The term Merchant Banking has its origin in the trading methods of countries in the late eighteenth and early nineteenth century when trade-taking place was financed by bill of exchange drawn by merchanting houses

The term Merchant Banking has its origin in the trading methods of countries in the late eighteenth and early nineteenth century when trade-taking place was financed by bill of exchange drawn by merchanting houses. At that time the merchants were merely financing their own activities. As international trade grew and other lesser- known names wanted to import goods from abroad, the established merchants lent their names to the newcomers by agreeing to accept bills of exchange on their behalf. The acceptance houses would charge a commission for this service and thus there grew up the business of accepting bills of finance trade not merely of themselves, but of others. Acceptance business thus became and to a degree always has been hallmark of true Merchant Banks. The second historical of Merchant Banks was the raising of capital for foreign Government. In many cases, the Merchant Banks have been trading in the countries concerned and gained the confidence of Governments and other authorities in those countries. Thus the second principal ingredient of Merchant Banking became and still is raising capital through the issue of stocks and bonds. So, Merchant Banks can be accepting houses or issuing houses or both. Merchant Banking started in the beginning of 20^th century in UK and USA. More recently, the services offered by Merchant Banks have entered into the other areas of operations. Their role is wide ranging and they can now provide most of the financial services required by a company, touching almost all aspects of establishing and running of industrial units on sound financial footing.

Dictionary meaning of merchant bank refers to an organization that underwrites corporate securities and advises such clients on issues like corporate mergers, etc., involved in the ownership of commercial ventures. This organization may be a bank, corporate body, firm or proprietary concern.

A Merchant bank is a financial institution primarily engaged in internal finance and long term loans for multinational corporations and governments. It can also be used to describe the private equity activities of banking. Merchant banks tend to advise corporations and wealthy individuals on how to use their money. The advice varies from counsel on mergers and acquisitions to recommendation on the type of credit needed. The job of generating loans and initiating other complex financial transactions has been taken over by investment banks and private equity firms. Thus, the function of merchant banking which originated, and grew in Europe was enriched by American patronage, and these services are now being provided throughout the world by both banking and Non-banking Institutions. The word ―Merchant Banking‖ originated among the Dutch and the Scottish Traders, and was later on developed and professionalized in Britain.