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In India prior to the enactment of Indian Companies Act, 1956,managing agents acted as issue
houses for securities, evaluated project reports, planned capital structure and to some extent
provided venture capital for new firms. Few share broking firms also functioned as merchant

The need for specialized merchant banking services was felt in India with the rapid growth in the
number and size of the issues made in the primary market. The merchant banking services were
started by foreign banks, namely the National Grindlays Bank in 1967 and the City Bank in
1970. The Banking Commission in its report in 1972 recommended the setting up of merchant
banking institutions. This marked the beginning of specialized merchant banking in India.

To begin with, merchant banking services were offered along with other traditional banking
services. In the mid-Eighties, the Banking Regulation Act was amended permitting commercial
banks to offer a wide range of financial services through the subsidy rule. The State Bank of
India was the first India Bank to set up merchant Banking division in 1972. Later ICICI set
up its Merchant Banking division followed by Bank of India, Bank of Baroda, Canada Bank,
Punjab National Bank and UCO Bank. The merchant banking gained prominence during 1983-84
due to new issue boom.


Many banks entered merchant banking in the 1960s to take advantage of the economies of scope
produced when private equity investing is added to other bank services, particularly commercial
lending. As lenders to small and medium-sized companies, banks become knowledgeable about
individual firms products and prospects and consequently are natural providers of direct private
equity investment to these firms. As mentioned above, commercial banks were the largest
providers of venture capital in the 1960s. In the middle to late 1980s, the decision to enter merchant
banking was thrust on other banks and bank holding companies by unforeseen events. In those
years, as a result of the LDC (less-developed-country) debt crisis, many banks received private
equity from developing nations in return for their defaulted loans. At that time, many of these
banks set up merchant banking subsidiaries to try to get some value from this private equity.

Also at about that time, most commercial banks began refocusing their private equity investments
to middle-market and public companies (often low-tech, already profitable companies) and, rather
than providing seed capital, financed expansion or changes in capital structure and ownership.
Most particularly, they took equity positions in LBOs, takeovers, or recapitalizations or provided
subordinated debt in the form of bridge loans to facilitate the transaction. Often they did both.
Commercial banks financed much of the LBO activity of the 1980s.Then, in the mid-1990s; major
commercial banks began once again focusing on venture capital, where they had substantial
expertise from their previous exposure to this kind of investment. Some of these recent venture-
capital investments have been spectacularly successful. For example, the Internet search engine
Lycos was a 1998 investment of Chase Manhattans venture-capital arm. Commercial banks are
permitted to report either realized or unrealized gains on their merchant-banking portfolios, as long
as they are consistent in the reporting. This option makes it difficult for one to compare different
entities financial results and could lead to an overly liberal reporting of profits.


Important reason for the growth of merchant banking is due to exerting excess demand on the
sources of funds forever expanding industry and trade.
Corporate sector had the only alternative to avail of the capital market services for meeting
their long-term financial requirements through capital issues of equity and debentures.
With the growing demand for funds there was pressure on capital market that enthused the
commercial banks, share brokers and financial consultancy firms to enter into the field of
merchant banking and share the growing capital market.
In India have opened their merchant banking windows and are competing in this field, and also
doing advisory functions as merchant bankers as well as managing public issues in syndication
with other merchant bankers.
Merchant banks can play highly significant role in mobilizing funds of savers to investible
channels assuring promising return on investments activity.
With the growth of merchant banking profession corporate enterprises in both public and
private, sectors would be able to meet the growing requirements for the funds for establishing
new enterprises, undertaking expansion/modernization/diversification of the existing
Merchant banks have been procuring impressive support from capital market for the corporate
sector for financing their projects.
In view of multitude of enactments, rules and regulations, guidelines and offshoot press release
instructions brought out by the Government from time to time imposing statutory obligations
upon the corporate sector to comply with all those requirements prescribed therein, the need
of skilled agency existed which could provide counseling.
Merchant bankers advise the investors of the incentives available in the form of tax reliefs,
other statutory relaxations, good return on investment and capital appreciation in such
investment to motivate them to invest their savings in securities.


The role of merchant banker is dynamic in the wake of diverse nature of merchant banking
services. Merchant bankers dynamism lies in promptly attending to the corporate problems and
suggests ways and means to solve it. The nature of merchant banking services is development
oriented and promotional to help the industry and trade to grow and survive. Merchant banker is,
therefore, dedicated to achieve this objective through his dynamism. He is always awake to renew
his skills, develop expertise in new areas so as to equip himself with the knowledge and techniques
to deal with emerging new problems of corporate business world. He has to keep pace with the
changing environment where Government rules, regulations and policies affecting business
conditions frequently change; where science and technology create new innovations in production
processes of industries envisaging immediate renovations, diversification, modernizations or
replacements of existing plant and machinery or other equipments putting new demands for
finances and necessitating overhauling of the capital structure of the firms.

