL BANKS DEAL WITH DEBT AND DEBT RELATED FINANCE. MERCHANT BANK IS EQUITY AND EQUITY RELATED FINANCE. COMMERCIAL BANKS ARE ASSET ORIENTED, DECISIONS ARE BASED ON DETAILED CREDIT ANALYSIS. MERCHANT BANKS ARE MANAGEMENT ORIENTED COMMERCIAL BANKS ARE MAINLY FINANCIERS. ACTIVITIES OF MERCHANT BANKEERS ARE PROJECT COUNSELLING,CAPITAL RESTRCTURING, AMALGAMATIONS, TAKEOVERS