Merchant banking may be defined as, “an institution which covers a wide range of activities such as management of customer services, portfolio management, credit syndication, acceptance credit, counselling, insurance, etc.”
Merchant Banks are popularly known as “issuing and accepting houses”. They offer a package of financial services. Unlike in the past, their activities are now primarily non-fund based. One of the basic requirements of merchant banks is highly professional staff with skills and worldwide contacts. The basic function of merchant banks is marketing corporate and other securities, that is guaranteeing sales and distribution of securities.
All the aspects- origination, underwriting and distribution of the sale of industrial securities are handled by them. They are experts and good judges of the type, timing and terms of issues and make them acceptable to investors under prevailing preferences and market conditions, and at the same time afford the borrowing company, flexibility and freedom that it needs to meet possible future contingencies. They guarantee the success of issues by underwriting them. They also provide all the services related to receiving applications, allotment, collecting money, sending share certificates and so on.
The merchant banker normally does not assume all the risk himself while underwriting the issue. Merchant banks offer services also to investors. The range of activities offered by merchant banks is much wider than sponsoring public issues of industrial securities. They offer project finance, syndication of credit, corporate advisory services, mutual fund investments, investment management etc.
Services of Merchant Banks
• Project Counselling:
Project counselling includes preparation of project reports, deciding upon the financing pattern to finance the cost of the project and appraising the project report with the financial institutions or banks. It also includes filling up of...