India has entered the 21st century as one of the Asia’s most dynamic economies. This is the part of the evaluation made by International Financial and Capital Market Institutions based on India’s economic and financial reforms initiated in 1991 and brought to final result in various budget.
Merchant Banks have today a strong parent, a strong balance sheet and a strong international network to play a global role. Further, a merchant banker to keep registration in force shall pay renewal fee of Rs. 2.5 lakhs every three years from the fourth year from the date of initial registration. To obtain the certificate of registration, one had to apply in the prescribed form and fulfill two sets of norms (i) operational capabilities and (ii) capital adequacy norms.
Professional Merchant Banking Houses
These banks follow the cooperative principles of democratic control and shared benefits. These were some of the causes that hastened the increase of Merchant Banking in India. Let us also know the services that merchant banking offers to corporate and big business houses.
The Evolution of Merchant Banking in the Indian Scenario
The Merchant banking Industry in India has always witnessed, experienced and underwent significant changes. No doubt, Merchant Banking firms are subject to a host of control measures, regulations and rules framed and guided by SEBI. To some extent, frequent changes and /or amendments to policies and control measures, are needed for smooth working of the securities Industry. But it prove to be detrimental to the very existence of the Merchant Banking system in the country. The SEBI’s Act 1992 confers power upon SEBI to supervise and control the affairs of the Merchant Banking firms in India.
The Government issued policy guidelines for merchant bankers to ensure sufficient physical infrastructure, necessary expertise, good financial standing, professional integrity and fairness in their transactions. Later, the ICICI set up its merchant banking division in 1973 followed by a number of other commercial banks like Canara Bank, Bank of Broada, Bank of India, Syndicate Bank, Punjab National Bank, Central Bank of India, UCO Bank, etc. All good qualities in merchant bankers are difficult to be defined so elaborately. Nevertheless, merchant banker should possess super business acumen, managerial abilities, administrative capacities and salesmanship in order to understand the problems and sell the service product to the needy clients.
Public Commercial Banks and their sub-banks
Their principle activity started with the acceptance of commercial bills pertaining to domestic as well as international trade. The acceptance of the trade bills and their discounting gave rise to acceptance houses, discount houses, and issue houses. Merchant Bankers initially included acceptance houses, discount houses and issue houses. Dictionary meaning of ‘merchant bank’ refers to an organization that underwrites corporate securities and advises such clients on issues like corporate mergers, etc. involved in the ownership of commercial ventures. This organization may be a bank, corporate body, firm or proprietary concern.
Merchant Banking Regulations:
Besides, the regulatory framework then prevailing was uneven difficult, if not effective. The Reserve Bank of India is another regulatory authority that oversees financial institutions. The Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 apply to merchant banks falling under Section 2 clause (b) explanation. The primary function of a commercial bank is to receive deposits from the public and lend the same to others.
- Apart from meeting specially, the needs of small-scale units it provided management constancy services to large and medium sized companies.
- Additionally, SEBI mandates that merchant banks adhere to a strict code of conduct, which includes provisions related to fair dealing, conflict of interest, and transparency.
- Today, merchant banking is an integral part of the Indian economy and is important for facilitating corporate finance and capital market transactions.
- Secondly Merchant Bankers started raising the capital for foreign Government.
- During the 1970s, the concept of merchant banking gained momentum with the entry of commercial banks and foreign banks, which established dedicated merchant banking divisions.
Type of Banks: Different Types of Banks in India
In today’s Scenario the Merchant banker and management consultants undertake advisory services to the corporate sector. The Merchant Banker advices corporation and firms relating to opening of issues, receiving loans etc, Just as the management consultants . The 1990s marked a period of economic reforms, which led to formal merchant banking activity in india was originated in the liberalisation of the banking sector. Private banks emerged alongside public sector banks, increasing competition and enhancing customer services.
However, 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 in place. Today a merchant banker is who has the ability to merchandise that is, create or expand a need and fulfill capital requirements. One of the most important things to remember is that no organization would be able to become a merchant banker until and unless they get a certificate of registration from SEBI. Plus, he must get himself registered under these regulations if they want to persevere any of the merchant banker activities. Since then, many private and public banks such the State Bank of India, Citibank, ICICI Bank etc. and other national and international firms have set up their own Merchant Banking services.
- Private banks emerged alongside public sector banks, increasing competition and enhancing customer services.
- This influx of capital is crucial for businesses to expand their operations, invest in new technologies, and enhance their competitive edge.
- Private brokers and financial consultancy firms have also been quite active in the field of merchant banking.
- Further, a merchant banker to keep registration in force shall pay renewal fee of Rs. 2.5 lakhs every three years from the fourth year from the date of initial registration.
In recent past, the small investor lost his faith in the primary capital market. Issue after issue has failed to capture his imagination, rekindle his enthusiasm, and reinforce his faith. To achieve this performance, a company needs an aggressive marketing plan and advertising effort is the main thrust to such a plan. No marketing plan can be worthwhile unless it is backed by an valuable advertising plan. Merchant Bankers have reason to believe they will be handicapped without the marketing support. As a result of the ban, the small investor would be deprived of the opportunity to study the corporate profile of the Issuer.
The liberalization of the Indian economy in the early 1990s further spurred the growth of merchant banking, attracting numerous private-sector players. Today, merchant banks play a crucial role in the Indian financial market, offering a wide array of services that cater to the complex needs of modern businesses. Merchant banking, a critical financial services industry segment, plays a pivotal role in fostering corporate growth and facilitating complex financial transactions. In India, merchant banks are essential in guiding businesses through mergers and acquisitions, underwriting, and providing advisory services, thereby contributing significantly to the nation’s economic development. These institutions serve as intermediaries between issuers and investors, providing specialized financial services that traditional banks do not offer.
Since the end of Second World War commercial banks in Western Europe have been offering multiple services including Merchant Banking services to their individual and corporate clients. British banks set-up separation or subsidiary to offer their customers Merchant Banking services. The progress of any economy mainly depends on the efficient financial system of the country. The importance of the financial sector reforms affirms an efficient means for solving the problems of economic, financial and social in India and also where in the developing nations of the world. The progress of the Securities Industry of any country depends mainly on the flow of funds. In fact, capital generation is the major aspect of the capital market without which the health and soundness of the financial system cannot be geared and for which well-developed capital market as well as money market is necessary.
Objectives of Merchant Banks
The State Bank of India was the first Indian commercial bank to set up a separate merchant banking division in 1972. Compliance with these regulations is crucial for maintaining the integrity and stability of the financial system. Merchant banks are also subject to periodic inspections and audits by SEBI to ensure ongoing compliance. Any violations can result in penalties, including suspension or cancellation of the registration certificate. From its roots in barter systems to the sophisticated digital landscape of today, banking has continually transformed to meet the needs of its diverse population.