Merchant Banking refers to decreasing the risk and maximizing the profits. This expression is usually used in connection to shares and debentures only. Merchant bankers offer these services to their customers and guide the investors in selecting suitable securities as per their needs. Thus, merchant bankers ensure that they are updated with the complete market information.
This is the basic service that merchant banking offer as all industrial units, whether new or existing, require this service. A wide range of services come under corporate counselling, such as project counselling, capital restructuring, project management, working capital management, public issue management, loan syndications, fixed deposit, and lease financing.
Management of Capital Issues:
This service sells securities, equity shares, debentures, preference shares, etc., to the investors. The role of the merchant banker here is to make an action plan and budget for expenses for coordinating with underwriters, the expense for the issues, choosing the advertising agency for pre and post-issue.
To do this, they have to be in touch with agencies involved in public issues.
This is one of the essential services given by merchant banking. In this, the bank guarantees that if the agreement is below the specified level, the bank would have to contribute to the stated expense.
This service is pretty unusual from the other Merchant Banking’s offer. Here the merchant banks arrange a loan for a borrower who can be a big company, a government department, or a local authority. But, there are a lot of measures that a merchant banker has to take before a loan.
Firstly, they check and analyze the cost of the project. They design the capital structure, see how much the promoter is contributing, and then decide on the loan amount and approach the financial institution for a loan. They also have to ensure that the company adheres to all the guidelines.
Other services that merchant banks offer are:
- Project Counseling
- Issue Management
- Foreign Currency Financing
- Advisory Services to Mergers and Takeovers
- Broking Corporate Advisory Services Leasing
- Consultancy to Sick Industrial Units
- Providing Venture Capital Financing
- Act as Debenture Trustee
Also Read: List of Nationalize Bank in India