MERCHANT

BANKING
IN INDIA - THE

Dangi
ROAD AHEAD

Chairman

Lalit Kumar Libord Group

(a) Preamble register as a Merchant Banker with SEBI to perform
Merchant Banking performs a role of an institution the activities of Merchant Banking & from that year
which offers raising finances & structuring the the role and activities of Merchant Bankers
Company’s financial models. The concept of blossomed. There are 220 Merchant Bankers in
Merchant Banking first originated from Europe in the India as on today.
17 and 18 centuries in France and Italy & later on in
UK. Merchants began to finance foreign trade by (b) Functions of Merchant Bankers
acceptance of the bill and with time they started Merchant Bankers have almost all functions which
using other services such as underwriting the issues, help any industry to deal in securities market &
loan syndication, portfolio management, etc., but raising finance. Some of them are as under:
Merchant Banking was at nascent stage largely upto
World War II & it started taking shape after World War i. Raising finance: Merchant bankers supports
II. industries to collect funding through debenture
issuances, stocks, bank loans, etc. Both
With the advent of the industrial boom in India, there domestic and foreign markets are used. The
has been a growing need of Merchant Bankers. funds generated by this may be used to launch
Businesses often require specialised banking a new project or company, or also to extend and
services which are concentrated in nature. Hence, modernize the current enterprise.
commercial bankers set up their merchant banking ii. Promotional activities: Merchant bankers
subsidiaries to cater financial services for the perform the role of industrial business
corporate sector. promoters. They allow developers to create
innovations, define ventures, produce feasibility
Merchant banking in India began in 1967 by National studies, receive permits from public bodies, and
Grindlays; later, Citi Bank started it in 1970. In the opportunities. At times, merchant bankers may
year 1972, SBI became the first commercial bank to also assist with technological, and joint
set up a distinct division for merchant banking. Then projects.
it was followed by ICICI in 1973, and then various iii. Project management: In the project
banks started these services such as PNB, Bank of management cycle, they assist corporates in a
India, UCO Bank, IBBI & IFCI etc. variety of areas. They guide the position of the
plant, the writing of the plant study, feasibility
Merchant Banking obtained a legal status in India reports, and the project finance preparation,
when Securities Exchange Board of India (SEBI) was sources of support, policy benefits, and
enacted in 1992. “SEBI” made it compulsory to concessions.

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iv. Advice on modernization and expansion: corporate finance & restructuring.
Advice on amalgamation, mergers, (b) MB are always updated with current
partnerships, international alliances, market environment of financial world over which gives
diversification, up-gradation of technologies, an edge to get finance structuring at a very
joint ventures, etc. competitive rate.
v. Managing public issue: They serve as (c) MB are engaged in inventing new financial
consultants on the terminology, form, and models which help to give good return to
timing of corporate securities issues and helps investors & also better for the issuers.
them to be tailored to customers and provides (d) MB are always quick in taking decisions.
the issuing companies with transparency and (e) MB’s are backbone of Capital Market and are
versatility. governed by self rules and regulations hence
reliability on MB’s by the corporate world is the
highest.
Merchant Banking obtained a
(d) Reasons for growth of Merchant Banking
legal status in India when There are many reasons that accelerated the growth
Securities Exchange Board of of Merchant Bankers in India. Some of the reasons
India (SEBI) was enacted in 1992. are:
(i) Globalization: After the 1991 reforms, the
“SEBI” made it compulsory to Indian economy saw a drastic change as it
register as a Merchant Banker opened gates for foreign companies. It helped in
with SEBI to perform the activities getting funds from abroad; thus, it led to the
growth of merchant banks.
of Merchant Banking & from that (ii) Elevated Competition: Because of the
year the role and activities of globalization of the economy, the market
Merchant Bankers blossomed. scenarios became lucrative, and business
options became favorable for various
There are 220 Merchant Bankers in individuals. This pivoted the Indian corporate
India as on today. sector, and a huge expansion was seen in this
sector. This motivated the Merchant Bankers to
play an important role by offering specialized
vi. Credit syndication: They offer professional services to corporate.
services during project planning, loan (iii) Switch in consumer trends: There was a
applications required to collect short- and long- huge transformation in the industrial and
term credit from various institutions and corporate sectors because of the foreign
companies, etc. players in the market.
vii. Special assistance to entrepreneurs and
small companies: They offer guidance and The major benefit was that the Indian masses
resources for market prospects for start-ups started getting better quality products as the
and small businesses, discounts, grants, and Indian companies also started working on
government policy, and help them make the quality to match the foreign products. In such
best of this opportunity open to them. prevailing environments, financial products and
viii. Portfolio management services: They give instruments became more prominent.
guidance on investment choices to customers, (iv) G ov e r n m e n t R e fo r m s : G o v e r n m e n t
typically institutional investors. They purchase intervention was reduced, and privatization was
and sell shares and offer fund investment increased. It also raised the limits of investment
services for them. and lessened direct interventions that led to an
increase in the proposition of foreign players.
(c) Features of Merchant Banking (v) Demand for Funds
Merchant Bankers have rich features being a very Industries started expanding which increased
important intermediary in the Capital Market & also a gap of supply and demand. All financial
catalyst in the Corporate World. There are many institutions had experienced constrain of
important features like: resources to meet ever increasing demands
(a) Staff at the Merchant Bankers are highly from corporate sector enterprises. In such
qualified to take on any complicated matter of circumstances corporate sector had the only

