Merchant Banking

Merchant bank is a very old banking institution. As the very name suggests, they in the past dealt both in goods and in bill of exchange. In addition, they also provided remittance facilities and acceptance credit for financing foreign trade. That is why they are simultaneously referred to as banks, merchants and financial houses. It implied that he was both a merchant and a banker. But the fact remains that a bank is a bank and never a merchant. Similarly, a merchant is a merchant, not a banker. On the other hand, financial houses are neither banks nor merchants.

In view of the separation of role as above between banker and merchants in the recent past, the merchant banker no more deals in merchandise. They are now found to be engaged in financing domestic trade and advising on amalgamations, mergers and takeovers etc. Other activities now-a-days they cover include: investment management, hire-purchase and leasing finance etc.

An examination of their services suggests that they offer a complete package of financial and advisory services in the areas like: (a) Promotion of new companies and (b) Finance syndication for industrial projects. They also offer services for balancing, modernization, replacement and expansion (BMRE) and for diversification of the existing companies. The merchant banking institutions, in addition to these functions, are also engaged in management of investment portfolio of the companies and corporations.