MERCHANT BANKING

PRASHANT S. PAWAR

MBA (G) – B

ROLL NO. 89

CONTENTS � DEFINATION � HISTORY � INTRODUCTION & CONCEPT � OBJECTIVES OF MERCHANT BANKS � ACTIVITIES OF MERCHANT BANKS

DEFINATION OF MERCHANT BANKING

� A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans.

� A merchant bank also provides advisory on corporate matters to the firms.

� In other words, The merchant banks are those financial intermediary involved with the activity of transferring capital funds to those borrowers who are interested in borrowing.

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HISTORY

� Merchant banks first arose in the Italian states in the Middle Ages, when Italian merchant houses—generally small, family-owned import-export and commodity trading businesses—began to use their excess capital to finance foreign trade in return for a share of the profits.

� Merchant Banking, as the term has evolved in Europe from

the 18th century to today, pertained to an individual or a banking house whose primary function was to facilitate the business process between a product and the financial requirements for its development.

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Merchant Banks - Concept

� Definition � 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.

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Merchant Banking in India

�Till early 1960s there was no merchant banking in the Indian banking system. It was the Grindlays Bank which started merchant banking services as far back as 1967 in India. Others to follow were Citibank (1970), SBI (1972)

�The boom in the capital market in mid 1970s encouraged other banks and financial institutions to set up MB divisions.

�Private financial brokers also started private MB organizations

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Merchant Banking in India

Merchant Banking Divisions

Foreign Banks

Indian Banks

Financial Institutions

Private Merchant Bankers

Subsidiary Division in

Bank

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Merchant Banking and Corporates

Objectives of Merchant Banking

Guidance

Project Formulations

Implementation

Modernization

Diversification

Mobilizing Resources

Raising Working Capital

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Merchant banking V/s Commercial banking

� A bank can undertake merchant

banking business, but an MB can not undertake banking business.

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Activities of Merchant Bankers � Some 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

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Activities of Merchant Bankers

�Some of the important functions of a MB are �Provision of working capital �Foreign Currency Loans �Portfolio Management

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