What are commercial banks?
Commercial banks are the financial institutions that offer financial services, solutions and consulting to organizations. According to a notification of the Ministry of Finance in India, a merchant banker in India is defined as “any person engaged in the activity of emission management or by entering into arrangements regarding the sale, purchase or subscription of securities as a manager, consultant, adviser in connection with such emission management”. Thus, the merchant banker provides advice to his client on financial, marketing, management and legal matters.
What is merchant banking?
Unlike commercial banks that cater to the needs of the common man, while commercial banks cater to the needs of corporate firms.
Merchant banking is generally the provision of guidance and services to corporations for a fee that can help an entrepreneur start a new venture, raise capital, expand and modernize an existing business, restructure a business, or help companies register, buy and sell assets (shares) on the stock exchange.
What are commercial banking services?
Project management: Merchant bankers prepare project reports to analyze financing patterns to estimate the cost of a project and to evaluate the same with financial institutions.
Debt and Equity Management offers: One of the primary functions of a merchant banker in India is to assist companies in raising funds from investors. The main services offered are,
• Product design
• Registration of documents
• Guaranteed support
• Distribution and recovery
• Stock exchange listing management
Problem Management: These bankers play an important role in managing the issue, which involves the marketing of corporate securities such as shares, preferred shares and bond offerings to the public.
Commercial banks act as an intermediary in facilitating the transfer of capital from investors to their client. As per the guidelines of SEBI in India, a merchant banker in India arranges meetings between company representatives and agents to settle arrangements related to registration of prospectus, launch of advertising campaign and organization of board meetings to take necessary decisions. These bankers also advise companies on issue pricing. Merchant bankers also provide Public issue subscription (does not exceed 15%).
Client portfolio management: Management of a diverse set of securities such as stocks, bonds issued by various companies to ensure maximum returns with minimum risk.
Placement and Distribution: These bankers help in the allocation and distribution of securities through the commercial bank’s institutional network and retail network.
Corporate restructuring: These bankers act as intermediary agents in the negotiations between the two companies and assist the client’s management for various restructuring activities such as M&A, sale, management buyout, joint venture and others.
Offshore financing: Merchant bankers help their clients manage joint ventures, foreign currency investments and foreign cooperation agreements.
Loan Syndication: Merchant bankers help clients obtain term loans for projects that can be obtained from a development finance institution, syndicate or consortium.
Corporate consulting and advisory services: Corporate consulting is a comprehensive package of all commercial banking services, such as project consulting, restructuring, issue management, loan syndication, etc. Merchant bankers also offer customized solutions to their corporate clients for financial difficulties along with attempts at refinancing alternatives, evaluation of cheaper sources of funds.
However, it should be noted that to act as merchant bankers in India or a firm, you need to have the necessary certificate from SEBI, the Securities and Exchange Board of India.