Merchant banker has to think and devise new instruments of financing industrial projects. He has
to assume wider responsibilities of saving industrial units from going sick and guiding industries
to be set up industrially backward areas to eliminate regional imbalances in industrial development
of the country. He has to guide the wider section of the community possessing surplus money to
invest in corporate securities and other productive investment channels. He has to help the industry
in different forms to ensure that it runs risk free and devoid of uncertainty by assisting the has to
watch the interest and win over the confidence of the Government, its agencies, along with the
entrepreneurs, the investors and the whole community. He must bridge the communication gap
between different sections and resolve the problem being faced in different areas concerned with
the business world.

To discharge the above role, a merchant banker has t be dynamic. For this reason, a merchant
banker is sometimes, called M.B i.e. Moving Bottom, i.e., one who never sits at one place, always
moving- attending meetings and meeting clients and constituents, doing business and getting
business by attending meetings and conferences, imparting knowledge to others and acquiring new
knowledge to maintain his supremacy in possession of latest information. His role depicts a
personality cult, which is unique and envious to be followed by others.

In the days ahead, merchant bankers have very significant role to play tuning their activities to the
requirements of the growth pattern of corporate sector, the industry and the economy as a whole,
which is, in it, a challenging task and to meet these challenges merchant bankers will have to be
more vigorous and strategic in playing their role. They will have also to adopt new ways and means
in discharging their role.


The Securities and Exchange Board of India (SEBI) has stated that merchant bankers must be
involved more closely in the market making process as share brokers do not have the requisite
expertise to evaluate the fundamentals of the scrips before taking over the role of market makers.
Further, share brokers generally being partnership; firms do not have the financial clout which is
necessary for market making activity. Resultantly, the SEBI has suggested that any member of the
stock exchange along with one merchant banker registered with SEBI could act as a market maker.
The SEBI has felt that to ensure liquidity of scrip it was necessary to facilitate greater movement,
which could only be achieved through the institution of market makers. Market makers would also
create a market for the scrips by offering two way quotes to the investors. A minimum of ten
scrips has been proposed by SEBI for the market makers.


As determined by the Finance Ministry, Government of India, Merchant Bankers are eligible to
charge commission / fee from their clients as detailed below :
(i) A Merchant Banker can charge 0.5% as the maximum as commission for whole of the issue.
(ii) They can charge project appraisal fees.
(iii) A lead manager can claim a commission of 0.5% up to Rs.25 crore and 0.2% in excess of
Rs.25 crore.
(iv) Underwriting Commission.

Type of Security

On amount
Devolving on
On amount
subscribed by

(v) Brokerage commission 1.5%.
(vi) Other expenses like advertising, printing, Registrars expenses, stamp duty etc., in
connection with the issue can be reimbursed from its clients.

There are differences in approach, attitude, and areas of operations between commercial banks
and merchant banks. The differences between merchant banks and commercial banks are
summarized below:

Basically deal in debt related finance
and their activities are appropriately
arrayed around credit proposals,
credit appraisal and loan sanctions.

Are asset oriented and their lending
decisions are based on detailed credit
analysis of loan proposals and the
value of security offered against
loans. They generally avoid risks.
They are merely financiers.
Basically they deal with mainly funds
raised through money market and capital
market and the area of activity is equity
and equity related finance.
Are management oriented. They
generally are willing to accept risks of

There activities include project
counseling, corporate counseling in areas
of capital restructuring, amalgamations,
mergers, takeovers etc., discounting and
rediscounting of short term paper in
money markets, managing, underwriting
and supporting public issues and new
issue market and acting as brokers and
advisers on portfolio management in
stock exchange. This activities have
impact on growth, stability and liquidity
of money markets.


Formal merchant banking activity in India was originated in 1969 with Merchant Banking Division
set up by the Grindlays Bank, the largest foreign bank in the country. The main service offered at
that time to the corporate enterprises by the merchant banks included the management of public
issues and some aspects of financial consultancy. Other foreign banks like City Bank, Chartered
Bank also assumed the merchant banking activity in India. State Bank of India started merchant
banking in 1973 followed by ICICI in 1974. Both these Indian merchant bankers emerged as
leaders in merchant banking having done significant business during the period of 1974-1987 in
comparison to foreign banks. The early and mid-seventies witnessed a boom in the growth of
merchant banking organizations in the country with various commercial banks, financial
institutions, and brokers firms entering in to the field of merchant banking.

