A merchant bank deals with the commercial banking needs of international finance, long-term company loans, and stock underwriting. This type of bank does not have retail offices where a customer can go and open a savings or checking account. A merchant bank is sometimes said to be a wholesale bank, or in the business of wholesale banking. This is because merchant banks tend to deal primarily with other merchant banks and other large financial institutions. Merchant bankers assist corporate in raising capital. They assist in issue of Shares, syndicating loans, public issue of debentures. They do not provide funds.They only assist. They also actively arrange working capital, appraisal Projects scrutinize & persuade merger proposals
Merchant Banking in India
In INDIA merchant bankers is a body corporate who carries on any activity of the issue management, which consist of preparing prospectus & other information relating to the issue. Merchant banks in India are not allowed to conduct any business other than that related to securities market. There is no official category in investment banking.
Importance
Important reasons for the growth of merchant banks has been development activities throughout the country, exerting excess demand on the sources of fund for ever expanding industries and trade, thus leaving a widening gap unabridged between the supply and demand of invisible funds. Need for merchant banking is felt in the wake of huge public saving lying untapped. Merchant banker can play highly significant role in mobilizing funds of savers to invisible channels assuring promising returns on investment and thus can assist in meeting the widening demand for invisible funds for economic activity.
The activities of the merchant banking in India is very vast in nature of which includes the following
a) The management of the customers securities
b) The management of the portfolio,
c) The management of projects and counselling as well as appraisal
d) The management of underwriting of shares and debentures
e) The circumvention of the syndication of loans
f) Management of the interest and dividend etc
a) The management of the customers securities
b) The management of the portfolio,
c) The management of projects and counselling as well as appraisal
d) The management of underwriting of shares and debentures
e) The circumvention of the syndication of loans
f) Management of the interest and dividend etc
With growth of merchant banking profession corporate enterprises in both private sectors would be able to raise required amount of funds annually from the capital market to meet the growing requirement for funds for establishing new enterprises, undertaking expansion, modernization and diversification of the existing enterprises. This reinforces the need for a vigorous role to be played by merchant banking.