An Overview of Merchant Banker License In the Indian financial industry, merchant bankers are key players in corporate finance. They serve as trusted consultants and facilitators for important tasks such as public offerings, merger and acquisition deals, and strategic reorganization. If you are a finance professional looking for a challenging career with great opportunities for advancement, getting a merchant banker license in India may be the key to achieving success. Who is a Merchant Banker? A merchant banker is an individual who is engaged in the business of issue management either by making arrangements regarding buying, selling or subscribing to securities or acting as a consultant, manager or rendering corporate tax advisory services concerning such issue management. Merchant bankers advise entrepreneurs right from the stage of the conception of the project till the commencement of production, and they are in charge of the issue process. They act as intermediaries between the companies and the investors. What are the Types of Merchant Bankers? There are various types of merchant bankers, but it has been segregated into four categories: Category-I Merchant bankers can serve as issue managers, advisors, consultants, underwriters, and portfolio administrators. They handle issue management tasks such as creating the prospectus, determining financial structure, securing financiers, and making final allocations with the minimum net worth requirement of Rs.5 Crores. Category-II These bankers can act as consultants, co-managers, or underwriters. They can work as a portfolio manager as well, with a minimum net worth of Rs.50 Lakhs. Category-III They cannot carry out the responsibilities related to managing a portfolio with a minimum net worth of Rs.20 Lakh. These bankers can act as either the underwriters or as advisors and consultants. They are not capable of handling issues management independently, nor can they act as co-managers. Category-IV Merchant Bankers can serve only in the capacity of advisors or consultants for the issue without any minimum net worth requirement. What are the Benefits of becoming a Merchant Banker? A merchant banker license enables a company or individual to function as a merchant banker, offering a wide range of financial services and advisory roles to clients, often corporate entities. Here, we have mentioned some of the key benefits of becoming a merchant banker: 1. Financial Rewards Engaging in merchant banking has the potential to be profitable. As a merchant banker, you have the opportunity to make significant profits by providing services like underwriting, and advisory. 2. Diverse Opportunities Merchant banking includes a range of financial services like corporate finance, investment banking, and advisory services. This variety of projects and transactions offers chances to be involved in a broad scope of work. 3. Client Relationships Merchant bankers frequently establish close connections with various clients, such as companies, banks, and governmental bodies. These connections could result in more returning clients and recommendations, which can improve your reputation and professional connections. 4. Entrepreneurial Opportunities Certain merchant banking companies provide chances for entrepreneurs to have ownership of projects, initiatives or even launch their ventures within the firm. What is the Market Size of Merchant Bankers? The global merchant banking services market was worth $42.1 billion in 2022 and is expected to grow at a CAGR of 18.9% to reach $232.2 billion by 2032, as stated by Allied Market Research. Check out the Merchant Banking Services Market Research for more information. Role of Merchant Bankers for Startups Merchant bankers are key players in the growth and development of startups in India, positioning themselves as essential facilitators in the growing entrepreneurial ecosystem. They are involved in a variety of tasks, including assessing value, raising funds, promoting activities, and managing projects. Here, we have discussed the role of merchant bankers in the startup industry such as: 1. Startups Valuation Merchant bankers can provide expert valuation reports to startups, which play a critical role in new business flourishing in India to set up investment credibility. These reports offer investors a measurable insight into the startup's potential and their business's worth, serving as a standard for comparison. Precise valuations enable startups to obtain funding by supporting their financial projections for potential investors. 2. Raising the Funds Merchant bankers play a primary role in the startup industry to raise funds. They are also helpful for the startup to get access to various forms of capital, which include: A. Angel Capital Early investment from prosperous individuals. B. Venture Capital Like private equity, merchant banks can also participate in early-stage startup investments by using venture capital funds. It means accepting increased risk in return for the possibility of greater rewards. C. Privity Equity The investment is the want of exchange for equity shares in the company. Merchant bankers help with raising funds by leveraging their networks and financial structuring expertise. They help clients secure funds by issuing debentures, negotiating bank loans, and selling shares to investors. 