Merchant Banking is a combination of Banking and consultancy services. It can be defined as a skill-oriented professional service provided by merchant banks to their clients, concerning their financial needs, for adequate consideration, in the form of fee.
Basically, merchant banks are banks that deal with commercial loans and investment and play an almost similar role with the investment banks.
In India, merchant Banking firms were first introduced in the year 1967 by the Grindlays bank. Currently, there are more than 200 SEBI registered merchant banks in India.
SERVICES OFFERED BY MERCHANT BANKS
Merchant banks offer a wide range of financial and consultancy services some of which are listed below –
- Marketing and underwriting of the new issue.
- Merger and acquisition related services.
- Advisory services, for raising funds.
- Management of customer security.
- Project promotion and project finance.
- Investment banking
- Portfolio Services
- Insurance Services.
FUNCTIONS OF MERCHANT BANKING
The functions performed by merchant banking are as below –
- Raising Funds for Clients : Merchant Banking company helps clients in raising funds from domestic and international markets by issuing securities like shares, debentures and more.
- Portfolio management : Merchant banks provide advisory services to institutional investors, on account of investment decisions. They trade in securities, on behalf of the clients, to provide the portfolio management services.
- Act as Brokers : Merchant banks act as brokers when it comes to the stock exchange market, if clients want to invest in stocks, it is the function of this department to buy and sell the stocks on behalf of the customers.
- Special Assistance to small companies and entrepreneurs : Merchant banks advise small companies about business opportunities, government policies, incentives and concessions available. It also helps them to take advantage of these opportunities, concessions, etc.
- Leasing services : Merchant Banking organisations renders leasing services to their customers. There are some banks which maintain venture capital funds to help entrepreneurs.
- Project management : The merchant bank also functions as a project manager by offering project management services to its individual and institutional customers.
- Loan Syndication : Merchant Bank provides numerous loan processing services for the short term, long-term credits by developing a financial plan, adopting loan applications for lenders, estimating the total cost involved.
Thus, in simple words, a merchant banking firm is a financial organization that provides with an amalgamation of banking and financial consultancy services and also help in reinforcing the economic development of the country, by acting as a source of funds and information to the business entities.