The early growth of merchant banking in the country is assigned to the Foreign Exchange
Regulation Act, 1973 (FERA) where under large number of foreign companies operating in India
were required to dilute their foreign holdings in order to continue business in the country. This
had caused two-pronged effect viz. firstly, in the form of spate in Foreign Exchange Regulation
Act Issues eliciting interest of the investors by creating massive awareness about capital markets
amongst the new class of investing public, secondly, merchant banking activity became attractive
to banks and the firms of consultants and share brokers who entered into this fields vigorously to
reap the advantages of the expanding capital markets.


1. SEBI guidelines have authorized merchant bankers to undertake issue related activities only
with an exception of portfolio management. These guidelines have made the merchant bankers
either to restrict their activities or think of separating these activities from the present one and float
new subsidiary and enlarge the scope of its activities.

2. SEBI guidelines stipulate a minimum net worth of Rs.1 crore for authorization of merchant
bankers. Small but professional and specialized merchant bankers who do not have a net worth of
Rs.1 crore may have to close down their business. The entry is denied to young, specialized
professionals into merchant banking business.

3. Non co-operation of the issuing companies in timely allotment of securities and refund of
application money is another problem of merchant bankers. The guidelines have put the
responsibility on the merchant bankers. They have to seek the co-operation of the issuing company
to shoulder the responsibility.

Merchant banking is an area that we need to build and grow in the years to come. As India forms
part of the global village, it becomes increasingly necessary for us to look at this business in a
more holistic manner.
Obviously, international players with strong domestic partners such as DSP Merrill Lynch, JM
Morgan Stanley, Kotak Mahindra Capital, together with experienced organizations like Enam and
institutional backed investment bankers such as ICICI Securities, etc., are the ones who have
expertise, muscle, and placement power in a greater measure than relatively new entrants.
The red hot economy is the obvious starting point. India is likely to end the year with GDP growth
in excess of 7 percent. Companies and private equity investors are sitting on large piles of cash. In
2006 deal activity was largely restricted to the IT and Telecom sectors.
Thus, while there is a steady flow of deals, there is now a shortage of talent to do the job.


Merchant Banking activity was formally initiated into the Indian capital markets when Grindlays
Bank received the license from Reserve Bank in 1967. Grindlays which started with management
of capital issues, recognized the needs of emerging class of entrepreneurs for diverse financial
services ranging from production planning and system design to market research. Apart from
meeting specially, the needs of small-scale units it provided management constancy services to
large and medium sized companies. Following Grindlays Bank, Citi Bank set-up its Merchant
Banking division in 1970. The division took up the task of assisting new entrepreneur and existing
units in the evaluation of new projects and raising funds through borrowing and issue of equity.
Management consultant services were also offered. Consequent to the recommendations of
Banking Commission in1972, that Indian bank should start Merchant Banking Division in 1972.
In the initial years the SBIs objective was to render corporate advice and assistance to small and
medium entrepreneurs.

The economic reforms initiated by the Government since July 1991 in the files of industry, trade
and financial sector have paved the way for rapid development of the economy. Several projects
have been conceived since then and almost all the major groups in the country that have announced
their intentions to set-up mega projects in infrastructure sector envisaging investment of thousands
of crores. With several large projects been set-up and many more on the drawing board, the
demand for a complete range of Merchant Banking services encompassing project advisory
services, issue management and financial advisory services for corporate sector has increased
considerably. This has led to a sharp growth in the Merchant Banking business in the last 2 years.


The recent developments in Merchant banking are due to certain contributory factors in India.
They are:
The Merchant Banking was at its best during 1985-1992 being when there were many new
issues. It is expected that 2010 that it is going to be party time for merchant banks, as many
new issue are coming up.
The foreign investors both in the form of portfolio investment and through foreign direct
investments are venturing in Indian Economy. It is increasing the scope of merchant
bankers in many ways.
Disinvestment in the government sector in the country gives a big scope to the merchant
banks to function as consultants.
New financial instruments are introduced in the market time and again. This basically
provides more and more opportunity to the merchant banks.
The mergers and corporate restructuring along with MOU and MOA are giving immense
opportunity to the merchant bankers for consultancy jobs.

However the challenges faced by merchant bankers in India are;
SEBI guideline has restricted their operations to Issue Management and Portfolio
Management to some extent. So, the scope of work is limited.
In efficiency of the clients are often blamed on to the merchant banks, so they are into
trouble without any fault of their own.
The net worth requirement is very high in categories I and II specially, so many
professionally experienced person/ organizations cannot come into the picture.
Poor New issues market in India is drying up the business of the merchant bankers. Thus
the merchant bankers are those financial intermediary involved with the activity of
transferring capital funds to those borrowers who are interested in borrowing.

