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MerchantBankingMeaningFunctionsofMerchantBanking

MerchantBankingMeaning
Merchant Banking is a combination of Banking and consultancy services. It provides consultancy to its clients for
financial,marketing,managerialandlegalmatters.Consultancymeanstoprovideadvice,guidanceandserviceforafee.Ithelps
abusinessmantostartabusiness.Ithelpstoraise(collect)finance.Ithelpstoexpandandmodernizethebusiness.Ithelpsin
restructuring of a business. It helps to revive sick business units. It also helps companies to register, buy and sell shares at
thestockexchange.
merchantbankingmeaning

Inshort,merchantbankingprovidesawiderangeofservicesforstartinguntilrunningabusiness.ItactsasFinancialEngineerfor
abusiness.
ImagecreditsProf.MuditKatyani.
MerchantbankingwasfirststartedinIndiain1967byGrindlaysBank.Ithasmaderapidprogresssince1970.

FunctionsofMerchantBanking
Theimportantfunctionsofmerchantbankingaredepictedbelow.

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MerchantBankingMeaningFunctionsofMerchantBanking

Thefunctionsofmerchantbankingarelistedasfollows:
1.RaisingFinanceforClients:MerchantBankinghelpsitsclientstoraisefinancethroughissueofshares,debentures,bank
loans,etc.Ithelpsitsclientstoraisefinancefromthedomesticandinternationalmarket.Thisfinanceisusedforstartinganew
businessorprojectorformodernizationorexpansionofthebusiness.
2.BrokerinStockExchange:Merchantbankersactasbrokersinthestockexchange.Theybuyandsellsharesonbehalfof
theirclients.Theyconductresearchonequityshares.Theyalsoadvisetheirclientsaboutwhichsharestobuy,whentobuy,
howmuchtobuyandwhentosell.Largebrokers,MutualFunds,VenturecapitalcompaniesandInvestmentBanksoffer
merchantbankingservices.
3.ProjectManagement:Merchantbankershelptheirclientsinthemanyways.Fore.g.Advisingaboutlocationofaproject,
preparingaprojectreport,conductingfeasibilitystudies,makingaplanforfinancingtheproject,findingoutsourcesoffinance,
advisingaboutconcessionsandincentivesfromthegovernment.
4.AdviceonExpansionandModernization:Merchantbankersgiveadviceforexpansionandmodernizationofthebusiness
units.Theygiveexpertadviceonmergersandamalgamations,acquisitionandtakeovers,diversificationofbusiness,foreign
collaborationsandjointventures,technologyupgradation,etc.
5.ManagingPublicIssueofCompanies:Merchantbankadviceandmanagethepublicissueofcompanies.Theyprovide
followingservices:
01.Adviseonthetimingofthepublicissue.
02.Adviseonthesizeandpriceoftheissue.
03.Actingasmanagertotheissue,andhelpinginacceptingapplicationsandallotmentofsecurities.
04.Helpinappointingunderwritersandbrokerstotheissue.
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MerchantBankingMeaningFunctionsofMerchantBanking

05.Listingofsharesonthestockexchange,etc.
6.HandlingGovernmentConsentforIndustrialProjects:Abusinessmanhastogetgovernmentpermissionforstartingofthe
project.Similarly,acompanyrequirespermissionforexpansionormodernizationactivities.Forthis,manyformalitieshaveto
becompleted.Merchantbanksdoallthisworkfortheirclients.
7.SpecialAssistancetoSmallCompaniesandEntrepreneurs:Merchantbanksadvisesmallcompaniesaboutbusiness
opportunities,governmentpolicies,incentivesandconcessionsavailable.Italsohelpsthemtotakeadvantageofthese
opportunities,concessions,etc.
8.ServicestoPublicSectorUnits:Merchantbanksoffermanyservicestopublicsectorunitsandpublicutilities.Theyhelpin
raisinglongtermcapital,marketingofsecurities,foreigncollaborationsandarranginglongtermfinancefrom
termlendinginstitutions.
9.RevivalofSickIndustrialUnits:Merchantbankshelptorevive(cure)sickindustrialunits.Itnegotiateswithdifferentagencies
likebanks,termlendinginstitutions,andBIFR(BoardforIndustrialandFinancialReconstruction).Italsoplansandexecutes
thefullrevivalpackage.
10.PortfolioManagement:Amerchantbankmanagestheportfolios(investments)ofitsclients.Thismakesinvestmentssafe,
liquidandprofitablefortheclient.Itoffersexpertguidancetoitsclientsfortakinginvestmentdecisions.
11.CorporateRestructuring:Itincludesmergersoracquisitionsofexistingbusinessunits,saleofexistingunitor
disinvestment.Thisrequirespropernegotiations,preparationofdocumentsandcompletionoflegalformalities.Merchant
bankersofferalltheseservicestotheirclients.
12.MoneyMarketOperation:Merchantbankersdealwithandunderwriteshorttermmoneymarketinstruments,suchas:
01.GovernmentBonds.
02.Certificateofdepositissuedbybanksandfinancialinstitutions.
03.Commercialpaperissuedbylargecorporatefirms.
04.TreasurybillsissuedbytheGovernment(HereinIndiabyRBI).
13.LeasingServices:Merchantbankersalsohelpinleasingservices.Leaseisacontractbetweenthelessorandlessee,
wherebythelessorallowstheuseofhisspecificassetsuchasequipmentbythelesseeforacertainperiod.Thelessor
chargesafeecalledrentals.
14.ManagementofInterestandDividend:Merchantbankershelptheirclientsinthemanagementofinterestondebentures/
loans,anddividendonshares.Theyalsoadvisetheirclientaboutthetiming(interim/yearly)andrateofdividend.

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