INVESTMENT

BANKING
 AGENDA
MEANING
ORIGIN
FUNCTIONS
THEIR CLIENTS & INVESTORS
MAIN PLAYERS
 REGULATORY FRAMEWORK
 MEANING
 A financial intermediary which operates at
the 'wholesale end' of the financial markets.
 The 'middleman' between companies
issuing securities to raise funds and the
investors who buy the paper.
 An investment bank is a financial institution
which raises capital, trades securities, and
manages corporate mergers and
acquisitions. Another term used for
investment banking is corporate finance.
 CONT…
 An investment bank is different from the
traditional bank it does not keep any deposits
nor does it guarantees the "safekeeping" of
money. 
 It is more specialized organization that takes
money and after analyzing the possible risks
and economic conditions gives you advice to
convert it into more money
 Investment Banking in India
• Grindlays bank began Investment Banking (Merchant
Banking) in India in 1967 with RBI issuing the second
license to Citi in 1970.
• These two banks primarily provided services which included
loan syndication, equity raising and other advisory services.
• In 1972, a Banking Commission report asserted the need for
Merchant Banking services in India by public sector banks.
• The commission recommended the same structure as
American investment banks (Glass- Steagall Act).
• Merchant banks were meant to manage investments and
provide advisory services.
 Investment Banking in India
• SBI was the first Indian public sector bank to set up its
merchant banking division in 1972.
• This was followed by Bank of India, Central Bank of India,
Bank of Baroda and many more.
• SBI Caps and IDBI Caps are two prime examples of
merchant banks in India today.
• Currently, there are 136 merchant banks registered with
SEBI.
• Currently, without holding a certificate of registration granted
by the Securities and Exchange Board of India, no person
can act as a merchant banker.
 FUNCTIONS
Investment banks carry out multilateral functions.
LIKE:
I.They helps public and private corporations in
issuance of securities in the primary market. They
also act as intermediaries in trading for clients.
II.They provides financial advice to investors and
helps them by assisting in purchasing and trading
securities &  managing assets.
 CONT…
III.They differs from commercial banking
as investment banks don't accept deposits
neither do they grant retail loans.
IV. Small firms which provide services of
investment banking are called boutiques.
Their functions are mainly :
i. Bond trading.
ii.Suggestions for mergers and acquisitions.
 CORE ACTIVITIES
1. Investment banking.

2. Sales and trading

3. Research.

4. Global transaction banking 

 Investment Banking
 It is the traditional aspect of investment banks .
 It involves helping customers raise funds in the
capital markets .
 They also advise them on mergers and
acquisitions.
 They can also involve subscribing investors to
a security issuance, negotiating with a merger
target and coordinating with bidders.
 Sales & Trading
 The main function of a large investment bank is
buying and selling of financial products.
 In market making, the traders will buy and sell
securities or financial products with the goal of
earning an incremental amount of money on
every trade.
 Primary job of the sales force is to call on
institutional and high-net-worth investors to
suggest trading ideas and take orders.
 Research
 It is the division of investment banks
  It reviews companies and makes reports about
their prospects, often with "buy" or "sell" ratings.
 Although the research division generates no
revenue, its resources can be used to assist
traders in trading,
 It can also be used by the sales force in
suggesting ideas to the customers, and by the
investment bankers for covering their clients.
 Global transaction
banking 
 It is the division which provide cash
management, custody services, lending,
and securities brokerage services to
institutions.
 Prime brokerage with hedge funds has
been an especially profitable business, as
well as risky.
 Clients
 Investment banking clients can vary from
sophisticated clients.
i.e. major corporations or large, experienced
funds to smaller institutions like SME’s usually
depending on the size of the bank
 Some of the smaller I-banks have focuses on
either certain sectors i.e. healthcare or
technology or stage related companies i.e. start
ups
 I-Banks can raise money from investment
vehicles i.e CEF, REITS, PE Feeders
 They also provide advice for M&A deals and real
estate deals, assess a value
 Investors
• Where do they get the money from?
• Institutional investors – large
– Endowments
– Pension funds
– Hedge Funds
– Mutual Funds
– Insurance companies
• Individuals – HNW
– A separate part of the investments bank (GPC)
Abridged List of Investment
Full Service
Banks Independent

Moelis & Company

 Regulatory framework for
Investment banking in India
 All investment banks incorporated under the
Companies Act, 1956 are governed by the provisions
of that Act.
 Those investment banks that are incorporated under a
separate statute are regulated by their respective
statute. Ex: SBI, IDBI.
 Universal banks that function as investment banks are
regulated by RBI under the RBI Act, 1934.
 All Non-banking Finance Companies that function as
investment banks are regulated by RBI under RBI Act,
1934.
 CONT
 SEBI governs the functional aspects of
Investment banking under the Securities
and Exchange Board of India Act, 1992.
 Investment banks that carry FDI either
through joint ventures or as fully owned
subsidiaries are governed by Foreign
Exchange Management Act, 1999.
 Merchant Banking vs. Investment
Banking
 investment banks focuses on IPOs and large
public and private share offerings.
Merchant banks tend to operate on small-scale
companies and offer creative equity financing.

 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.
 Cont…
 Merchant banking has different connotations in
the US and other markets.
 In the US it is primarily a fund based activity
while in the UK and in India it is implies
intermediation and advisory activity in
connection with public floatation of securities.
 Investment Banking thus can be defined as a
broader term which covers both fund and fee
based activities.
 Merchant banking can either be a fund based
activity or a fee based activity