Businesses often require specialised banking services which are concentrated in nature. Hence, commercial bankers set up their merchant banking subsidiaries to cater  financial services for the corporate sector. The increased regulation and control of domestic operations gave a fillip to large US banks to undertake Merchant Banking functions in international capital markets. The US investments Banks have extended their operations to the international level. They are largely responsible for the development of the Euro-dollar market in the securities and globalization of capital markets.

With the advent of SEBI, an organisation that was brought into existence to guard the interest of the small investor, hopes ran high that the small investor would now have a safe playing field. The latest fiat of EBI bans corporate advertising after the receipt of acknowledgement card by a company wanting to go public. Now 50 million potential investors are deprived of official and authentic information given by the Issuer. It is hard to understand reasons for this drastic and totally uncalled for action. While there has been no official explanation for this fiat, there is reason to believe that it may be based on a wrong perception of the role for corporate advertising. (6) Fund management on behalf of clients, most typically pension funds, unit trust, investment trusts and wealthy individuals.

History of Banking in India – Year by Year Breakdown

They play a crucial role in providing financial support to small-scale industries and self-help groups. Their focus on digital banking and customer experience has contributed significantly to India’s rapidly evolving banking landscape. A new era of economic reforms began in the 1990s with a shift towards globalisation and liberalisation. During this time, improving the banking infrastructure and ensuring stability received a lot of attention. During the Pre Independence period over 600 banks had been registered in the country, but only a few managed to survive. All of our essays are donated in exchange for a free plagiarism scan on one of our partner sites.

Foreign Banks are international financial institutions that have a presence in India. Private Sector Banks are privately owned financial institutions that operate with the goal of profit maximisation. These banks have a significant presence across the country and play a vital role in serving the banking needs of rural and urban populations alike. Examples of PSBs include the State Bank of India (SBI), Punjab National Bank (PNB), and Bank of Baroda (BoB). Public Sector Banks, often referred to as PSBs, are government-owned financial institutions.

Merchant banking in india

By 2020, private banks accounted for approximately 30% of total bank assets in the country, illustrating their rapid growth and widespread acceptance. The establishment of the Reserve Bank of India in 1935 further transformed banking practices. It aimed to regulate the sector, implement monetary policy, and ensure stability within the financial system. Key regulations enacted during this period included the Currency and Bank Notes Act of 1926 and the Banking Regulation Act of 1949, which introduced licensing requirements, deposit protection, and auditing standards.

The regulatory framework governing merchant banks in India is primarily overseen by the Securities and Exchange Board of India (SEBI). SEBI has established various guidelines and regulations to ensure that merchant banking activities are conducted transparently and efficiently. These regulations include requirements for registration, maintaining formal merchant banking activity in india was originated in capital adequacy, and adhering to ethical standards. Merchant banks must obtain a certificate of registration from SEBI to operate in India.

Reasons for growth of Merchant Banking

1. They are largely responsible for the development of the Euro-dollar market in the securities and globalization of capital markets.
2. The continued emphasis on infrastructure development, industrial growth, and the rise of new industries will provide ample opportunities for merchant banks to grow and diversify their portfolios.
3. As India’s economy grew, so did the number of banks, including commercial banks, cooperative banks, and specialised institutions.
4. By 1980, another six banks were nationalised, reinforcing the government’s commitment to a socialist economic model.
5. Co-operative banks serve the banking needs of both urban and rural populations, offering services like savings and credit facilities.

They have a prominent presence in London and other European financial centers. Merchant Banks have today a strong parent, a strong balance sheet and a strong international network to play a global role. By the end of the decade, the securities markets in India were firmly integrated with the financial system of the country. The emergence of the securities markets into the main stream of the financial system of the country was thus one of the major economic processes of the 1980s – an inevitable outcome of the maturing process of the financial system.

In recent past, the small investor lost his faith in the primary capital market. Issue after issue has failed to capture his imagination, rekindle his enthusiasm, and reinforce his faith. During the seventeenth and most of the eighteenth century, international finance was centered on Amsterdam. Consequently, Amsterdam merchants became the first masters of the various financial techniques and developments which, in the course of time, became identified with the emergent profession of ‘Merchant Bankers’. They primarily focus on agricultural and rural lending, offering services like crop loans, livestock financing, and rural development schemes. RRBs are a collaborative effort between the central government, the state government, and the sponsoring public sector bank.

They offered credit to merchants and farmers, charging interest on the sums lent. This informal banking structure significantly contributed to local economies by providing much-needed liquidity. It consists of innumerable investors who take own individual investment decisions. If these markets destabilized, the investors will look for alternative avenues to invest their funds. The strength of the holdings of the multinational companies at affordable prices in the latter part of the 1970s had generated significant interest, which was, carries well into the next decade.

The future of merchant banking in India looks promising, with expected growth driven by economic expansion and technological advancements. Emerging trends such as fintech integration, increased foreign direct investment and evolving regulatory frameworks will likely shape the sector. Merchant banks are positioned to leverage these trends to enhance their service offerings and expand their market reach. The continued emphasis on infrastructure development, industrial growth, and the rise of new industries will provide ample opportunities for merchant banks to grow and diversify their portfolios. As they adapt to changing market dynamics, merchant banks will continue to play a critical role in India’s financial ecosystem.

Regulations for Merchant Banking in India

Such merchant bankers can act as advisor, consultant, underwriter and portfolio manager. The term “Merchant Banking” has its origin in the trading methods of countries in the late eighteenth and early nineteenth century when trade-taking place was financed by bill of exchange drawn by merchanting houses. As international trade grew and other lesser-known names wanted to import goods from abroad, the established merchants ‘lent their names’ to the newcomers by agreeing to accept bills of exchange on their behalf.