HistoryandOriginofMerchantbankinginIndia

Origin:
MerchantbankingoriginatedthroughtheenteringofLondon

merchantsinforeigntradethroughacceptanceofBill.Later,themerchants
assistedtheGovtofunderdevelopedcountriesinraisinglongtermfinance
thrioughfloatationofbondsinLondonmoneymarket.Overaperiopdthey
extendedtheiractivitytothedomesticbusinessofsyndicationoflongterm
andshorttermfinance,underwritingofnewissues,actingasregistrasand
sharetransferagents,debenturetrustees,portfoilomanagers,negotiating
agentsformergers,takeoversetc
MerchantBankinginIndiaHistoricalPerspective:
Till18thcenturymoneylenders,moneychangers,villagemerchants
(maharanis)&saucersperformedthefunctionofbanks&merchant
bankers.Theyalsoissued&discountedbillsofexchange(handiest)&bank
draft.Theygaveloansonmutualtrust,onmortageoflands.Ornaments&
otherproperty.MerchantbanksareprivateFinancialinstitution.their
primarysourceofincomearePIPEfinancingandtheirsecondarySource
ofincomeareconsulting.Mergers&Acquisitionshelpandfinancial
marketspeculation.Becausetheydonotinvestagainstcollateral,theytakee
fargreaterrisksthattraditionalbanks.Becausetheyareprivate,donot
takemoneyfromthepublicandareinternationalinscope,theyarenot
regulated.
MerchantBankingInIndiaPostIndependence:
In1967,RBIIssueditsfirstmerchantbankinglicencetogrindlaysstarted
withmanagementofcapitalissues,productionplanning,systemdesign
andalsomarketresearch.Itprovidesmanagementconsultingservicesas
well.Citibanksetupitsmerchantbankingdivisionin1970.itsscope
includesassistingnewentrepreneur,evaluatingnewprojects,raisisgfund
throughborrowingandissuingequity.indianbanksstartedbanking
serviceasapartofmutipleservicestheyoffertotheclientsfrom1972.State
bankofindiastartedthemerchantbankingdivisionin1972.intheinitial
yearstheobjectivewastorenderCorporateadviceandassistancetosmall
andmediumenterpreneurs.Merchantbankingactivitiesareorganisedand
undertakeninseveralforms.Commercialbanksandforeigndevelopment
financeinstitutionshaveorganisedthemthroughformationofdivisions;

nationalisedbankshaveformedsubsidiriescompaniesandsharebrokers
andconsultanciesconstitutedthemselvesintopublicltd.Coorregistered
themselvesasprivateLtd.companies.Someofthemhaveequitystakeof
foreignmerchantbankers.

TheGrowthofmerchantbankinginIndia:
Formal merchantbankingactivityinindiawasstartedin1967
with the merchant banking division setup by the grindlays bank. The
largestforeignbankinthecountry.Themainserviceofferedatthattimeto
thecorporateenterprisesbythemerchantbanksincludedthemanagement
ofthepublicissuesansdsomeaspectsoffinancialconsultancy.Following
thegrindlayscitibanksetupitsmerchantbankingdivisionin1970.
Thedivisiontookupthetaskofassistingnewenterpreneursandexisting
units in evaluation of the new projects and raising funds through
borrowing and equityissues.Managementconsultancyserviceswerealso
offered.Merchantbankersarepermittedtocarryonactivitiesofprimary
dealersingovernmentsecurities.Consequenttothe recommendationof
bankingcommissionin1972,thatindianbankshouldoffermerchant
bankingasapartofthemultipleservicestheycouldproidetotheirclients,
Statebankofindiastartedmerchantbankingdivisionin1972.In
the initial years the SBI's objective wasto render corporateadviceand
assistancetosmallandmediumenterpreneurs.
ThecommercialbanksthatfollowedStatebankofindiawereCentral
bank of india, Bank of India and Syndicate bank in 1977, Bank of
Baroda,Standard Chartered Bank and Mercantile Bank in 1978 and
united bank of India,United Commercial bank, Punjab National
bank,CanaraBankandIndianOverseasBankinlate'70sandearly'80s.
AmongthedevelopmentbanksICICIstartedMerchantBankingactivities
in1973followedbyIFCI(1986)andIDBI(1991).
CurrentAffairs:
RBIallowscashwithdrawalfrommerchantbankterminals:
BesidesATM'scustomerscannowwithdramcashupto
Rs.1000fromterminalsatdifferentmerchantestabilishments,theRBIas
further step towards enghancing the customer convenience in using the

