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What is the Role and Activities of Merchant Banker in India?

Narendra Kumar

| Updated: Sep 14, 2018 | Category: SEBI Registration

Activities of Merchant Banker

Fundamentally, merchant banker are financial institutions. The main activities of merchant banker are like business loans as well as underwriting. They largely offer their services to large enterprises and individuals of high net worth.

The major functions that a merchant bank carries out are like

  • Stock Underwriting: This is one of the most usual activities of a merchant bank.
  • Issue Management: In this, a merchant Bank will assist the capital market to increase the supply of securities in the market.
  • Portfolio Services is also essential function.

Underwriting is the process by which they raise and arrange to collect the fund from investors on behalf of corporations and governments issuing either equity or debt securities.

While acting as a banker to an issue, a merchant banker has to disclose full details to the Securities Exchange Board of India (SEBI) as it is the regulator for this entity. Basically, merchant bankers are financial institutions. They do not undertake the activities of depositories or retail lender institutions. They are, instead, intermediaries.

They undertake the activities of business loans as well as underwriting. They are an unique combination of consultancy and banking services. They provide consultancy on matters pertaining to the finances, marketing, management, and law. Such consultancy services assist starting of businesses, raise finance, modernize, expand or restructure an existing business, revival of sick units as well as provide assistance to companies in registering, buying and selling shares. They do not undertake the activities of depositories or retail lender institutions. They are, instead, intermediaries.

National Grindlays Bank introduced the concept of merchant banks in India somewhere in 1967. Similarly, the State Bank of India became the first Indian Commercial Bank to set up a separate Merchant Banking Division in the year 1972.

Citibank setup its merchant banking division[1] in 1970.

Role and activities of Merchant Bankers

Raising finance

Merchant Bankers(MB) assist their clients in fund raising by way of issue of a debenture, shares, bank loans, etc.

Promotional activities

In India, Activities of Merchant Banker play a very vital role of promoter of industrial enterprises. They assist entrepreneurs in the matter of conceiving ideas, identifying projects, preparation of feasibility reports, getting Government approvals as well as incentives, etc.

Brokers in stock exchanges

Merchant bankers also buy and sell shares in the stock exchange on behalf of their clients. They also additionally conduct researches on equity shares.

Project management

Merchant bankers offer their service to clients in several ways in the process of project management also.

Advise on Modernisation and Expansion

Further, Merchant bankers also advise on amalgamations, mergers, acquisitions, takeovers, foreign collaborations, diversification of business, technology up-gradation, joint-ventures, etc. to their clients.

Managing the ensuing public issue of the client is also very important service offered by the Merchant Bankers. In fact, it is prime function of Merchant Bankers.

They offer their following services for the above-mentioned purpose:

  • the timing of the public issue to be fixed
  • determining the size of the public issue
  • the price of the share to be issued
  • acting in the capacity of manager to the issue
  • helping in receiving applications as well as allotment of securities
  • appointment of brokers as well as underwriters for the issue
  • lastly listing of the shares on the relevant stock exchange for the trading purpose

Credit Syndication

A merchant banker offers some specialized assistance in the phases of preparation of a project, the loan applications required for the raising of short-term and long- term credit from various banks and financial institutions, etc. 

Handling Government Consent for Industrial Projects

A merchant banker fulfills all formalities for his client, to obtain government permission to expand and modernize business and starting new businesses.

Special Assistance to Entrepreneurs and Small Companies

Merchant banker councils and explains the businessmen and small companies on availability and avenues of business opportunities, concessions, incentives and government policies and helps them to take advantage of this.

Services to PSU’s

Merchant banker also offers several services to public sector undertakings and units and their public utilities.

The Revival of Sick Units

A merchant bank assists in reviving sick industrial units also. They negotiate with several agencies such as banks, long-term lending institutions, and the Board for Industrial and Financial Reconstruction (BIFR).

Portfolio Management of Sick Units

Merchant bankers help in offering revival services to companies issuing the securities.

Thus, the Merchant Bankers offer a wide variety of services to the capital market in India.

Read our article: Registration of Merchant Banker – An overview

Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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