Merchant Banking |Meaning |Definition |Services provide by Merchant Banker
Merchant banking is a combination of banking and consultancy services. It provides consultancy to its clients for financial, marketing, managerial and legal matters. Consultancy means to provide advice, guidance and service. It helps a business person to start a business. It helps to raise (collect) helps finance .It helps to expand and modernize the business .It help in restructuring of a business . It helps to review sick business units. It also helps companies to register, buy and sell share at the stock exchange.
Definitions
As per SEBI rules, a merchant banker refers to,
“any person who is engaged in the business of issue management either by making arrangement regarding buying, selling or subscribing to securities or acting as manager, consultant or rendering corporate advisory services in relation to such issue management”.
The Webster’s New Collegiate Dictionary defines merchant bank as,
“that specializes in bankers’ acceptances and in underwriting or syndicating equity or bond issues”.
Services Provided by Merchant Banks
- Project Counseling
- Loan Syndication
- Underwriting of Public Issue
- Managers, Consultants or Advisers to the Issue
- Portfolio Management
- Restructuring strategies
Project counseling
Project counseling comprises 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 and banks. It also includes filling up of application forms with significant information for obtaining funds from financial institutions and obtaining government approval.
Loan syndication
Loan syndication is an assistance provided by merchant bankers to get mainly term loans for projects. Such loans may be obtained from a single development finance institution or a syndicate or consortium. Merchant bankers help corporate clients to raise syndicated loans from banks and other financial institutions.
Underwriting of Public Issue
Underwriting is a guarantee given by the underwriter that in the occurrence of under subscription, the amount underwritten would be subscribed by him. Banks/Merchant banking institutions cannot underwrite more than 15% of any issue.
Managers, Consultants or Advisers to the Issue
The managers to the issue assist in the drafting of prospectus, application forms and completion of formalities under the Companies Act, appointment of Registrar for dealing with share applications and transfer and listing of shares of the company on the stock exchange. Companies can appoint one or more agencies as managers to the issue
Portfolio Management
Portfolio indicates investment in different types of securities such as shares, debentures or bonds issued by different companies. Portfolio management means maintaining proper combinations of securities in a mode that they give maximum return with minimum risk.
Restructuring strategies
Merchant bankers assist the management of the client company to successfully restructure various activities such as mergers, acquisitions & takeovers. Merchant bankers act as the middlemen in setting negotiation between the two companies.