Functions of merchant
Banking
Functions of merchant
Banking: Merchant banking functions in India is the same as
merchant banks in UK and other European countries. The following are the
functions of merchant bankers in India.
Ø Corporate
counseling
Ø Project
Counseling
Ø Capita
l Structuring
Ø Portfolio
Management
Ø Issue
Management
Ø Credit
Syndication
Ø Working
capital
Ø Venture
Capital
Ø
Lease Finance
Ø Fixed
Deposits
(i)
Corporate counseling: Corporate
counseling covers counseling in the form of project counseling, capital
restructuring, project management, public issue management, loan syndication,
working capital fixed deposit, lease financing, acceptance credit etc., The
scope of corporate counseling is limited to giving suggestions and opinions to
the client and help taking actions to solve their problems. It is provided to a
corporate unit with a view to ensure better performance, maintain steady growth
and create better image among investors.
(ii)
Project counseling Project
counseling is a part of corporate counseling and relates to project finance.
It broadly covers the study of the project, offering advisory assistance on the
viability and procedural steps for its implementation.
a. Identification of
potential investment avenues.
b. A general view of
the project ideas or project profiles.
c. Advising on
procedural aspects of project implementation d. Reviewing the technical
feasibility of the project
e.
Assisting in
the(TechnicalselectionConsultancyOrganizations)of forTCO‗spreparing project
reports
f. Assisting
in the preparation of project report
g. Assisting
in obtaining approvals, licenses, grants, foreign collaboration etc., from
government
h. Capital
structuring
i. Arranging
and negotiating foreign collaborations, amalgamations, mergers and takeovers.
j.
Assisting clients in preparing
applications for financial assistance to various national and state level
institutions banks etc.,
k.
Providing assistance to entrepreneurs
coming to India in seeking approvals from the Government of India.
(iii)
Capital Structure Here
the Capital Structure is worked out i.e., the capital required, raising of
the capital, debt-equity ratio, issue of shares and debentures, working
capital, fixed capital requirements, etc.,
(iv)
Portfolio Management It
refers to the effective management of Securities i.e., the merchant banker
helps the investor in matters pertaining to investment decisions. Taxation and
inflation are taken into account while advising on investment in different
securities. The merchant banker also undertakes the function of buying and
selling of securities on behalf of their client companies. Investments are done
in such a way that it ensures maximum returns and minimum risks.
(v)
Issue Management: Management
of issues refers to effective marketing of corporate securities viz.,
equity shares, preference shares and debentures or bonds by offering them to
public. Merchant banks act as intermediary whose main job is to transfer
capital from those who own it to those who need it. The issue function may be
broadly divided in to pre issue and post issue management.
a. Issue through
prospectus, offer for sale and private placement. b. Marketing and underwriting
c. pricing of issues
(vi)
Credit Syndication: Credit
Syndication refers to obtaining of loans from single development finance
institution or a syndicate or consortium. Merchant Banks help corporate clients
to raise syndicated loans from commercials banks. Merchant banks helps in
identifying which financial institution should be approached for term loans.
The merchant bankers follow certain steps before assisting the clients approach
the appropriate financial institutions. a.
Merchant banker first
makes an appraisal of the project to satisfy that it is viable b. He ensures
that the project adheres to the guidelines for financing industrial projects.
c. It helps in designing capital structure, determining the promoter‗s amount
of term loan to be raised. d. After verifications of the project, the Merchant
Banker arranges for a preliminary meeting with financial institution. e. If the
financial institution agrees to consider the proposal, the application is
filled and submitted along with other documents.
(vii) Working
Capital: The Companies are given Working Capital finance,
depending upon their earning capacities in relation to the interest rate
prevailing in the market.
(viii)Venture Capital: Venture
Capital is a kind of capital requirement which carries more risks and
hence only few institutions come forward to finance. The merchant banker looks
in to the technical competency of the entrepreneur for venture capital finance.
(ix). Fixed Deposit: Merchant
bankers assist the companies to raise finance by way of fixed deposits
from the public. However such companies should fulfill credit rating
requirements.
(x)Other Functions
•Treasury Management- Management of short
term fund requirements by client companies.
•Stock broking- helping the investors through
a network of service units
•Servicing of issues-
servicing the shareholders and debenture holders in distributing dividends,
debenture interest.
•Small Scale industry counseling- counseling
SSI units on marketing and finance
•Equity research and
investment counseling –merchant banker plays an important role in providing
equity research and investment counseling because the investor is not in a
position to take appropriate investment decision.
•Assistance to NRI
investors - the NRI investors are brought to the notice of the various
investment opportunities in the country.
•Foreign
Collaboration: Foreign collaboration arrangements are made by the Merchant
bankers.
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