Organizational setup of merchant bankers in India In India a common organizational setup of merchant bankers to operate is in the form of divisions

of Indian and foreign banks and financial institutions, subsidiary companies established by bankers like SBI, Canara Bank, Punjab National Bank. Bank of India, etc. Some flints are also organized by financial and technical consultants and professionals. Securities and Exchange Board of India has divided the merchant bankers into four categories based on their capital adequacy. Each category is authorized to perform certain functions. From the point of organizational setup Indias merchant banking organizations can be categorized into four groups on the basis of their linka2e with parent activity. They are: (A) Institutional Base where merchant banks function as an independent wing or as subsidiary of various private Central Governments State Governments financial institutions. Most of the financial institutions in India are in public sector and therefore such setup plays a role on the lines of government priorities and policies. (B) Banker Base These merchant bankers function as division subsidiary of banking organization. The parent banks are either nationalized commercial bank or the foreign banks operating in India. These organizations have brought professionalism in merchant banking sector and they help their parent organization to make a presence in capital market. (C) Broker Base In the recent past there has been an inflow of qualified and professionally skilled brokers in various stock exchanges of India. These brokers undertake merchant banking related operations also like providing investment and portfolio management services. (D) Private Base These merchant banking firms are originated in private sector. These organizations are the outcome of opportunities and scope in merchant banking business and they are providing skill-oriented specialized services to their clients. Some foreign merchant bankers are also entering either independently or through some collaboration with their Indian counterparts. Private sector merchant banking firms have come up either as the sole proprietorship or public limited companies. Many of these firms were in existence for quite some times before they added a new activity in the form (D)Private Base These merchant banking firms are originated in private sector. These organizations are the outcome of opportunities and scope in merchant banking business and they are providing skill-oriented specialized services to their clients. Some foreign merchant

bankers are also entering either independently or through some collaboration with their Indian counterparts. Private sector merchant banking firms have come up either as the sole proprietorship or public limited companies. Many of these firms were in existence for quite some times before they added a new activity in the form of merchant banking services by opening new divisions on the lines of commercial banks and All India Financial Institutions.

The Difference between

Investment banks and Merchant banks Merchant banks and investment banks. in their purest forms. are different kinds of financial institutions that perform different services. In practice, the fine lines that separate the functions of merchant banks and investment banks tend to blur. Traditional merchant banks often expand into the field of securities underwriting, while many investment banks participate in trade financing activities. In theory, investment banks and merchant banks perform different functions. Pure investment banks raise funds for businesses and some governments by registering and issuing debt or equity and selling it on a market. Traditionally, investment banks only participated in underwriting and selling securities in large blocks. Investment banks facilitate mergers and acquisitions through share sales and provide research and financial consulting to companies. Traditionally, investment banks did not deal with the general public. Traditional merchant banks primarily perform international financing activities such as foreign corporate investing, foreign real estate investment, trade finance and international transaction facilitation. Some of the activities that a pure merchant bank is involved in may include issuing letters of credit, transferring funds internationally, trade consulting and co-investment in projects involving trade of one form or another. The current offering of investment banks and merchant banks varies by the institution offering the services, but there are a few characteristics that most companies that offer both investment and merchant banking share. As a general rule, investment banks focus on initial public offerin2s (IPOs) and large public and private share offerings. Merchant banks tend to operate on smallscale companies and offer creative equity financing, bridge financing, mezzanine financing and a number of corporate credit products. While investment banks tend to focus on larger companies, merchant banks offer their services to companies that are too big for venture capital firms to serve properly, but are still too small to make a compelling public share offering on a large exchange. In order to bridge the gap between venture capital and a public offering, larger merchant banks tend to privately place equity with other financial institutions, often taking on large portions of ownership in companies that are believed to have strong growth potential.

Merchant banks still offer trade financing products to their clients. Investment banks rarely offer trade financing because most investment banking clients have already outgrown the need for trade financing and the various credit products linked to it.

Merchant bankers provide services:

qualities of merchant bankers:To be a successful merchant banker. following qualities are necessary: 1. Knowledge: Thorough understanding of technical issues related to business, understanding of legal and statutory requirements, appreciation of business acumen: financial expertise is a key thing a merchant banker must know. Delivery of his services depends on his basic understanding of these issues. 2. Capital market familiarity: Merchant banker should be veil versed with stock markets. their movements. He should track imp happenings in the market on ongoing basis.

3. Liasioning ability: Merchant bankers are required to liaison with SF81, RBI. the stock exchanges, depositories and other government authorities for public issue related duties. It is imperative that a merchant bank maintains excellent rapport with all of them and also close relations even at informal levels. This only can see speedy and favorable clearances by the authorities. 4. Innovation: Corporate may approach with unique requirements. Standard solutions and products may not solve problems sometimes. Merchant bankers should do out of box thinking and be able to do financial engineering. They can device new financial instruments and get approved from the authorities. Innovation is required even to address stringent legal requirements. 5. Integrity: Merchant banker has valuable and confidential information of its customers. Merchants bankers should take utmost care that the information is not leaked and also not consumed for the purpose other than for which it was disclosed to the merchant banker. Problems and hurdles:Not many but some problems are faced by Indian merchant bankers. I. Industry compartmentalization: company which is in merchant banking business would have expertise in underwriting, hire purchase, leasing and portfolio management, money-lending. But RBI does not permit merchant banking firms to get into these activities. So the same promoters have to setup different companies for different purposes. Management cost increases and expertise pooling i.e. multiple use of same talent is not possible. II. Malafide practices: India corporate culture is bettering, but still many corporate have excessively friendly approach. Favored allotment of shares, tampering with project appraisal report to bankers is common. Corporate like to use merchant bankers for malafide intentions. This gives growth to more boutique fly-by-thy firms. Giant professional or multinational merchant bankers are cautions in their approach to Indian market. III. Regulations: though regulations are much better now, there is still scope for further improvement. Merchant bankers can be made more accountable and responsible. Professional qualification focused on merchant banking is not available. Industry is not well organized and all the players do not play the sane tune. This is specifically evident in comparison with insurance industry and mutual funds industry.

Scope for merchant banking in India:Scope for merchant banking depends upon size of the market restriction-liberation, banking policies, corporate culture, and corporate dynamics. 1. Size and dynamics of the market: Indian market is growing. In fact India is one of the largest emerging markets. Obviously, public issues. FDI. debt raising are on rise. Lots of new and green fried projects are happening. Merchant bankers have lots space to contribute. 2. Restrictions-liberalization: more liberal the market is. more the things left to be decided by the corporate. Merchant bankers assist in decision making and hence their scope

increases. With significant market freedom. merchant bankers work has increased many folds. 3. Banking policies : FBI prefers that commercial banks do not indulge in merchant banking business directly. They should setup a subsidiary for the purpose. This limits scope of commercial banks and gives space to merchant bankers. This policy also results in fair business practices. Some countries allow commercial bankers to get involved in IPOs, placement of debentures ,etc. 4. Corporate culture: corporate can do project appraisal, strategic restructuring in house as well. If the corporate prefer third-party independent assessment, then only they will engage merchant bankers. Otherwise merchant bankers role is only statutory as in issue management. India inc. apparently prefers and is happy with merchant bankers work. 5. Corporate dynamics:- more happening in business gives more opportunities to merchant bankers. Mergers, takeover acquisition, new Greenfield projects, fund raising for government institutions, active money market are all providing better business prospectus to Merchant banker.