question_answer

13. Explain the role of merchant bankers for a business in India.

Answer:

Ans.     Merchant Bankers help their clients in raising finance by way of issue of a debenture, shares, bank loans, etc. They tap both the domestic as well as the international markets. Finance raised by this method may be used for commencing a new project or business or it may even be used for expansion and modernization of an existing business.

Promotional activities: In India, merchant bankers play the role of promoter of industrial enterprises. They help entrepreneurs in conceiving ideas, identifying projects, preparation of feasibility reports, getting Government approvals as well as incentives, etc. Merchant bankers may, at times, also provide assistance in financial and technical collaborations and i joint ventures.

Brokers in stock exchanges: Merchant bankers buy and sell shares in the stock exchange on behalf of the clients. They additionally conduct researches on equity shares, advise the clients on the share to be purchased, the time of purchase, quantity of such purchase and the time for selling these shares. Mutual funds offer merchant banking services, large brokers, investment banks, and venture capitals.

Project management: Merchant bankers offer help to clients in several ways in the process of project management. They offer advice regarding the location of the project, preparation of project report, in carrying out feasibility studies, planning out the financing of the project, tapping sources of such finance, information regarding incentives and concessions from the government.

Advise on modernisation and expansion: Merchant bankers advise on amalgamations, mergers, acquisitions, takeovers, foreign collaborations, diversification of business, technology up - gradation, joint - ventures, etc.

Managing public issue: They provide the following services in the above - mentioned process:

1. the timing of the public issue

2. the size of the issue

3. the price of the issue

4. acting in the capacity of manager to the issue

5. assisting in receiving applications as well as allotment of securities

6. appointment of brokers as well as underwriters of the issue

7. listing of the shares on the relevant stock exchange.

Special assistance to entrepreneurs and small companies: Merchant banker advises entrepreneurs and small companies on availability and existence of business opportunities, concessions, incentives and government policies and helps them to take advantage of this option available to them, to the best of their capabilities.

Services to PSUs: Merchant banker offers numerous services to public sector undertakings and units and their public utilities. They assist in raising capital (long - term), in the marketing of securities, in foreign collaborations as well as in arranging for long-term finances from lending institutions.

Revival of sick units: A merchant bank helps in reviving sick industrial units. They negotiate with various agencies such as banks, long-term lending institutions, and the Board for Industrial and Financial Reconstruction (BIFR). They also plan and execute full revival packages.

Portfolio management of sick units: Merchant bankers offer revival services to companies that issue the securities as well as investors. These bankers advise clients, which are usually institutional investors, on investment decisions. They undertake purchase and sale of securities to provide them with portfolio management services.

Some of these bankers are operating mutual funds as well as offshore funds.