CATEGORY - FEATURES & UPDATES

Merchant Banking: Meaning, Types, Services and Advantages

Features & updates - 25 Feb, 2024

Table of Contents

Let’s understand merchant banking

Forget everyday banking! Merchant banks cater to large businesses, acting as their financial advisors. They assist with complex needs like fundraising, offering loans, and providing strategic advice on mergers and acquisitions.

Their expertise lies in international trade, making them ideal partners for navigating global markets. By securing funding through public offerings, private placements, and even managing international finances, merchant banks play a crucial role in fueling business growth and boosting the overall economy.

What is a Merchant Bank?

Think of a merchant bank as a specialized financial advisor for businesses. Unlike your regular bank, they don’t handle everyday transactions. Instead, they focus on helping larger companies raise funds, manage investments, and plan for growth. They offer services like loans, IPO (public offerings) assistance, and financial advice tailored to a company’s specific needs.

How does merchant banking work?

Need help raising big bucks or merging with another company? Merchant banks are like financial gurus for established businesses. They handle complex transactions like mergers (joining forces) and acquisitions (buying another company). Even IPOs (taking a company public) involve these specialized advisors.

Here’s how it works:

Underwriting: Merchant banks guarantee buying unsold shares if a company goes public (IPO).
Corporate Finance: They strategize ways for companies to raise funds (loans, selling stocks, etc.).
Securities Trading: They buy and sell investments like stocks and bonds.
Advisory Services: They offer expert guidance on financial decisions.

Think of them as a one-stop shop for businesses needing financial muscle. However, their expertise comes at a premium – expect higher fees than traditional banks. Additionally, they might invest directly in your company, potentially profiting from your success.

Merchant banks can be independent or part of larger financial institutions. As the financial landscape evolves, so do their practices, ensuring they remain valuable partners for businesses navigating complex financial maneuvers.

What are Merchant banking functions?

In India, merchant banks are regulated by the Securities and Exchange Board of India (SEBI). They offer a variety of services to help businesses grow and succeed.

Investment Guidance: Need help making smart investment decisions? Merchant banks can provide expert advice on where to invest your money to achieve your financial goals. They can even manage your investment portfolio for you, buying and selling securities on your behalf.
Raising Capital: Launching a new business or looking to expand? Merchant banks can help you raise funds from Indian and even international markets. They’ll assist you in finding investors and issuing securities to raise the capital you need.
Business Promotion: Starting a business involves more than just a great idea. Merchant banks can guide you through the initial stages, helping you refine your business plan and secure government approvals.
Loan Syndication: Sometimes, a single loan may not be enough. Merchant banks can help you secure larger loans by syndicating them, meaning they connect you with multiple banks and financial institutions willing to contribute to your loan.
Leasing Options: Looking for equipment or machinery without a large upfront cost? Merchant banks can offer leasing services, allowing you to spread the cost of the equipment over a fixed period.

By providing these services, merchant banks act as a valuable support system for new and growing businesses in India. This, in turn, contributes to the overall economic growth of the country.

Benefits of Merchant Banking for Your Business

Merchant banks offer a helping hand for Indian businesses looking to grow. Here’s how:

Peace of Mind: Protect your business from market ups and downs with risk management solutions like hedging and insurance. Merchant banks can guide you through these options.
Expert Advice: Get valuable guidance from professionals with deep knowledge of Indian financial markets and different industries. Merchant banks can become your strategic partner.
Expand Your Network: Connect with potential investors, corporations, and other financial institutions through a merchant bank’s vast network. Find new opportunities and partnerships for your business.
Go Global: Thinking of expanding internationally? Merchant banks, with their global reach, can help you navigate foreign markets and access new customer bases.
Tailor-Made Solutions: Get the support you need, not a one-size-fits-all approach. Merchant banks offer customized solutions to meet your specific business goals.
Long-Term Partnership: Build a strong relationship with your merchant bank. They’ll be there for you over the long term, providing ongoing support and advice as your business grows.

