What is Merchant Banking: All you need to know

  • Updated on: 1 Feb 2024
  • Published on: 29 Jan 2024
What is Merchant Banking: All you need to know

Merchant banking is a crucial aspect of the financial ecosystem. Currently, there are over 200 SEBI-registered merchant banks that provide a wide range of services to their clients. These banks are very different from regular banking and from other financial institutions in several ways. 

They provide services to large/mid-size businesses, high-net-worth individuals (HNIs) and institutional investors. So, if you are a business owner of a growing enterprise, knowing about them is crucial. Read on to learn more about this concept, its features, functions and benefits.

Merchant Banking Meaning

It is a professional service provided by banks to their merchant customers. These banks offer professional advice to large corporations in terms of:

  • Conducting trade
  • Fundraising
  • Loan services
  • Underwriting
  • International financial advisory
  • IPO management

As such, they do not cater to the general public, as their target customers are business owners.

Examples of Merchant Banking Institutions

Here are some of India’s top examples of merchant banking institutions registered with SEBI.

Public Sectors Private Sectors Foreign Banks
Bank of MaharashtraAxis Bank LtdBarclays Bank PLC
Canara BankBajaj Capital LtdDeutsche Bank
Citibank N AEdelweiss Financial Services LtdGoldman Sachs(India) Securities Pvt. Ltd.
DBS Bank India LtdReliance Securities LtdJ P Morgan India Pvt. Limited
HDFC Bank LTDTata Capital Markets LtdMorgan Stanley India Company Pvt Ltd
IDBI Capital Market Services LtdMotilal Oswal Investment Advisors LimitedNomura Financial Advisory and Securities (India) Pvt Ltd

Services Provided by Merchant Banks

To understand their role in the business’s growth and financial health better, here are the key functions of merchant banking institutions. 

  • Asset Management: They advise investors in selecting securities and assist them in trading and managing their portfolios
  • Raising Funds: They help businesses organise funds for their national and international trades and investments
  • Loan Syndication: They assist their clients in raising credit from banks and financial institutions if need arises
  • Promotional Activities: Businesses seeking government approval can get help from merchant banks to present their business idea
  • International Transactions: Businesses operating across borders can hire them to get advice on their operations
  • Underwriting Services: Businesses can get underwriting assistance when they plan to raise funds via IPO (Initial Public Offering) 
  • Mergers and Acquisitions: They provide services for business expansion and other strategic transactions  
  • Risk Management: They evaluate the risk of all business transactions and advise their clients on taking suitable measures

Also Read: Bank or Non-Banking Financial Company: Which is Better for Loans?

Merchant Banking Benefits 

Here’s a quick overview of their advantages:

  • These banks are experts with extensive knowledge of financial markets
  • They have a large network of investors, venture capitalists, financial institutions, etc., which can benefit their clients
  • Analysing the situation and risk associated, they provide tailor-made solutions fitting the goals of a business
  • Services of these banks also extend beyond the domestic market
  • They make sure that merchants maintain compliance with various laws and regulations
  • Introducing the client to better potential investment opportunities is one of their key goals
  • Merchant banks also maintain long-term relationships with their clients, which aids in providing better support and advice
  • When it comes to complex transactions, they also guide their clients during the entire process

Considering the above, you can see how merchant banking differs from regular banking. These banks make financial planning and wealth management easy for mid and large-size corporations. Likewise, the Fibe’s Instant Personal Loan Online allows you to manage your financial emergency and urgent fund requirements without any hassles. 

With an easy and 100% digital application process, you can avail up to ₹5 lakhs for your personal or business-related needs. With Fibe, you can also enjoy affordable rates, flexible tenure, no foreclosure fees and quick sanction. Download our Personal Loan App or go to our website to register online and apply now! 

FAQ on Merchant Banking

What is the difference between banking and merchant banking?

The difference lies in their customer base. As the name suggests, merchant banking is designed explicitly for large merchants/ business owners. It doesn’t provide regular services offered by regular banks like opening a savings account, FD, bank deposit, etc.   

What are the benefits of merchant banking?

These banks offer a wide range of services that involve offering financial advice based on market analysis. Thus, the key advantage of merchant banking is that it helps businesses grow and expand their operations.

 What are the disadvantages of merchant banks?

Here are some of their disadvantages: 

  • The services offered are very expensive 
  • You must meet the required eligibility criteria in terms of company size
  • They have a risk of loss
  • They do not provide services to startups
  • They do not guarantee returns 
  • You may not receive complete funding
  • You don’t have complete control of your assets 

Is merchant banking similar to private equity?

Yes, but it’s a lot more than that. It also helps businesses in the following ways:

  • Raise capital
  • Manage mergers and acquisitions
  • Offer underwriting services 
  • Provide financial advising
  • Help in fundraising

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