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Post Updated on 09-12-2024
Many businesses and investors approach merchant bankers for raising funds through IPOs, FPOs, debt issuance and private placements. In India, all the merchant bankers are regulated by the Securities and Exchange Board of India (SEBI). To learn about the merchant banker’s definition, role, and services, read this post.
A merchant banker is an individual or entity, which provides fee-based professional assistance to corporations and the governments for securities’ subscription. He plays an essential role in the financial market and carries a lot of responsibilities like, private placement of securities, managing public issuance of securities (IPO), stock broking and international financial advisory services.
Merchant bankers in India are registered with SEBI under the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992. These regulations were last amended on August 18, 2023.
Capital raising
Advisory Services
Letters of Credit
Project Finance
International Financing
Investment Management Services
Risk Management Services
Foreign Exchange Transactions
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JPMorgan Chase
Goldman Sachs
Citigroup
SBI Capital Markets
Axis Capital
Nomura Financial Advisory and Securities India
Bank of America Securities India
Edelweiss Financial Services
Avendus Capital
Ashika Capital Limited
Let’s check out the merchant banking role played by merchant bankers in India:
Merchant Bankers are crucial for the process of underwriting new securities issues.
They oversee every step of issuance of new securities. This involves creating the prospectus, choosing the type of securities to be issued, setting the price and managing the sales and marketing of securities to investors.
They offer advisory services to corporations regarding financial matters. This includes giving advice on restructuring of the company, mergers and acquisitions and strategic planning.
They assess potential sellers and buyers, make out the financial sustainability of companies and negotiate the terms of agreements.
They look after portfolios owned by high net worth individuals and firms.
They identify suitable investments, keep an eye on performance of securities and make the required changes or modifications for their clients.
One of the merchant banking features of merchant banks is that they operate globally, dealing with cross border transactions and engaging in international financial markets.
The following are the guidelines by SEBI for merchant bankers in India:
The merchant banker is authorized to perform underwriting activity by SEBI. However, if they want to provide portfolio management services, they must seek separate registration from SEBI.
After receiving SEBI’s approval for merchant banking, the merchant bankers are authorized to operate for 3 years only.
Unlike a non banking financial company, a merchant banker cannot accept deposits or finance others’ business.
The activities of a merchant banker are limited to capital market activities only.
The minimum net worth requirement for a merchant banker is Rs 5 crore.
A liquid net worth of a minimum of 25 percent of the minimum net worth requirement must be maintained by the merchant banker at all times.
SEBI can revoke merchant banker registration in case of any violation.
Merchant bankers cannot be NBFCs. They must be body corporates.
They must have a professional qualification in the field of law, finance or business management.
If you want to become a merchant banker, you must follow the steps mentioned below:
The applicant must file a merchant banker application with the Securities and Exchange Board of India (SEBI). This application must be filed in Form A and the prescribed application fee must be paid.
The application must comply with all the specified requirements. Additionally, all the relevant documents must be attached with the application. These documents include the following:
MOA and AOA.
Unique Identification Number (UIN) of Applicant.
Educational Qualification of the Directors in the Merchant Banking Field.
Associated Registered Intermediaries’ Details.
Undertaking.
Details of businesses handled by the Applicant in the last 3 years in specific areas such as Issue Management, Investment Advisers, Underwriting, Portfolio Management, Consultation and among others.
Declaration by at least Two Directors.
Details of the Organizational Internal Structure.
Financial Statements.
Detailed Report from Principal Bankers.
Once the application has been filed, SEBI will carefully examine it and check whether the applicant is compliant with the eligibility standards and fit & proper criteria.
If any additional information or clarification is required by SEBI, the applicant must provide it in a timely manner to facilitate the application’s processing.
If deemed necessary, the applicant, principal officers, or key management personnel may be asked to appear before SEBI for clarification.
If the SEBI is satisfied with the application and all conditions are satisfied, a Certificate of Registration in Form B will be granted to the applicant.
Merchant bankers in India play an important role for businesses and investors. They act as intermediaries between clients and financial markets. If you want to raise capital through an IPO, then you can reach out to a merchant banker. If you do not have any merchant banker in your mind, you can connect with Registrationwala to avail IPO consulting services. We’ll guide you on all the requirements and connect you with a merchant banker.
Q1. How many merchant banks are there in India?
A. As of 30th September, 2024, there are 225 merchant banks in India. Check list here
Q2. Is SBI a merchant bank?
A. The State Bank of India is not a merchant bank. However, its wholly owned subsidiary SBI Capital Markets is a merchant bank.
Q3. What is the difference between a merchant banker and an investment banker?
A. Merchant bankers offer similar services as investment bankers. However, compared to investment bankers, the merchant bankers work with smaller businesses having potential to grow. On the other hand, investment bankers work with large corporations.
Q4. Merchant bankers are registered with which entity?
A. All the merchant bankers in India are registered by the Securities and Exchange Board of India (SEBI).
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Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.
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