Page 207 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services Sukhpreet Kaur, Lovely Professional University

Notes Unit 14: Merchant Banking

CONTENTS
Objectives
Introduction

14.1 Meaning
14.2 Role
14.3 Functions

14.4 SEBI Guidelines regarding Merchant Banking
14.5 Underwriting Services in India
14.6 Summary
14.7 Keywords
14.8 Self Assessment

14.9 Review Questions
14.10 Further Readings

Objectives

After studying this unit, you will be able to:

Explain meaning of the merchant banking
Describe role of the merchant banking
Explain the functions of the merchant banking
Discuss SEBI guidelines regarding merchant banking
State the underwriting services in India

Introduction

In banking, a merchant bank is a financial institution primarily engaged in offering financial
services and advice to corporations and to wealthy individuals. The term can also be used to
describe the private equity activities of banking. The chief distinction between an investment
bank and a merchant bank is that a merchant bank invests the banks own capital in a client
company whereas an investment bank purely distributes (and trades) the securities of that
company in its capital raising role. Both merchant banks and investment banks provide fee
based corporate advisory services including in relation to mergers and acquisitions.

14.1 Meaning

A merchant bank can be defined as a bank that deals mostly in (but is not limited to) international
finance, long-term loans for companies and underwriting. Merchant banks do not provide
regular banking services to the general public.

202 LOVELY PROFESSIONAL UNIVERSITY