Merchant Banking

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  • Topic: Bank, Merchant bank, Private equity
  • Pages : 9 (2798 words )
  • Download(s) : 241
  • Published : December 7, 2012
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DEFINITION

The first authoritative definition for the term ‘Merchant Banker’ has been given in the Rule 2 (e) of SEBI (Merchant Bankers) Rules, 1922. Accordingly, “A Merchant Banker means any person who is engaged in the business of Issue Management either by making arrangements regarding selling, buying or subscribing to Securities as Manager, Consultant, Adviser of rendering Corporate Advisory Service in relation to such Issue Management”.

EVOLUTION & EMERGENCE OF MERCHANT BANKING

India has entered the 21st century as one of the Asia’s most dynamic economies. This is the part of the assessment made by International Financial and Capital Market Institutions based on India’s economic and financial reforms initiated in 1991 and brought to fruition in various budget.

The progress of any economy mainly depends on the efficient financial system of the country. Indian economy is no exception financial system of the country. The importance of the financial sector reforms affirms an effective means for solving the problems of economic, financial and social in India and elsewhere 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 lifeblood 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 essential.

India’s capital market is among the largest in the developing world. The market is comprised of 24 stock exchanges transacting long-term debt; debentures and equity shares both electronic and physical forms. Derivatives financial instruments are also be added to the market shortly. The number of firms listed on the Indian Stock Exchange is more than the USA. Market Capitalization of listed firms is 1980s was similar to Brazil, Malaysia, Singapore and Denmark.

The capital market of the country, however, underwent dramatic changes since the beginning of 1980s basically because of a progressive realization that the command economy on which the emphasis was placed could not lead to higher levels of economic development and that a slant towards a market-oriented economy is necessary.

It is in the context of fast expanding economy and a liberalized and deregulated atmosphere that the growth of the Indian Stock Market activities has to be viewed. No wonder that the markets have registered a quantum jump judge by any standards.

MERCHANT BANKING IN INDIA

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. Few share broking firms also functioned as merchant bankers.

The need for specialized merchant banking services was felt in India with the rapid growth in the number and size of the issues made in the primary market. The merchant banking services were started by foreign banks, namely the National Grindlays Bank in 1967 and the City Bank in 1970. The Banking Commission in its report in 1972 recommended the setting up of merchant banking institutions. This marked the beginning of specialized merchant banking in India.

To begin with, merchant banking services were offered along with other traditional banking services. In the mid-Eighties, the Banking Regulation Act was amended permitting commercial banks to offer a wide range of financial services through the subsidy rule. The State Bank of India was the first India Bank to set up merchant Banking division in 1972. Later ICICI set up its Merchant Banking division followed by Bank of India, Bank of Baroda, Canada Bank, Punjab National Bank and UCO Bank. The merchant banking gained prominence during 1983-84 due to new issue boom.

MERCHANT BANKING: PAST AND PRESENT

Many banks entered merchant banking in the 1960s to take advantage of...
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