Unit - 5 (Merchant Banking)

08 December 2020 16:45

Merchant Bank

•Financial Institutions which provide a wide range of financial services to MNCs and HNIs.

Services include-

○

Banking

○

Consultancy Services

•Advisory

•Consulting

•Do not accept deposits like commercial banks

•Called Investment Bank

•As per SEBI rules, a merchant banker refers to, "any person who is engaged in the business

of issue management either by making arrangement regarding buying, selling or

subscribing to securities or acting as manager, consultant or rendering corporate advisory

services in relation to such issue management."

•Global examples- Goldman Sachs, JP Morgan etc

Indian examples- State Bank of India, ICICI Bank (Not full fledged Merchant Banks, but

provide services)

Origin of Merchant Banks

•Started in Italy

•France- 17th century

•UK- 18th century

•USA- 19th century

•India- 20th century

○

Grindlays Bank- 1967

○

Citibank- 1970

○

SBI- 1972

○

Most important time was during 1983 due to huge boom in the primary market

Services provided by Merchant Banks

•Issue Management - Advice clients regarding issuing different types of shares or debt

instruments etc

•Loan/ Credit Syndication - Providing loans to the clients either individually or collaborating

with other Merchant Banks

•Portfolio Counselling - Help clients manage their investments

•Project Counselling - Advisory services on procedure and financial aspects of projects of

clients

•Brokers in Stock Exchanges - Many Merchant Bankers are also brokers and buy/ sell on

behalf of their clients

•Leasing Services - Allows businesses to lease assets from them

Types of Merchant Bankers in India

1. Category 1 Merchant Bankers -

a. Can act as-

i. Issue Managers

ii. Consultants

iii. Advisors

iv. Portfolio Managers

v. Underwriters

2. Category 2 Merchant Bankers -

a. Can act as-

i. Not Issue Managers but, Co-Managers (on issue, they cannot act as issue

managers by themselves)

ii. Consultants

iii. Advisors

iv. Portfolio Manager

v. Underwriters

3. Category 3 Merchant Bankers -

a. Can act as-

i. Not as Issue Managers or Co-Managers

ii. Consultants

iii. Advisors

iv. Not Portfolio Managers

Unit 5 - Merchant Banking

Financial Systems and Services (COH335)

Christ (Deemed To Be University)

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