3. Management and Promotional Activities Merchant bankers play a vital role by offering crucial assistance to entrepreneurs as they promote industrial enterprises. They help generate business ideas, identify feasible projects, and create feasibility reports. Moreover, they assist in acquiring essential approvals and benefits from governmental agencies. This assistance is extremely valuable for startups driving through complex regulatory and business environments. 4. Project Planning and Control Merchant bankers are also involved in project management, focusing on the financial aspects of operating a startup. They leverage their financial knowledge to assist startups in planning and executing projects, ensuring that financial resources are maximized and that projects stay feasible and aligned with business objectives. Eligibility to Obtain Merchant Banker License The eligibility to obtain a merchant banker license is discussed below: 1. Body Corporate The applicant company must be incorporated under the Companies Act to obtain a merchant banker license. 2. Experienced personnel The candidate must hire a minimum of two individuals who have appropriate experience in the merchant banking sector. 3. Infrastructure The candidate needs sufficient infrastructure, such as office space, equipment, and manpower, in order to successfully conduct merchant banking operations. 4. Capital Adequacy The lowest required capital adequacy is a net worth of at least INR 5 Crore. Net worth is the total of the applicant's paid-up capital and free reserves at the time they apply under this rule. Previously, the capital adequacy requirement varied by category, but following an amendment, every category now must meet a minimum capital adequacy standard of INR 5 Crore. Documents Required for a Merchant Banker License These are the documents required for obtaining a merchant banker license mentioned below such as: MOA and AOA Applicant UIN (Unique Identification Number) Educational Qualification of the directors in the field of merchant banking Organisational internal structure details Financial statements of Applicant A detailed report from principal bankers Detailed of associated registered intermediaries Undertaking needed Declaration made by two minimum directors Need to furnish details of businesses handled by the applicant during the last 3 years in specific areas- Issue Management, Investment Advisers, Underwriting, Portfolio Management, Consultants, etc What are Permitted Business Activities for Merchant Bankers? It can be commendable to say that merchant bankers play an important role in the finance sector mainly in the field of securities market and corporate finance. Here, we discussed a detailed review of their key functions, showing their importance & versatility below such as: 1. Lift-up Finance Merchant bankers help industries raise funds by facilitating activities like issuing debentures, stocks, and bank loans. They utilize both local and global markets to create wealth. This money can be utilized to start new initiatives or businesses or to grow and update current companies. Their skill in guiding through financial markets allows them to secure funds at competitive prices, greatly helping their clients. 2. Brand Promotion For the role of promoting industrial businesses, merchant bankers assist developers in creating and establishing innovative new projects. They participate in creating feasibility studies, acquiring permits from governmental organizations, and enabling chances for technological and collaborative projects. This position plays a crucial role in the initial phases of project development, making sure that essential components are carefully planned and backed up. 3. Project Coordination For project coordination, merchant bankers offer thorough advice throughout different phases. They help with positioning the plant strategically, creating feasibility reports, and getting project finance documents ready. They also assist in identifying support resources and understanding policy benefits and concessions. This comprehensive assistance makes sure that projects are carefully planned and carried out effectively. 4. Guidance on Expansion and Modernization Merchant bankers provide strategic guidance on various expansion and modernization initiatives. This covers advice on mergers, acquisitions, partnerships, international alliances, market diversification, and the enhancement of technologies. Their contribution is essential for firms seeking to expand or improve their activities in the rapidly changing business landscape. 