Learn Everything about Merchant Banking
Author : Rashmie Dey | Published On : 10 May 2021
What is a Merchant Bank?
In modern terms, merchant banks are a monetary organization or financial institution, primarily known for investing equity capital in business, SMEs, provide advisory services and endorsing of stock.
Also, it acts as an intermediary between the issuers and buyers of various financial securities in the market.
A merchant bank offers the same facility an investment bank does.
Merchant banks primarily deal with the small and mid scale enterprises that are unable to raise funds through IPO.
The research analysts work at merchant bank, hold a master degree in stock market, as they did numerous stock market courses for better understanding of the stock market.
The bank here offers a platform especially for SMEs so that they can raise a fund directly in the public. Such a process is known as SME IPO. They also issue and sell securities on behalf of corporations through private placements to refined investors who require less regulatory disclosure.
Although the merchant banking system was started by SBI in 1972, its services began in 1967 by National Grind lays bank in 1967.
The difference between merchant banking and normal banking is general banking includes acceptance of deposits and giving credits, merchant banking includes lending services to other banks or organizations.
Importance of Merchant Bank
Merchant Banking plays a crucial role in today’s economy. For instance, they assist numerous companies to generate most income out of their funds by utilising funds properly.
Also, merchant banks can invest in a company’s fund in the stock market, manage its fund and decide whether to hold or sell the stocks for better returns.
They further advise large firms on how to increase funds through shares, when to provide dividends to the shareholders. They also provide information regarding the price of each share.
Merchant Bank also provides advice for the expansion of a company. For instance, the bank provides the best expansion options to its business clients such as merger, takeover, acquisition, joint ventures, amalgamation and more.
What Merchant Banks do for the economy?
Merchant Banks holds an important place in this fast paced world. Where the economies are taking various ups and downs by unpredictable events, merchant banks come with the best possible long term financing options and strategy.
Merchant bankers offer loans to many struggling businesses in a country. Merchant loans assist many individuals and businesses in overcoming difficult times. They use these funds to strengthen the organization’s position so that they can perform better when the economy recovers.
Functions of Merchant Banking
1. Assists Clients in Fundraising
Merchant Banks assist small and mid size businesses to raise loans for projects. Also, it helps companies raising syndicate loans from commercial banks.
2. Helps to select the right stock
Apart from fundraising, the bank act as a stock broker which has an authority to buy and sell shares on the behalf of its clients. The aim is to generate high returns for the clients.
For this process, merchant banks do a proper stock market research on the various securities.
3. Manages the portfolio of clients
The bank believes to generate maximum profit to its customers and hence it helps investors to generate better profits by actively managing their portfolio.
Portfolios are managed in such a way that it provides maximum returns with minimum risks.
4. Provide Advisory services
Merchant Banks provide advisory services to those who face losses in their business. The bank thus gives advisory services to them so that the business saves themselves from a huge loss.
The advisory services include merger, acquisition, takeover and more.
Although merchant banks provide financial services to the business, the availability of these banks in India is smaller than other countries. In India, a merchant bank called Swastika Investmart is a renowned name in the area of lending banks.
Want to know more about merchant banking? Go for Swastika Investmart.