The Merchant Banking industry in India which started with large foreign banks and firms and were then adopted by Indian Commercial Banks and firms as well, have faced various challenges over the years. The managing agents acted as merchants banks and performed functions of promoting financing and marketing of securities. They developed strong roots in depth of India’s economic, commercial and industrial structure. They served the industry, trade and commerce as the merchant bankers were doing in UK and European countries or the investment bankers were doing in USA.
Merchant Banking: History, Regulations and Government Policy
The examination contains 100 multiple choice questions to be completed within 1 hour. The questions cover various topics related to merchant banking activities, financial institutions and their abbreviations, financial products and services, credit and financing, and other relevant terms. Banks engaged in merchant banking activities must comply with the prudential exposure norms and statutory limits outlined in Section 19(2) & (3) of the Banking Regulation Act, 1949, as prescribed by RBI. Private banks began to re-emerge following the economic liberalisation initiated in 1991. The government allowed new private banks to register, fostering an environment conducive to entrepreneurial growth.
- ‘Investment bankers are primarily the intermediaries who provide specialised service in the marketing of securities.
- In India, merchant banking began in 1967 with the National Grindlays Bank and has since evolved under the regulation of the Securities and Exchange Board of India (SEBI).
- Geographically distributed Tuscan merchant-banks, however, gradually displaced the Champagne fairs in the late 1200s.
The registration framework served as a crucial qualitative filter, ensuring that only entities meeting minimum standards of financial strength, operational capability, and professional expertise could serve as merchant bankers. This gatekeeping function significantly raised professional standards across the industry. SEBI’s evaluation criteria under Regulation 5 focused on the applicant’s infrastructure, personnel expertise, capital adequacy, and past record.
Merchant banking has played a transformative role in the financial landscape of India, evolving from basic financial advisory services to encompassing a broad spectrum of capital market activities. This blog explores the fascinating history, regulatory framework, and categorization of merchant bankers, shedding light on their indispensable role in the Indian economy. These factors, along with the enhancement of the ease of doing business has paved the way for Merchant Bankers to gain a considerable position. In addition, SEBI has served to be an effective watchdog for merchant banking activities.
Role in Economic Development
After sometimes, the merchants began to help governments of underdeveloped countries in raising long-term funds through floating of bonds in the London Money Market. The word merchant banking has been so widely used that sometimes, it is applied to banks who are not merchants, sometimes to merchants who are not banks and sometimes to those intermediaries who are neither merchants nor banks. The term ‘merchant banking’ has been used differently in different parts of the world. While in UK, a merchant banking refers to the ‘accepting and issuing houses’, in USA it is known formal merchant banking activity in india was originated in as ‘investment banking’. During the early nineteenth century, merchants indulged in overseas trade and earned good reputation.
Study Concept & Evolution – Merchant Banking, Financial Markets and Institutions on the App
The State Bank of India (SBI) and ICICI (Industrial Credit and Investment Corporation of India) were among the first Indian institutions to set up merchant banking divisions, signaling the rapid institutionalization of this sector. This period was marked by an increasing demand for sophisticated financial services as Indian businesses sought international markets and larger investment opportunities. The economic reforms initiated by the Government since July 1991 in the industry, trade and financial sector have led to the development of the economy.
Merchant Banking and Financial Services
So it becomes increasingly necessary for us to look at this business in a more holistic manner. The market is comprised of 24 stock exchanges transacting long-term debt; debentures and equity shares both electronic and physical forms. Market Capitalization of listed firms is 1980s was similar to Brazil, Malaysia, Singapore and Denmark. 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.
Merchant banking in india
During the seventeenth and most of the eighteenth century, international finance was centered on Amsterdam. Consequently, Amsterdam merchants became the first masters of the various financial techniques and developments which, in the course of time, became identified with the emergent profession of ‘Merchant Bankers’. EssaySauce.com is a free resource for students, providing thousands of example essays to help them complete their college and university coursework. Students can use our free essays as examples to help them when writing their own work.
Capital Adequacy Norms Under Regulation 7
The establishment of the Bank of Hindustan in 1770 marked a significant transition, with British colonial regulations shaping the sector. Post-independence, nationalisation efforts aimed at promoting inclusive growth, while 1990s reforms opened the sector to private banks, enhancing competition and formal merchant banking activity in india was originated in customer services. 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.
- Today, merchant banking is an integral part of the Indian economy and is important for facilitating corporate finance and capital market transactions.
- Furthermore, merchant banks play a critical role in the development of new and emerging industries by providing the necessary financial support and strategic guidance.
- The Securities and Exchange Board of India (SEBI), the regulatory authority for the securities market, governs the operations of merchant bankers.
In India prior to the enactment of Indian Companies Act, 1956,managing agents acted as issue houses for securities, evaluated project reports, planned capital structure and to some extent provided venture capital for new firms. The period of economic liberalisation in the 1990s saw new opportunities open up as more and more individuals and businesses started to expand. Although these banks are subject to many rules and regulations framed by the SEBI as well as the Reserve Bank of India, they continue to flourish.
The Banking Commission in its report in 1972 recommended the setting up of merchant banking institutions. The inception of merchant banking in India can be traced back to the early 1960s when the need for sophisticated financial advisory services became apparent. The 1990s marked a period of economic reforms, which led to the liberalisation of the banking sector. Private banks emerged alongside public sector banks, increasing competition and enhancing customer services. Numerous new financial institutions, including regional rural banks, were established to cater to underserved populations. The introduction of foreign banks further diversified the sector, introducing modern banking practices and technology.
Financial Markets and Institutions
In India, merchant banking began in 1967 with the National Grindlays Bank and has since evolved under the regulation of the Securities and Exchange Board of India (SEBI). The key functions of merchant banks include capital formation, strategic advisory services, and efficient allocation of financial resources. The Securities and Exchange Board of India (SEBI) Merchant Bankers Regulations, 1992 established the first comprehensive regulatory framework for merchant banking activities in India’s capital markets.
Credit management, equity issues, and the roles of merchant banks in managing investments and securities.View The fourth categories are merchant bankers who act as advisor or consultant to an issue. The increased regulation and control of domestic operations gave a fillip to large US banks to undertake Merchant Banking functions in international capital markets. The US investments Banks have extended their operations to the international level. They are largely responsible for the development of the Euro-dollar market in the securities and globalization of capital markets.