5. Handle Public Issues Merchant bankers, in their role as consultants, guide the language, format, and schedule of corporate securities offerings. They modify these securities to fit customers' requirements while also guaranteeing transparency and flexibility for the companies issuing them. This position is vital in effectively overseeing public offerings, ensuring they match market conditions and investor expectations. Qualification and Team Requirement for Merchant Bankers Merchant bankers are required to have high-level finance credentials like MBAs, CAs, or CFAs. Essential staff needs to be skilled in financial modelling, risk management, regulatory compliance, and strategic financial planning. The team is required to follow strict ethical guidelines and actively participate in ongoing professional growth. Who is the Concerned Authority for Setting up a Merchant Bank? The SEBI is the regulatory authority for Merchant Banking in India. The law that regulates the activities of the merchant bank in India is the SEBI (Merchant Bankers) Regulations 1992. For setting up a Merchant Bank, the concerned individual has to approach the SEBI. The other regulatory authority is the Reserve Bank of India. Also, the Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 apply to financial institutions which cover merchant banks under Section 2 clause (b) explanation. Banking Institutions performing merchant banking activities are also required to follow the requirements laid down in the prudential exposure norms prescribed by RBI, as well as the statutory limits contained in Section 19(2) and (3) of the Banking Regulation Act, 1949. What are the Prerequisites for a Merchant Banker License? There are certain prerequisites for a merchant banker license mentioned below for your better insight: It restricted those to undertaking the activities of merchant bankers without having any relevant merchant banker license duly granted by SEBI. A merchant banker is required to possess a minimum net worth, in the same manner duly defined under category minimum requirement- Category I *[Rs. 5, 00, 00, 000] Category II Rs. 50, 00, 000 Category III Rs. 20, 00, 000 Category IV Nil. For the grant of a certificate of permanent registration, the merchant banker shall be liable to pay the fee under Schedule II. Two employees (minimum employee with Applicant) with previous experience in the merchant banking field are needed by the applicant at the time of applying for a merchant banking license. An application for a merchant banker license needs to provide information in format Form A along with INR 50,000 non-refundable fees. Every merchant banker must pay a sum of INR 20 lakh registration fees at the time to grant a certificate of registration. A merchant banker who has been granted a certificate of registration needs to pay INR 9 lakhs fee every 3 years from the 6th year from the date of registration or from the date of grant of initial certificate registration before SEBI Amendment Regulation 2014 to keep their certificate in force. NISM Certification Requirements Professionals are required to complete the NISM-Series-IX exam, which covers the basics of merchant banking, securities markets, and regulatory frameworks. This certification is crucial in guaranteeing adherence to standards and expertise in the industry. Moreover, SEBI mandates that a minimum of two employees must complete the NISM Series III-A certification. Merchant banker License Fees The fee structure for the registration of merchant bankers, its license renewal and other professional charges are discussed below for your better insight: 1. Initial Application Fee The application fee of Rs.50,000 is required for all the categories of merchant bankers. 2. License Issuance Fee After receiving the approval, the license issuance fee of the amount of Rs.20 Lakh is payable and covers 5 years. 3. Renewal Fee The renewal fee of Rs.9 Lakh is applicable for every 3 years. The fee amount must be submitted in a timely manner for license validity. What is the Timeline for obtaining a Merchant Banker License? The timeline for obtaining a merchant banker license usually takes 3 to 6 months, depending upon the completion of the application procedure and the efficient review of the regulations pertaining to it. How Enterslice can help you get a Merchant Banker License? We are here to help you as a business consulting firm by offering a wide range of services, including assistance in applying for a merchant banker license in India. Here, we have discussed below the step-by-step process we follow for obtaining a merchant banker license: 1. Application Process We will help you to prepare and submit the SEBI application form and the required documents. 2. Documentation Process We will help you prepare documents such as the MoA and AoA, other financial statements, and details of key personnel. 3. Advisory and Compliance We will also provide you with advisory and compliance services related to merchant banking operations. 4. Support and Training We will also train your staff in the compliance requirements and operational procedures for merchant banking. 5. End-to-End Service We will also help you, starting from the initial consultation to the final approval of the merchant banker license.
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