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
Proposed functions of merchant banker would include the following
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| Proposed functions of merchant banker would include the following:
(i) Finding out the reputation and financial standing of the acceptor. (ii) The existence of a system for collection of information on borrowers. Commercial banks can undertake acceptance and discount business because they have the necessary expertise and broad network of branches. But at present only bill discounting facility is available to commercial banks under the RBI’s formalised scheme for credit accommodations and under refinancing schemes. Indian merchant bankers have still to formulate the practices and procedure so that efficient services could be offered in acceptance and bill discounting.
Function # 9. Lease Finance:Many merchant bankers also provide leasing and finance facilities to their customers. Leasing is an arrangement that provides a firm with the use and control over assets without buying and owning the same. It is a form of renting assets. Lease is a contract between the owner of the asset (lessor) and the user of the asset called the lessee, whereby the lessor gives the right to use the asset to the lessee over an agreed period of time for a consideration called the lease rental. The lease contract is regulated by the terms and conditions of the agreement. The lessee pays the lease rent periodically to the lessor as regular fixed payments over a period of time. The rentals may be payable at the beginning or end of a month, quarter, half-year or year. The lease rentals can also be agreed both in terms of amount and timing as per the profits and cash flow position of the lessee. At the expiry of the lease period, the asset reverts back to the lessor who is the legal owner of the asset. However, in long-term lease contracts, the lessee is generally given an option to buy or renew the lease. Merchant bankers assist their clients by providing finance for the acquisition of asset taken on lease.
Function # 10. Venture Capital:Many merchant bankers maintain venture capital funds to assist the entrepreneurs who lack capital to be risked. Capital funds may be provided for unproven ideas, products technology-oriented or start-up funds. Venture capital has emerged as a new merchant banking activity. It is a form of equity financing especially designed for funding high risk and high reward projects. Function # 11. Public Deposits:Merchant bankers also help companies in raising finance by way of public deposits. Function # 12. Specialised Services:In addition to the basic activities involving marketing of securities, merchant banks also provide corporate advisory services on issues like mergers and amalgamation, takeovers, tax matters, recruitment of executives and cost and management audit etc. Many merchant bankers have also started making of bought out deals of shares and debentures. The activities of the merchant bankers are increasing with the change in the money market. These specialised services which all the merchant banks in India have not been able to render excepting the ICICI, Canara Bank and Grindlays Bank and Punjab National Bank (PNB). Grindlays Bank renders this specialised service in accordance with the individual requirements of the client.
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