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MERCHANT BANK A Merchant Bank is a British term for a bank providing various financial services such as accepting bills

arising out of trade, providing advice on acquisitions, mergers, foreign exchange, underwriting new issues, and portfolio management. A Merchant Bank can be generally described as a financial services company with a private equity investment arm offering investment banking and ancillary services as well. In banking, a merchant bank is a traditional term for an Investment Bank. Although merchant banking activity was ushered in two decades ago, it was only in 1992 after the formation of Securities and Exchange Board of India that it is defined and a set of rules and regulations governing it are in place. According to the Securities and Exchange Board of India [Merchant Banker] Regulations, 1992 merchant banker means any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing securities as manager, consultant, advisor or rendering corporate advisory service in relation to such issue management. In BRITAIN, merchant bankers & investment bankers are synonymous. In The U.S.A., Merchant bank means an investment bank which is well equipped to handle multinational corporations. In INDIA merchant bankers is a body corporate who carries on any activity of the issue management, which consist of preparing prospectus & other information relating to the issue. Merchant banks in India are not allowed to conduct any business other than that related to securities market. There is no official category in investment banking.

ORIGIN The origin of merchant banking is to be traced to Italy in late medieval times and France during the seventeenth and eighteenth centuries. The Italian merchant bankers introduced into England not only the bill of exchange but also all the institutions and techniques connected with an organized money market. Merchant banking consisted initially of merchants who assisted in financing the transactions of other merchants in addition to their own trade. In France, during seventeenth and eighteenth centuries a merchant banker (le merchand Banquer) was not merely a trader but an entrepreneur. He invested his accumulated profits in all kinds of promising activities. He added banking business to his merchant activities and became a merchant banker. [1]


In India Merchant Banking activities started from the year 1967, following the footsteps of similar activities in UK & USA. Till 18th century moneylenders, moneychangers, village merchants & saucers performed the function of banks & merchant banks. They also issued & discounted bills of exchange & bank draft. They gave loans on mutual trust, on mortgage of lands, ornaments & other property. [2] In 1967, RBI issued its first merchant banking license to Grindlays Bank. Grindlays started with management of capital issues, production planning, system design and also market research. It provides management consulting services as well. Following Grindlays Bank, Citi Bank set up its merchant banking division in 1970 its scope includes assisting new entrepreneur, evaluating new projects, raising funds through borrowing and issuing equity. Consequent to the recommendations of Banking Commission in 1972, Indian banks started banking services as a part of multiple services they offered to clients from 1972. State bank of India started the merchant banking division in 1972. In the initial years the objective was to render corporate advice and assistance to small and medium entrepreneurs. The commercial banks that followed State Bank of India were Central Bank of India, Bank of India and Syndicate Bank in 1977. Bank of Baroda, Standard Chartered Bank and Mercantile Bank set up there merchant banking unit in 1978. United Bank of India, United Commercial Bank, Punjab National Bank, Canara Bank and Indian Overseas Bank set up there merchant banking unit in late 1970s and early 1980s. Among the development banks, ICICI started merchant banking activities in 1973 followed by IFCI (1986) and IDBI (1991). During this time (1970-1980) there was a growth of merchant banking organizations in the country with various commercial banks, financial institutions, and broker firms entering in to the field of merchant banking. The growth in merchant banking business during the early seventies was to foreign exchange regulation act 1973 [ FERA] where in large number of foreign companies operating in India were required to dilute their foreign holdings In order to continue business in the country this resulted in expansion in the capital markets providing enough opportunities to merchant bankers to established themselves. The change in Indian economy opened new doors for merchant banking business but at the same time this brought competition in merchant banking sector. This sector has traditionally been dominated by financial institution, banks and their subsidiaries. Now, various private sectors merchant bankers have emerged and some of them having international reputation. Various existing corporate entities and non-banking finance companies have also focused their activities in merchant banking business. [3] Merchant Banking is an emerging concept in the area of financial services in India. The profession of Merchant Banking is dedicated to fulfil the needs of trade and industries by acting as an intermediary, consultant, liaison man and financer too. Companies raise capital by issuing securities in the market. Merchant bankers act as intermediaries between the issuers of capital and the ultimate investors who purchase these securities. Merchant banking

JAGAT SHETH (1720-1773AD, BENGAL) HABIB & SONS which is now HABIB BANK (founded in 1941, now is in PAKISTAN). These were the organized merchant bankers in recent history of INDIA. 3 Merchant Banking in India by K.C. Gupta and Joginder Singh

is the financial intermediation that matches the entities that need capital and those that have capital. It is a function that facilitates the flow of capital in the market. Currently Merchant Banking activity has mushroomed in the Indian capital market with both public & private sector settings up their respective merchant Banking divisions.



Number of Merchant Bankers registered with SEBI 802 415 186 233 124 123 128 130 152 155 137 164 192

1997-98 1998-99 1999-00 2000-01 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Source: SEBI Annual Reports, 1997-98 to 2010-11