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 alternative to avail of the capital market service time. This also helps in getting bids in time,
for meeting their long term financial requirement shortened the allotment process. Digitalisation has
through capital issue of equity shares and shortened each and every step in execution of any
debentures. Growing demand for funds put function by MB’s whether it is issue opening,
pressure on capital market that enthused auction, private placement, data transfer, data
commercial banks, share brokers and financial collection, decision support, artificial intelligence.
consultancy firms to enter into the field of MB’s are able to provide faster & accurate services in
merchant banking and share the growing the era of Digitalisation.
capital market. As a result, all the commercial
banks, nationalized and public sector as well as Upon completion of digitalisation in the investment
in private sector including foreign banks in India banking division, the services become seamless
have opened their merchant banking windows with the help of emerging technology and the
and competing in this field. services are shifted to online platforms with lots and
lots of data stored and driven from the backend.

With the advancement in technology, investors and

Digitalisation has increased the investment bankers are now prone to the usage of
pace of services by Merchant Artificial Intelligence, the Internet of Things,
Blockchain and other technologies as a part of their
Bankers. It is possible only due to everyday job.
digitalisation that MB’s are able to
complete the entire process of (f) Role of Merchant Bankers in Start ups
Merchant Bankers are playing key roles in assisting
raising funds through capital start ups in India which are going to be the back
market in short span of time. This bone of India’s powerful infrastructure in time to
also helps in getting bids in time, come. They are assisting start ups in many ways
such as :
shortened the allotment process. (i) Valuation of Start ups
MB’s prepare valuation reports for start ups on
the basis of future earnings and on that basis
(vi) Public Savings start ups are able to raise funds from the
There was high Public Savings untapped which investors since this valuation gives bench mark
was channelized by the Merchant Bankers in about the value of that business to the investors.
the system. (ii) Fund Raising
(vii)Skilful Agency Support Fund raising to Start Ups in the form of
A merchant banker with their good skills, Angel Capital, Seed Capital, Venture Capital,
updated information and knowledge provide Leverage Capital and Private Equity;
this service to the corporate units and advise Merchant Bankers (MB) supports their clients in
them on such requirement to be complied with procuring funds via the issuance of debenture,
for raising funds from the capital market under bank loans, shares, etc.
different enactment viz. companies act, income (iii) Promotional & Management Activities
tax act, foreign exchange regulation act, Merchant Banker’s activities play a pivotal role
securities contracts corporate laws and as a promoter of industrial enterprises. They
regulations. provide assistance to entrepreneurs in
conceiving ideas, pinpointing projects,
(e) Services of Merchant Banking in the era of preparation of feasibility reports availing
digitization government permission, and incentive, etc.
We are witnessing every day the advancement of (iv) Project Management
Banking Sector. In order to keep up with the industry, Merchant bankers use several ways to render
rapid adaptation of digitalisation is one of the main their service to start ups in financial related
priorities. Digital transformation in all forms is the project management.
current global movement faced by all. Digitalisation
has increased the pace of services by Merchant (g) Regulations for Merchant Banking
Bankers. It is possible only due to digitalisation that Merchant Banking is regulated by SEBI through
MB’s are able to complete the entire process of SEBI (Merchant Bankers) Regulations, 1992. Any
raising funds through capital market in short span of entity which is fit and proper can become a Category

