In India’s booming economy, where startups are thriving and industries are growing, there is one money sector that functions quietly but energetically behind the scenes — merchant banking. From IPOs to mergers, merchant banks are instrumental in helping businesses navigate tough financial choices.
Let’s see what merchant banking is all about in the Indian scenario.
What is Merchant Banking?
Merchant banking is a specialized cluster of financial services offered to corporate customers, institutions, and high-net-worth individuals (HNIs). These services comprise:
• Raising funds
• Public issue handling (such as IPOs)
• Mergers & acquisitions handling
• Offering financial advisory
• Project finance
• Private placements and underwritings
While commercial banks do not, merchant banks in India neither accept deposits nor extend personal loans. They operate behind the scenes to facilitate the financial structuring and strategic objectives of companies.
History of Merchant Banking in India
• 1967: The journey started when Grindlays Bank initiated merchant banking operations in India.
• 1972: State Bank of India (SBI) entered the fray with SBI Capital Markets — a landmark in indigenous merchant banking.
• Over the years, public sector and private sector banks, NBFCs, and overseas institutions entered the sector.
The importance of merchant banking grew even more with the liberalization of the 1990s and the emergence of Indian capital markets.
Services Provided by Merchant Banks in India
What It Does
Issue Management (IPO/FPO) – Assisting companies in going public, share issuance, pricing, and marketing
Underwriting – Assuming responsibility to purchase unsold shares of a public issue
M&A Advisory – Advising mergers, acquisitions, joint ventures
Loan Syndication – Organizing large loans from several banks for large projects
Corporate Restructuring – Assisting companies to enhance financial and operating efficiency
Private Placement – Raising capital from specific private investors
Project Finance – Organizing and securing finance for industrial or infrastructure projects
Regulation: SEBI & Merchant Bankers
In India, SEBI (Securities and Exchange Board of India) oversees merchant bankers under the SEBI (Merchant Bankers) Regulations, 1992. Major points are:
Merchant bankers have to register with SEBI.
They are divided into four categories:
Category I: Can manage issues (like IPOs, FPOs), provide corporate advisory services (such as M&A), undertake portfolio management, and underwrite issues. This is the most comprehensive category.
Category II: Can act as co-managers, advisors, consultants, and underwriters but cannot independently manage public issues.
Category III: Can act only as underwriters, advisors, and consultants. They are not permitted to manage issues or portfolios.
Category IV: Can function solely as consultants or advisors, with no involvement in fund-based or issue-related activities.
• SEBI ensures merchant bankers adhere to ethical practices, transparency, and due diligence in capital markets.
Major Merchant Bankers in India
Following are some major merchant banking institutions:
Public Sector:
• SBI Capital Markets Ltd.
• IDBI Capital
• Punjab National Bank Investment Services
Private Sector:
• ICICI Securities
• Kotak Investment Banking
• Axis Capital
• HDFC Bank Investment Banking
Foreign Banks:
• Barclays
• JP Morgan India
• Citi India
These companies deal with some of India’s biggest IPOs, M&A transactions, and fund-raising exercises.
Merchant Banking & India’s Growth
Merchant banks have a crucial role to play in “Make in India”, infrastructure development, and digital transformation:
• Enabling unicorns and startups to raise capital through IPOs (e.g., Zomato, Nykaa)
• Financing infrastructure projects with financial structuring
• Facilitating Indian business going global through cross-border M&A
• Inducing FDI and private investment through strategic counsel
Real-World Example: Zomato IPO (2021)
Zomato’s IPO was a milestone in Indian capital markets. Merchant banks such as Kotak Mahindra Capital, Morgan Stanley India, and Credit Suisse India acted as lead managers. They facilitated:
• Pricing the shares
• Document preparation
• Marketing the issue to institutional investors
• Regulatory compliance
This is an excellent example of merchant banking in action.
Conclusion: The Backbone of Corporate Finance
Merchant banking in India might not be directly visible to consumers, but it is rooted deep within the financial development of the nation. With India’s vast plans for a $5 trillion economy, the function of merchant banks will only increase — to enable businesses to make sensible, well-backed decisions in competitive economies.
Learn more about how contemporary businesses raise and manage capital with the help of merchant banking. Contact us to learn more or get expert guidance.