However, despite displaying clear terms on our sites, sometimes users scan work that is not their own and this can result in content being uploaded that should not have been. The Merchant Banking scenario in developed countries like USA and UK are different from Indian Merchant Banking activities. So it becomes increasingly necessary for us to look at this business in a more holistic manner.

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The regulatory framework governing merchant banks in India is primarily overseen by the Securities and Exchange Board of India (SEBI). SEBI has established various guidelines and regulations to ensure that merchant banking activities are conducted transparently and efficiently. These regulations include requirements for registration, maintaining capital adequacy, and adhering to ethical standards.

• It developed further in countries such as the UK and USA where it was adopted by many as their profession.
• Commercial banks are permitted to report either realized or unrealized gains on their merchant-banking portfolios, as long as they are consistent in the reporting.
• From the point of view of liberalization of the economy, SEBI has taken a retrograde step.
• Understanding this evolution highlights the resilience and adaptability of the Indian banking system, playing a significant role in supporting the nation’s economic development.

Types of Merchant Banks in India

Now 50 million potential investors are deprived of official and authentic information given by the Issuer. It is hard to understand reasons for this drastic and totally uncalled for action. While there has been no official explanation for this fiat, there is reason to believe that it may be based on a wrong perception of the role for corporate advertising.

By leveraging their expertise in financial management, merchant banks help companies optimize their capital structure, enhance their market value, and achieve strategic objectives. Merchant banks must obtain a certificate of registration from SEBI to operate in India. This ensures that only qualified and competent entities engage in merchant banking activities, protecting the interests of investors and maintaining market integrity. Merchant Banks are financial institutions which provide services such as issue management, consultancy, portfolio management and underwritings.

Institutions like HDFC Bank in 1994 and ICICI Bank in 1994 exemplified this trend, focusing on customer-centric services and advanced technology to enhance banking experiences. These banks challenged public sector banks, offering tailored products and competitive interest rates, thereby significantly improving service delivery in India’s banking system. Many banks opted for merchant banking in the 1960s to take advantage of the economies produced when private equity investing is added to other bank services, particularly commercial lending. Lenders to small and medium-sized companies, banks became familiar about individual firms’ products and prospects and consequently are natural providers of direct private equity investment to these firms. In the middle to late 1980s, compelled to go for merchant banking due to other banks and bank holding companies were unforeseen events. In those years, as a result of the LDC (less-developed-country) debt crisis, many banks received private equity from developing nations in return for their defaulted loans.

Merchant Banking in India: An In-Depth Analysis

The interplay of colonial influences and post-independence reforms has shaped a robust banking framework, fostering inclusivity and accessibility. Understanding this evolution highlights the resilience and adaptability of the Indian banking system, playing a significant role in supporting the nation’s economic development. The history of banking in India is a fascinating journey that mirrors the country’s economic evolution. From ancient barter systems to the establishment of modern banks, it showcases the dynamic interplay between culture, commerce, and finance.

Merchant Banking in India

(6) Fund management on behalf of clients, most typically pension funds, unit trust, investment trusts and wealthy individuals. A merchant bank may be considered as an institution which centers its operation on all or most of the following activities. Sec/5 (b) of the Banking Regulation Act, 1949 defines Banking as “accepting, for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise”. The first authoritative definition for the term ‘Merchant Banker’ has been given in the Rule 2 (e) of SEBI (Merchant Bankers) Rules, 1922. All of our essays are donated in exchange for a free plagiarism scan on one of our partner sites.

Numerous new financial institutions, including regional rural banks, were established to cater to underserved populations. The introduction of foreign banks further diversified the sector, introducing modern banking practices and technology. Additionally, the rise of non-banking financial companies (NBFCs) provided alternative financing options, contributing to a more robust financial ecosystem. Merchant banking provides financial and advisory services to corporate clients. Though it was introduced in the 1960s, the sector witnessed significant growth and development in the 1990s.

Type of Banks: Different Types of Banks in India

• Now with changing international conditions and consumer trends, it is upto the government to bring in reforms which protect the interests of the customers as well as provide a platform for these banking services to prosper.
• The future of merchant banking in India looks promising, with expected growth driven by economic expansion and technological advancements.
• The Securities and Exchange Board (SEBI), which was established as a regulatory body to protect the interests of investors in the securities market in 1992 framed some guidelines for the Merchant Banks operating in India.
• At that time, many of these banks set up merchant banking subsidiaries to try to get some value from this private equity.

Later, private individuals and consultancy firms, both national and international also entered this race. Emerging trends such as fintech integration, increased foreign direct investment and evolving regulatory frameworks will likely shape the sector. Merchant banks are positioned to leverage these trends to enhance their service offerings and expand their market reach. The continued emphasis on infrastructure development, industrial growth, and the rise of new industries will provide ample opportunities for merchant banks to grow and diversify their portfolios. As they adapt to changing market dynamics, merchant banks will continue to play a critical role in India’s financial ecosystem.

SEBI has prescribed capital adequacy norms for registration of the various categories of merchant bankers. The capital adequacy is expressed in terms of minimum net worth, i.e., capital contributed to the business plus free reserves. Today, merchant banking is an integral part of the Indian economy and is important for facilitating corporate finance and capital market transactions. This article will provide an overview of merchant banking in India, its objectives and functions.

Objectives of Merchant Banks

Banks engaged in merchant banking activities must comply with the prudential exposure norms and statutory limits outlined in Section 19(2) & formal merchant banking activity in india was originated in (3) of the Banking Regulation Act, 1949, as prescribed by RBI. Private banks began to re-emerge following the economic liberalisation initiated in 1991. The government allowed new private banks to register, fostering an environment conducive to entrepreneurial growth.

They play a pivotal role in the capital formation process by helping companies raise funds through equity and debt instruments. This influx of capital is crucial for businesses to expand their operations, invest in new technologies, and enhance their competitive edge. Merchant banks facilitate mergers and acquisitions, helping companies to expand and consolidate their operations.

Merchant Bankers are classified into 4 categories as shown in the above table according to their nature and range of activities and their responsibilities to SEBI, investors and issuers of securities. The first category comprises merchant bankers who carry on any activity of issue management, determining financial structure, tie-up of financiers, advisor or consultant to an issue, portfolio manager and underwriter. The second category consists of those authorized to act in the capacity of co-manager/advisor, consultant, and underwriter to an issue or portfolio manager. The third category consists of those authorized to act as underwriter, advisor or consultant to an issue. This includes sectors such as technology, renewable energy, and biotechnology, which are essential for sustainable economic growth. The future of merchant banking in India looks promising, with expected growth driven by economic expansion and technological advancements.

Merchant banks render numerous financial services, advice, consultation, management, counseling, and solutions to big corporate houses. Furthermore, they help them to expand, modernizing, and restructuring the business. They also grant support in registering, buying, and selling shares at the stock exchange.