Merchant banks specialize in various types of financing including bills of exchange, hire purchase, installment buying, international trade, and long-term loans. They also provide advisory services around acquisitions, mergers, and takeovers. Originally started in the Middle Ages by Italian grain merchants to finance long trading journeys, merchant banks now offer services like project counseling, loan syndication, issue management, portfolio management, and advisory services relating to mergers and acquisitions. Merchant banks are regulated by the Securities and Exchange Board of India and must obtain authorization to provide various merchant banking services.

1. MERCHANT BANKING

2. INTRODUCTION
What is a Merchant Bank?
Financial institution that specializes in
acceptance of:
• Bills of Exchange.
• Hire Purchase.
• Installment Buying.
• International Trade Financing.
• Long Term Loans.
• Investment and Portfolio Management.

3. ADVISORY BODY
Merchant Banks also
advices on:
• Acquisitions.
• Mergers.
• Takeovers.

4. HISTORY OF MERCHANT BANKS
• These were the original i.e.: the first banks.
• Invented in the middle ages by Italian Grain
Merchants.
• Main intention was financing the long trading
journeys.
• Later on started providing financial assistance
for production of grains and cereals.

5. MERCHANT BANK V/S INVESTMENT BANK
MERCHANT BANK INVESTMENT BANK
Expand into the field of Securities Participate in Trade Financing
underwriting. activities.
Focus on Small Scale Companies Focus on IPO’s (Initial Public
and offer Creative Equity Offerings), and Large Public and
Financing, Bridge & Mezzanine Private Share Offerings.
Financing.
Provide service to Small and Provide service to Larger
Medium Institutes. Institutes

6. SERVICES OF MERCHANT BANKS
• Project Counseling.
• Loan Syndication.
• Issue Management.
• Portfolio Management.
• NRI Investment.
• Advisory Service Relating
to Mergers &
Acquisitions.
• Off- Shore Finance.

7. PROJECT COUNSELING
• Includes preparation of Project Reports.
• Deciding upon the Financing Pattern.
• Appraising the Project relating to its Technical,
Commercial and Financial viability.
• Includes filling up forms for obtaining funds from
Financial Institutions.

8. LOAN SYNDICATION
• Assistance is rendered
to Raise Loans for
Projects, after
determining Promoter’s
Contribution.
• These can also be
obtained from Single
Institution or a
Consortium.

9. ISSUE MANAGEMENT
Involves Marketing of Corporate Securities
i.e.: Equity Shares, Preference Shares, and
Debentures.
Two Main Activities in Issue Management:
• Pre- Issue Activities.
• Post- Issue Activities.

10. Underwriting of Public Issues:
• It is an Insurance to the Company which
makes Public Issues.
• Raising external Resources becomes easy, if
the Issues are backed by well known
Underwriters.

11. Managers Consultants or Advisers to the Issue:
• SEBI insists that all issues be managed by at
least one Authorized Merchant Banker.
• For an Issue of 100 crores a max. of Four
Merchant Banks are appointed.
• They help in Listing of Shares in Stock
Exchange, Completion of Formalities under
Companies Act etc.

12. PORTFOLIO MANAGEMENT
• Refers to Investment in Shares, Debentures
issued by different Companies.
• Careful Blend & Combination of Assets.
• Involves proper Combination of Securities in
such a manner that they give Max. Returns.
• Investors are interested in Safety, Liquidity and
Profitability.
• Merchant Banks help their Investors in
choosing the Shares.

13. NRI INVESTMENT
• NRIs have to follow lot of complicated Rules
for Investing in Shares in India.
• Merchant Bankers help them in choosing the
Shares.
• Also provide Expert Advice fulfilling Govt.
Norms. & Regulations.
• Thus they provide more resources for
Corporate Sector.

14. Advisory Services Relating to Mergers
& Takeovers
• Merger means combination of two or more
companies.
• Here one survives, while other loses its
existence.
• Takeover is the purchase by one Company &
acquiring controlling Interest in the Share
Capital of another Company.
• Merchant Banks act as Middlemen between
the ‘Offeror’ & the ‘Offeree’.

15. OFF-SHORE FINANCE
• Long Term Foreign
Currency Loans.
• Joint Ventures Abroad.
• Financing Exports &
Imports.
• Foreign Collaboration
Arrangement.

16. MERCHANT-BANKING
INSTITUTES
• Commercial Banks.
• Foreign Banks like – National Grind lays Bank,
Citibank, HSBC Bank etc.
• Development Banks like – ICICI, IFCI, IDBI etc.
• SFC, SIDCs.
• Pvt. Firms like – JM Financial & Investment
Services, DSP Financial Consultants, CEAT,
Kotak Mahindra, Morgan-Stanley etc.

17. Merchant Banking Regulations
Certificate from SEBI is a must. There are Four
Types:
• Category 1 : Act as Issue Managers.
• Category 2 : Act only as Co- Managers.
• Category 3 : Can’t undertake Portfolio Mgt.
• Category 4 : Act merely as Consultant/
Advisor.

18. GUIDELINES
• Authorization from SEBI is must.
• Maintaining of Records like Balance Sheets,
P&L A/c, Statements of Financial Position.
• Half-yearly un-audited result to be submitted
to SEBI.
• Prohibition from buying Securities based on
unpublished Price Sensitive info. of their
Clients.
• Appointment of a ‘Compliance Officer’.

19. • SEBI has the Right to send Inspecting
Authority to inspect Books of Accounts,
Records etc.
• Initial Authorization Fee, an Annual Fee &
Renewal Fee may be collected by SEBI.
• In case of violation of the Guidelines SEBI has
the power to suspend/cancel the
Authorization.

20. PROBLEMS OF MERCHANT
BANKERS
• SEBI stipulates high capital adequacy norms
for authorization.
• Non co-operation of issuing companies in
timely allotment of securities and refund of
application of money etc.
• Is vast, but should develop adequate expertise
to provide a full range of merchant banking
services.

21. CONCLUSION
• Merchant Banks and Investment Banks sound
the same but are totally different.
• Provide advice and guidance to its various
clientele.
• All Indian Merchant Banks are under the check
of SEBI.
• Has evolved through the ages.

22. THANK YOU