merchant bank

A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans. A merchant bank also provides advisory on corporate matters.


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“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.”




Origin of Merchant Banking

1.13th Century merchant bankers were traders of commodities and acted as bankers to the kings of European states.
2.They Financed the continental wars and coastal trades.
3. They lent their names to lesser known traders by accepting bills through which they guaranteed that the holder of the bill would receive full payment.


Factors to select a MB

1. Ethics and integrity.
2. Reputation.
3. Trained & committed manpower.
4. Concern & interest of clients.
5. Liaison and networking.
6. Relationship & Contacts.
7. Infrastructure.
8. Past performance.

Factors to select a client.

1. Track record of the company.
2. Track record of the promoters.
3. Professional management.
4. Financial strength of the promoters and the company.
5. Economic viability of the project.

Prime Objectives of MB

1. Providing long term funds to the projects or companies.
2. Project counseling- loan syndication, project appraisal and arrangement of Working capital.
3. Deciding the capital structure.
4. Portfolio Management
5. Underwriting
6. Corporate advisory & issue mgmt.

Role of  Merchant Bankers

1. Advise on the capital structure, instrument of issue.
2. Pricing
3. Assessing and appraisal of project report.
4. Appointment of bankers, underwriters, brokers, registrars, printers and advertisement agents.
6. Press and investor conferences.
7. Deciding the pattern of advertisement.
8. Deciding the collection branches where application can be received or collected.
9. Deciding on the dates of opening and closing of the subscription list.
10. Obtain daily report of the applications and amounts collected at branches.
12. Obtaining subscription to the issue.
13. Obtain consent of the Stock Exchange and get basis of allotment approved.
14. 1. 1. Holding brokers-Underwriters,