Top Merchant Banking Choices in India

Gone are the days of limited financial options for businesses and high net-worth individuals (HNWIs). Merchant banks have emerged as powerful allies, offering a range of specialized services to fuel growth and success. But with so many players in the field, who are the top contenders in India?

Here’s a glimpse into some of the leading merchant banks in the country, all known for their expertise and innovative solutions:

State Bank of India Capital Markets: Backed by the trust and reach of India’s largest bank, SBI Capital Markets offers a comprehensive suite of services, from IPOs (initial public offerings) to mergers and acquisitions.
ICICI Securities: A household name in the financial sector, ICICI Securities is a trusted partner for businesses seeking capital raising and strategic advice.
Axis Bank: Combining a strong banking network with in-depth market knowledge, Axis Bank offers merchant banking services tailored to meet diverse business needs.
Kotak Mahindra Bank: This leading private bank boasts a dedicated merchant banking team with a proven track record in handling complex financial transactions.
HDFC Bank: Renowned for its customer focus, HDFC Bank’s merchant banking arm provides personalized solutions for businesses looking to expand or raise capital.
PNB Merchant Banking Services: Leveraging the vast network of Punjab National Bank, this arm offers expert guidance on raising funds and managing finances effectively.
Bank of Baroda: With a focus on both domestic and international markets, Bank of Baroda caters to businesses seeking to tap into global investment opportunities.
JM Financial: This leading financial services group offers a wide range of merchant banking services, including debt structuring and private equity placements.
Edelweiss Financial Services: Known for its innovative approach, Edelweiss provides customized solutions for businesses across various sectors.
IIFL Holdings: This diversified financial conglomerate offers merchant banking services through its subsidiary, IIFL Securities, catering to a broad spectrum of business needs.

Merchant Banking vs. Investment Banking

Understanding the difference between merchant banking and investment banking is crucial for Indian businesses seeking financial support. Here’s a simplified breakdown:

Feature	Merchant Bank	Investment Bank
Focus	International trade, loans, underwriting for companies	Issuing securities for large corporations
Clients	Small & medium businesses, high-net-worth individuals	Large corporations & governments
Services	Mergers & acquisitions (M&A), project finance, trade finance, leasing, & advisory	Underwriting, IPO management, debt & equity issuance, restructuring
Risk Appetite	Higher (deals with smaller businesses)	Lower (avoids riskier businesses)
Profit Model	Higher (deals with smaller businesses)	Commission-based (earns from transactions)

Merchant Banking: A Boon for Growing Businesses

Merchant banks play a vital role in India’s financial landscape. They provide essential services to growing businesses, including:

Capital: Access loans and other forms of financing to fuel expansion.
Financial advice: Expert guidance on financial management, strategy, and risk mitigation.
Specialized services: Support with M&A, project finance, and trade finance needs

By partnering with a merchant bank, Indian businesses can:

Secure funding for future growth.
Reduce costs through expert financial management.
Gain access to specialized services that support their specific needs.

Focus on Core Business, Not Banking

Platforms such as Easebuzz Neo simplify financial management for Indian businesses. They offer a one-stop solution for:

Opening Current Accounts (With the partner bank, accounts for business transactions)
Paying Taxes (streamlined tax payments)
Scheduling and Paying Vendors (manage payments to suppliers)
Checking Invoices (track bills and payments)

Easebuzz Neo: Powering Your Business Growth

Easebuzz Neo’s API suite integrates seamlessly with your current account, offering features like:

Payment Acceptance: Accept payments through various methods like net banking, credit cards, UPI, and wallets.
Automated Payments: Set up recurring payments for subscriptions or bills.
QR-Based Collections: Generate QR codes for easy in-person payments.
Vendor Payouts: Easily pay vendors through various channels.
Automated Reporting: Get real-time transaction reports and reconciliation tools.

Focus on what matters most – running your business. Let Easebuzz Neo handle the financial complexities.

Merchant Banking FAQs

What is merchant banking?

Merchant banks are specialized financial institutions that offer a variety of services to corporations and high-net-worth individuals, focusing on investment banking activities like mergers & acquisitions and capital raising.