A Merchant Bank is a bank which deals International finance, business loans for companies and underwriting. These banks are experts in international trade as they are dealing with multinational corporations. These banks also underwrite corporate securities and advise clients on the issue like corporate mergers. Merchant banking is basically service banking that provides non-financial services such as issue management, portfolio management, asset management, underwriting of new issues, share transfer agents, provide leasing, project consultation, foreign credits, etc. Merchant Bank performing as a bank, financial institutions, company or firm.
Functions of Merchant Bank
Merchant banking is one of the non-financial services which provides to the corporate sectors, commercial banks, and financial institutions. The major functions of merchant banking are explained as follows:
- Management, Marketing, and Underwriting of new issues.
- Project finance and project promotion services.
- Syndication of credit and other facilities.
- Leasing including project leasing.
- Corporate advisory services.
- Investment advisory services.
- Bought out deals.
- Venture capital.
- Mutual funds and offshore funds.
- Investment Management.
- Investment services for non-resident Indians.
- Management dealing in commercial paper.
- Treasury management.
- Foreign Collaboration and foreign currency finance.
- Counseling to Small Scale Industries.
- Capital Structure counseling to cooperative sectors.
- Meeting the working capital needs.
Merchant Bankers are financial intermediaries in the transfer of capital from those who own it to those who use it. The main strength of merchant bankers is not the provision of finance but providing the whole range of inputs of innovative financial services for establishing and running industrial units.
Commercial bankers are financiers but merchant bankers are engineers or architects. A commercial banker strives most on his financial muscle. A merchant banker has to think of new ideas in order to anticipate and innovate. The activity of the merchant bank is equity and equity-related finance or more broadly funds raised through money and capital markets.
Merchant banks may offer portfolio management service to clients so as to manage their long term investible funds. Banks having the expertise to provide such services on their own can undertake these activities on payment of a suitable management fee by the client.