Merchant Banking in India

Merchant Banking in India

The first merchant bank was set up in 1969 by Grind lays Bank. Initially they were issue mangers looking after the issue of shares and raising capital for the company. But subsequently they expanded their activities such as working capital management; syndication of project finance, global loans, mergers, capital restructuring, etc., initially the merchant banker in India was in the form of management of public issue and providing financial consultancy for foreign banks. In 1973, SBI started the merchant banking and it was followed by ICICI. SBI capital market was set up in August 1986 as a fully fledged merchant banker. Between 1974 and 1985, the merchant banker has promoted lot of companies. However they were brought under the control of SEBI in 1992.

1 Recent Developments in Merchant Banking and Challenges Ahead:

The recent developments in Merchant banking are due to certain contributory factors

in India. They are

^Ø   The Merchant Banking was at its best during 1985-1992 being when there were

^Ø   Many new issues. It is expected that 2010 that it is going to be party time for

^Ø   Merchant banks, as many new issues are coming up.

^Ø   The foreign investors –both in the form of portfolio investment and through foreign

^Ø   Direct investments are venturing in Indian Economy. It is increasing the scope of

^Ø   Merchant bankers in many ways.

^Ø   Disinvestment in the government sector in the country gives a big scope to the

^Ø   Merchant banks to function as consultants.

^Ø   New financial instruments are introduced in the market time and again. This basically

^Ø   Provides more and more opportunity to the merchant banks.

^Ø   The mergers and corporate restructuring along with MOU and MOA are giving

^Ø   Immense opportunity to the merchant bankers for consultancy jobs. However the challenges faced by merchant bankers in India are

1. SEBI guideline has restricted their operations to Issue Management and Portfolio Management to some extent. So, the scope of work is limited.

2. In efficiency of the clients are often blamed on to the merchant banks, so they are into trouble without any fault of their own.

3. The net worth requirement is very high in categories I and II specially, so many professionally experienced person/ organizations cannot come into the picture.

4. Poor New issues market in India is drying up the business of the merchant bankers. Thus the merchant bankers are those financial intermediary involved with the activity of transferring capital funds to those borrowers who are interested in borrowing. The activities of the merchant banking in India is very vast in the nature of

^Ø   The management of the customers securities

^Ø   The management of the portfolio

^Ø   The management of projects and counseling as well as appraisal

^Ø   The management of underwriting of shares and debentures

^Ø   The circumvention of the syndication of loans

^Ø   Management of the interest and dividend etc.