Merchant Banking Services In India– An Understanding

Published: 24th August 2010
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Merchant banking services strengthen the economic development of a country as they acts as sources of funds and information for corporations. Considering the way the Indian economy is growing, the role of merchant banking services in India is indispensable. These financial institutes also act as corporate advisory bodies to help corporations rightly get involved in various financial activities.



According to the Ministry of Finance in India, a merchant banker is a person or body engaged in selling, buying and subscribing to securities or in advising the corporations on issue management. To learn more about the merchant banking setup in India, you should go through the following discussion.



History of Indian Merchant Banking

The formal beginning of the merchant banking services in India began in 1967 when the Reserve Bank of India provided license to the Grindlays Bank. The Grindlays Bank was engaged in capital issue management and it provided diverse financial services to the emerging section of entrepreneurs, especially those belonging to the small and medium enterprise sector.



Citibank started the merchant banking services in 1970 and the State Bank of India followed the same in 1972. After few years, the national merchant banks started collaborating with their counterparts in different countries to start their merchant banking divisions abroad.



Types of Merchant Banking Organizations

According to the Securities and exchanges Board of India, four categories of the merchant banking organizations exist in the country:

• Institutional based merchant banking organizations operate as subsidiaries of private financial institutions or those recognized by the state or central governments.

• Banker based organizations are those that operate as divisions or subsidiaries of the nationalized commercial banks or the foreign banks functioning in the country.

• The third category consists of qualified brokers who provide skilled merchant banking services like portfolio management.

• The private merchant banking organizations work as sole proprietorships, private limited, public limited or partnership companies.



Functions of Merchant Banking Organizations

• Distribution of securities like equity shares, mutual funds, insurance products and so on.

• Providing assistance to the enterprises to raise funds from the market.

• Loan syndication for the clients is another important function performed by these organizations.

• Corporate advisory and project advisory services are other important merchant banking services offered by these organizations.



Importance of Merchant Banking in India

The need of merchant banking services in India arises from the fact that high level industrialization is taking place in the country. So, there is need for skilled professionals who can take care of various finance-related needs of the advanced industrial sectors. These specialist services are also of great importance for the small and medium sized enterprises to help them operate smoothly.



Most of the rural areas still lack industrial advancement and the main reasons for this include lack of funds and information. The merchant banking services help the entrepreneurs to come up with industrial setups in these areas. Besides, the merchant banks help the entrepreneurs to explore the joint venture opportunities in the foreign markets.



The above discussion highlights the ways merchant banks are promoting industrial development in India. The government in the country plays a significant role by issuing rules and regulations for merchant banks so that entrepreneurs can make most out of these services.

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