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I Merchant Banker which fulfils the criteria of net Merchant Banking industry also faces a lot of
worth, experience etc. The net worth for Category I challenges and opportunities. Some of them are
Merchant Banker as on today is Rs. 5.00 crores listed below:

SEBI issues circulars regularly for monitoring the (a) Challenges

Merchant Banker and improvement in the (i) Stringent compliance and Reporting
functioning of issuance of securities and debts & for Requirements;
protection of investors. (ii) Handling Investors Grievances during Pre-&
post funding requirement;
Merchant Banker has to comply with the SEBI (iii) The Funding Process could be investigated
(Merchant Bankers) Regulations, 1992 and also by the Board and Other Regulatory
have to comply with various other requirements in authorities
discharging their duties. Some of the important (iv) The MB could not receive start-up funding
Regulations are as under: (v) The MB will always have the risk of mixed
(i) Companies Act, 1956 and Applicable
chance of success;
Provisions of Companies Act, 2013
(ii) Listing Obligations and Disclosure requirements
(b) Opportunities:
(Regulations), 2015
(i) Underwriting of Debt and Equity;
(iii) SEBI (ICDR) Regulations, 2018
(ii) Placement and Distribution;
(iv) SEBI Buy Back of Regulations, 2018
(v) SAST Regulations, 2011 (iii) Corporate Advisory Services;
(vi) SEBI Infrastructure and Investment Trusts (iv) Cross Border Financing;
Regulations, 2014 (v) Portfolio Management Services;
(vii) SEBI (Issue and Listing of Non - Convertible
Securities) Regulations, 2021 (i) Conclusion
Merchant Banker have played a very vital role in
(h) Challenges & Opportunities in Merchant raising the finance which can be viewed from the
Banking data below:

Amount raised (Rs. In Crores)

Year Public Issues Rights Issues QIP Overseas Issues Debt Investments
From 1991 to 2020 9,49,176 3,10,704 3,69,185 10,540 2,22,151
2021 1,05,362 25,335 39,240 Not Available 22,287

It clearly shows that Merchant Bankers are heart of the industry in India.

Lalit Kumar Dangi is a Gold Medalist Chartered Accountant, Gold Medalist Cost Accountant & Company Secretary.
At present he is the Chairman of Libord Group of Companies which is in the business of Non-Banking Finance Company, Stock
Broking, Wealth Management, Resolution of Stressed Assets, Category I Merchant Banker, Registered Valuers and all other Financial
and Management Consultancy. Libord has managed more than 120 Public Issues and has done thousands of Valuations.
He has written more than 500 articles which were published in news papers and magazines like Economic Times, Business India,
Navbharat Times, Financial Express etc. He has also delivered more than 600 lectures on Capital Market, Companies Act, FEMA,
Income Tax, Merger and Acquisition, Public Issue Management and many more.
He was a Council Member of the Institute of Chartered Accountants for 6 years. He is attached with many social and religious
organisations.

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