MERCHANT BANKING PRASHANT S. PAWAR MBA (G) – B ROLL NO. 89
CONTENTSDEFINATIONHISTORYINTRODUCTION & CONCEPTOBJECTIVES OF MERCHANT BANKSACTIVITIES OF MERCHANT BANKS
PRASHANT S. PAWARDEFINATION OF MERCHANT BANKINGA merchant bank is a financial institution which providescapital to companies in the form of share ownership insteadof loans. A merchant bank also provides advisory on corporatematters to the firms.In other words, The merchant banks are those financial intermediaryinvolved with the activity of transferring capital funds to thoseborrowers who are interested in borrowing.
PRASHANT S. PAWAR HISTORYMerchant banks first arose in the Italian states in the MiddleAges, when Italian merchant houses—generally small,family-owned import-export and commodity tradingbusinesses—began to use their excess capital to financeforeign trade in return for a share of the profits.Merchant Banking, as the term has evolved in Europe fromthe 18th century to today, pertained to an individual or abanking house whose primary function was to facilitate thebusiness process between a product and the financialrequirements for its development.
PRASHANT S. PAWAR Merchant Banks - ConceptDefinition In the Indian context, merchant banking is understood to be non-fund based and non-banking services. Rule 2(e) of SEBI (merchant bankers) Rules 1992, defines who a merchant banker is. “merchant banker means any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities as manager- consultant, advisor or rendering corporate advisory services in relation to such issue management” Merchant bankers are neither merchants nor bankers.
PRASHANT S. PAWAR Merchant Banking in IndiaTill early 1960s there was no merchant banking inthe Indian banking system. It was the GrindlaysBank which started merchant banking services asfar back as 1967 in India. Others to follow wereCitibank (1970), SBI (1972)The boom in the capital market in mid 1970sencouraged other banks and financial institutionsto set up MB divisions.Private financial brokers also started private MBorganizations
PRASHANT S. PAWAR Merchant Banking in India Merchant Banking DivisionsForeign Indian Private FinancialBanks Banks Merchant Institutions Bankers Division in Subsidiary Bank
PRASHANT S. PAWAR Merchant Banking and Corporates Guidance Project Formulations ImplementationObjectives of Modernization Merchant Banking Diversification Mobilizing Resources Raising Working Capital
PRASHANT S. PAWARMerchant banking V/s Commercial banking A bank can undertake merchant banking business, but an MB can not undertake banking business.
PRASHANT S. PAWARActivities of Merchant BankersSome of the important functions of a MB are Project counseling or reinvestment studies for investors Identify promising projects Prepare feasibility studies – economic and financial Prepare in-depth project reports Assist investors in obtaining licenses Give guidance on amalgamations, mergers and takeovers
PRASHANT S. PAWARActivities of Merchant Bankers Some of the important functions of a MB are Provision of working capital Foreign Currency Loans Portfolio Management