plasticmoney,ithasbeendecidedtopermitcashwithdrawalsatPOS(A
pointofsale(PoS)terminalisanelectronicdevicethatisusedforverifying
andprocessingcreditcardtransactions.)Tostartwith,thisfacilitywillbe
availableforallthedebitcardatPOSterminals.Suchwithdrawalswould
belimitedtoRs.1,000perdayperdebitcard.
Thelogicbehindthemove
Ason31stMay2009,thenumberofATMsinIndiais44,857.Comparedto
this,thenumberofPOSterminalsinIndiais4,70,237.Asyoucansee,the
numberofPOSterminalsacceptingcreditanddebitcardsisfarhigher
thanthenumberofATMs.Therefore,allowingcashwithdrawalsfrom
suchPOSterminalswouldprovideaveryconvenientwayforbankaccount
holderstoobtaincash.
MorganStanleymakesibankingcomeback:

ThejointventurebetweenJMFinancialandMorganStanleywas
inkedin1977andformalisedin1999.TheJVhadinvestmentbanking
operationsotherthatequitybroking,research,wealthmanagementand
advisoryandsecuritiesdistributionoperations.Theindianpartnerssold
49%holdingsinJMMorganStanleysecurities(JMSPL),theinstitutional
equitybrokingcompanytomorganstanleyfor$445million.Morgan
stanleyhasreenteredinvestmentbankingbusinessonitsown,afterparting
wayswithJMfinancialitsformerindianpartners.
PNBaimsprofitof7500croreby2013:

Thecountry'ssecondlargestpublicsectorlenderPunjabNational
BankaimstodoubleitsprofittoRs.7500croreinthenextfouryears.PNB
InvestmentServicesaimstoprovideinvestmentconsultancyandmerchant
bankingservices.Currentlytheseoperationsarerunbyadivisionofthe
bank.
ICICIBanktooverseemergersandacquisitions:
ICICIbankanditsmerchantbankingarm,ICICISecuritieshave
enteredintoanagreementwherebyallM&AdealswillbedoneoutofICICI
Bank.ICICIbankhasenteredinvestmentbankingintheyear2006.
BirlaCapitalandFinancialServicesgetsSEBIMerchant

BankingLicense:
Birla Capital and Financial ServicesLtd has been granted a
merchantbankinglicensebySEBI.Thelicensewillenablethecompanyto
ofer a wide range of OnShore investment banking advisory and
underwritingservicesinindianmarket.
ThecompanywhichisapartofheYashBirlaConglomerate,willinitially
concentrateon regulated services like initial public
offering,takeover,buybacks,delisting and valuations.it also offers non
regulatedserviceslikePEsyndication,M&AAdvisoryandothercorporate
advisory.
Normuralaunchesitsinvestingbankingoperationsinindia.
NormuraFinancialAdvisoryansSecurities(India)PrivateLimited
(Normura India) a wholly owned subsidiary of Normura
Holdings,Inc(Normura) has launched its equity sales and trading and
investmentbankingoperationsinindia.
In October 2008, Normura a global investment bank,acquired the
majority of LehmanBrothers Employees in india.including the Equities
sales and trading,equity research,fixed incomeliquidmarketssales and
tradingandinvestmentbankingteams.
Themostfamiliarroleofthemerchantbankisstockunderwriting.
Alargecompanythatwishestoraisemoneyfrominvestors
through stock market can hire a merchant bank to implement and
underwrite the process. The merchant bank determines the number of
stockstobeissued,andthetimingofthereleaseofthisnewstock.The
merchantbankfilesallthepaperworkrequiredwiththevariousmarket
authoroties,and also frequentlyresponsibleformarketingthenewstock,
thoughthismaybeajointeffortwiththecompanyandmanagedbythe
merchant bank. For really large stock offerings,several merchant banks
mayworktogether,withonebeingtheLeadunderwriter.
Withthegrowthofmerchantbankingprofessioncorporateenterprisesin
bothpublicandprivatesectorswouldbeabletoraiserequiredamountof
fundsannuallyfromthecapitalmarkettomeetthegrowthrequirements

for funds for estabilishing new enterprises, undertaking

expansion/modernisation/diversificationoftheexistingenterprises.This
reinforcestheneedforavigorousroletobeplayedbymerchantbankers.
Inthedaysahead,merchantbankershaveverysignificantroletoplay
tuning the activities to the requirement of the growth pattern of the
corporatesector,theindustryandtheeconomyasawholewhichis,init,a
challengingtaskandtomeetthesechallengesmerchantbankerswillhave
tobemorevigorousandstratgicinplayingtheirrole.