According to the Securities and Exchange Board of India (SEBI), a company that is solely registered as a stock broker is not permitted to act as a merchant banker in the capital markets. According to the market regulator’s response to stock broker Almondz Global Securities Ltd.’s (AGSL) request for clarification, despite the business’s registration as a merchant banker and its registration as a stock broker, the company was prohibited in March from accepting any new merchant banking assignments for a term of five years. In the case of PG Electroplast Ltd., the regulator barred AGSL from accepting any new assignments or participating in any new securities market offering, such as an initial public offering (IPO) or follow-on offering, for a period of five years.
In India, National Grindlays Bank introduced the idea of merchant banks for the first time in 1967. The first Indian commercial bank to do so was the State Bank of India, which created a specialised Merchant Banking Division in 1972. In India, however, merchant banks have primarily operated as issuing houses rather than full-fledged commercial banks, in contrast to other countries. The Securities Exchange Board of India (SEBI) has established capital adequacy norms for service provider bankers to sign in beneath the various categories. The minimum “internet worth” required by SEBI for Category-I provider bankers was first set at Rs. 1 crore, but was later increased to Rs. 5 crores through a 1995 modification to the regulations.
In 1967, National Gridley’s introduced merchant banking services to India. According to a SEBI guideline, a merchant banker is “any individual who is engaged in the business of issue management either by selling, buying, and subscribing to securities as manager.” Another name for a merchant bank is an investment bank. A merchant bank is a bank that provides investments and loans to companies. Merchant banks perform a variety of tasks, such as portfolio management and counselling. Merchant banking provides a wide range of services, such as:
syndicated loans for project guidance
financing a public issue portfolio management
An exchange bill’s acceptance
SBI was the bank that first offered merchant banking in India. The bank strives to lower risk and boost revenue in its fee-bsed merchant banking activities.
In essence, merchant banks are financial organisations. They carry out underwriting as well as business loans. They mostly cater to large corporations and affluent people.
Together, they offer financial and consulting services. In 1967, National Grindlays Bank was the first financial institution to introduce merchant banks to India. The State Bank of India was the first Indian Commercial Bank to create a specialised Merchant Banking Division in 1972. Merchant banks in India, however, have mostly been used as issuing houses up to this time, unlike merchant banks in other countries. Guidelines for merchant bankers The Securities Board of India has set regulations for various capital market components in accordance with the SEBI Regulations and operating in accordance with Section 30 of the SEBI Act of 1992. Merchant bankers are governed by the SEBI (Merchant Bankers) Regulations, 1992. The objectives of these regulations, in the opinion of H. R. Machiraju, are as follows: Regulations for Merchant Bankers under SEBI, 1992 This regulation is divided into five chapters that address definitions, mandatory SEBI registration, certificate renewal costs, capital adequacy standards, duties, a code of conduct, the process by which SEBI reviews documents, records, and books of accounts, and the procedure in the event of a default or the action to be taken against the concerned merchant banker (cancellation or suspension of registration by SEBI).
One of the most important roles of commercial bankers is to organise finances and provide a variety of funding sources. Merchant bankers play this role by helping clients raise funds. Through the use of bank loans and the issuance of securities like stocks, bonds, and debentures, it helps with the acquisition of capital. By taking into account both the domestic and foreign markets for funding, it helps businesses with their expansion and modernisation objectives. Merchant bankers purchase and sell stock on the stock exchange on their clients’ behalf. They also conduct stock research and give their clients recommendations regarding which shares to buy, when to acquire them, in what amounts, and at what times to sell them. Mutual funds offer a variety of services, including venture capital, investment banking, major brokers, and merchant banking.
Helping with project management, by offering their specialised services, merchant bankers help their clients with all aspects of project management. They carry out tasks like choosing the best location for a project and advising their clients to do the same, conducting and setting up a thorough study for the project, considering and creating the best financing plans for project financing, and staying up to date with the most recent government benefit programmes for their clients. A successful firm has an incentive to decide on business operations expansion at the right time. On the other hand, if not used properly, it may lead to losses. As a result, merchant bankers conduct a complete examination of the industry and provide expert advice on issues like corporate growth, mergers and acquisitions, technological advancement, joint ventures, and so forth.
1985–1992 was the ideal period for merchant banking. The need for a merchant banker is gradually eroding as highly trained individuals are starting up their own firms and assisting in transaction structuring. Historically, merchant banks dealt with larger, more complicated, and highly structured loans and equity deals, among other things. Similar to how fintechs provide small business loans and personal financing now, greater balance sheet transactions will soon be made available. Like all banking, merchant banking will continue to struggle to remain effective and affordable. Merchant bankers are given more and more opportunities as they introduce new financial instruments. The general public’s financial excess is well invested. They assist intermediaries with a variety of problems, such as registrars, bankers, underwriters, printers, etc., and they make sure that they abide by the law.
This study aids in the comprehension of merchant banking’s finer points. Syndication of loans, portfolio management, underwriting, counselling, and other services are some of the ones that merchant bankers offer to their clients. They serve as a conduit for communicating issues as well. All merchant banks are licenced by the Indian Security Exchange Board (SEBI). The Indian economy benefits from merchant banking. So merchant banking is a crucial component of the Indian financial system.
REFERENCES: https://www.business-standard.com/article/news-ians/a-broker-only-cannot-act-as-merchant-banker-sebi-114110401127_1.html
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