What is Merchant banking? What are the functions of merchant banks?

What is Merchant banking? What are the functions of merchant banks?

Merchant Banking:

A merchant bank is a firm or the financial institution providing capital to the companies in the form of share ownership instead of loan. Merchant bank also work as a consultancy and provide advisory on corporate matters to firm in which they invest, these banks are experts in international trade, which makes them pundit in dealing with multinational corporation. Merchant bankers helps firms or companies in raising finance by way of issue of a share, bank loans, debenture etc. merchant bank do not provide financial service to normal public.

Services provided by merchant bankers:

• Providing loans to companies
• Raising funds from new instrument
• Estimating the amount of funds required
• Portfolio management
• Loan syndicating
• Project counselling
• Market survey and forecasting
• Fixed deposit management.

Functions of Merchant Banks:

There are six function of merchant of banks

1) Portfolio management

2) Raising funds for client

3) Broker in stock exchange

4) Managing Public Issue of Companies

5) Services to Public Sector Units

6) Money Market Operation

1)Portfolio Management:

Merchant banks provide consultancy service to institutional investors on investment decisions. They trade in exchange/securities on behalf of their clients and also manage their portfolio.

2)Raising funds for clients:

Merchant bank help their client/ business firm to raise capital from domestic and international market by issuing securities the capital raised merchant banks helps business firm in expansion of their business activities.

3)Broker in Stock Exchange:

Merchant banks act as broker for their client in stock exchange.  They conduct  research on equity shares for their client and also purchase and sell the share on behalf of them. They also play the role of advisor for, example, they advice their client their clients about which shares to buy, when to buy, how much to buy and when to sell.

4)Managing Public Issue of Companies:

Merchant bank manage the public issue of companies. They provide following services:

• Merchant bank advice companies at the time of public issue
• Merchant banks advice the size and price of public issue
• Merchant bank helps companies in managing the process of application and allotment of securities
• Merchant banks helps companies at the time of filing ipo in stock exchange
• Merchant banks help in appointing underwriters and brokers at time of issue.
• Acting the capacity of the manager to the issue

5)Services to Public Sector Units:

Merchant banks offer different services to public sector units. They provide the facilities to raise  long-term capital, marketing of securities and arranging long-term finance from term lending institutions.

6)Money Market Operation:

Merchant bankers deal with underwriters and also deal with short-term financial/stock market instruments, such as:

1. Government Bonds.
2. Commercial paper issued by large corporate firms.
3. Treasury bills issued by the Government.

Merchant bankers in india:

There are 135 merchant bankers in india who are registerd with SEB. In india it include private sectors, public sector and foreign players, some of them are:

Private Sector merchant banking

• Bajaj Capita Ltd
• Icici Securities
• Tata Capital Market Ltd
• Icici Bank Ltd
• Reliance Securities Ltd
• Kotak Mahindra Capital Ltd
• Yes Bank Ltd
• Axix Bank (Formerly Uti Bank Ltd)

 Public sector merchant banking

• (PNB) Punjab National Bank
• Bank Of Maharashtra
• State Bank Of Bikaner and Jaipur
• State Bank Of India Capital Market Ltd
• IFCI Financial Service Ltd
• Karur Vysya Bank Ltd

Foreign players in merchant banking

• Morgan Stanley India company Pvt. Ltd
• Goldman Sachs (India) Securities
• Bank Of America
• Duetshe Bank
• Fedex Securities
• Barclays Bank Plc
• Citigroup Global Market India