Indbank Merchant Banking Services Limited

Indbank Merchant Banking Services Limited (Indbank) had its genesis as a Merchant Banking
Division of Indian Bank in 1982 to provide specialized Merchant Banking and allied services. The
division had managed 133 issues for an aggregate value of Rs.2250 crore between 1982 and 1989.
The division was also involved in investor education programs in various centers across the
Indbank was incorporated as a wholly owned Subsidiary of Indian Bank in 1989 to take over the
business of Merchant Banking division of Indian Bank and to undertake other specialized activities
like Leasing, Hire Purchase etc which banks were permitted to undertake only through their
subsidiaries. Indbank was one among the few subsidiaries to be formed by nationalized banks for
undertaking Merchant Banking and allied services.

Incorporation & Certificate of Commencement of Business
Indbank was incorporated on 11th August 1989 and obtained certificate of registration bearing No.
18-17883 of 1989 from the Registrar of Companies, Tamilnadu. Indbank obtained certificate for
commencement of business from the Registrar of Companies, Tamilnadu on 17th August 1989.

Indbank was promoted by Indian Bank, which was among the first native banks to be incorporated
in south India in 1907. Indian Bank was nationalised in 1969. Indian Bank is also the promoter of
Indian Bank Mutual Fund (a trust) for mutual fund activities, Indbank Housing Limited (along
with HUDCO) and Indfund Management Ltd. (asset Management Company for Indian Bank
mutual fund).

Indbank is managed by the President and Whole Time Director under the supervision of the Board
of Directors of the company. The President and Whole Time Director is assisted by Executive
Vice President, Vice President's, Asst. Vice President's, Senior Project Executive, Project
Executives, and Senior Secretarial Officers & Secretarial Officers.

Business &Activities
Indbank as part of fee based activities is engaged in: I Merchant Banking & Advisory Services II
Stock Broking III Depository Participant Activities IV Distribution of Mutual Fund & other
investment products

Indbank has registered and Corporate Office at Chennai and branches at Mumbai, Chennai, Delhi,
Bangalore, Coimbatore, Ahmedabad, Tirunelveli, Madurai, Hyderabad and Puducherry where the
fee based activities are carried on.

1. Merchant Banking & Advisory Services
Indbank is a Category 1 Merchant Banker registered with SEBI. Indbank undertakes:
Acting as Merchant Bankers: Under various capacities like Lead Manager, Co-Manager,
Advisor, Arranger etc. for public issues, rights issues and private placement.
For acquisition of shares & takeovers under Securities Exchange Board of India
(Substantial Acquisition of shares and Takeovers) Regulations, 1997, Securities Exchange
Board of India (Buyback of Securities) Regulations, 1998 and Securities Exchange Board
of India (De-listing of Securities) Guidelines, 2003.
For Employee Stock Option Scheme / Stock Purchase Scheme by Corporates under the
Securities Exchange Board of India (Employee Stock Option Scheme and Employee Stock
Purchase Scheme), Guidelines, 1999.

2 .Advisory Services
Valuation of shares & other financial instruments
Syndication of Loans
Stock Audit
Mergers & Amalgamations
e.Project Counselling, appraisal and feasibility studies

Under Merchant Banking, Indbank is governed by SEBI (Merchant Bankers Rules), 1992, SEBI
(Merchant Bankers) Regulations, 1992, Guidelines issued to Merchant Bankers and Lead
Managers prior to issue of codified RBM (GI Series), SEBI Guidelines, Rules and Regulations
primarily governing companies and the relevant circulars issued by SEBI from time to time.

Stock Broking
Indbank is a SEBI registered member National Stock Exchange of India (NSE), Madras Stock
Exchange (MSE) and Over the Counter Exchange of India (OTCEI). At present Stock Broking is
done only through NSE as virtually no activity takes place in MSE and OTCEI.

Under broking, Indbank is governed by SEBI (Stock Brokers & Sub Brokers) Rules, 1992, SEBI
(Stock Brokers & Sub Brokers) Regulations, 1992, SEBI Circulars and Circulars issued by Stock
Exchanges from time to time.

Depository Participant Activities
Indbank is a SEBI registered Depository Participant with National Securities & Depository
Limited (NSDL) and is governed by the Depositories Act 1996, SEBI (Depositories &
Participants) Regulations, 1996 and circulars issued by SEBI and NSDL from time to time.

Distribution of Mutual Fund and Other Investment Products
As part of broking, Indbank distributes Mutual Fund and investment products and is registered
with the Association of Mutual Funds of India (AMFI) for distribution of Mutual Fund products.