They only accept deposits and offer loans only to a few clients and not to the general public. We are a growing investment bank and a SEBI-registered Category I Merchant Bank. Our services include mergers and acquisitions, private equity, debt solutions, structured finance, capital market solutions, transaction advisory, valuations, enterprise risk and tax services, and training. One of the key regulations involves the maintenance of minimum net worth requirements, which ensures that merchant banks have sufficient financial resources to undertake their activities and absorb potential losses. Additionally, SEBI mandates that merchant banks adhere to a strict code of conduct, which includes provisions related to fair dealing, conflict of interest, and transparency.
How did the 1990s economic reforms change banking in India?
- They cater to a diverse clientele, offering personalised services and modern banking solutions.
- Merchant Banking activity was formally initiated into the Indian capital markets when Grind lays Bank received the license from Reserve Bank in 1967.
- Regional Rural Banks are specialised banks that were established to enhance financial inclusion in rural areas.
- With the speculation about the growth of the Indian economy in the coming years, merchant banking is expected to impact the country’s business and economic sectors.
Understanding this history not only highlights the resilience of Indian banking but also its crucial role in shaping the nation’s economy. They cater to both corporate clients and high-net-worth individuals, offering a range of services such as foreign exchange transactions, trade finance, and investment advisory. On 1st March, 1993 new policy guidelines have been issued by SEBI for the merchant bankers to ensure greater transparency in their operations and to make them accountable so as to protect the investor’s interest. The guidelines relate to pre-issue obligations, underwriting, advertisements and post-issue obligations of the merchant bankers.
Post-Independence Periods in the History of Banking in India
Commercial Banks can undertake some of the merchant banking activities like Issue Management whereas Merchant Banking Units cannot undertake commercial banking activities. However, the functions of Merchant Banking may not widely vary from Investment Banking. The Merchant Banker mainly deals with Issue Management, post issue services, corporate adviser services etc. The Investment Banker undertake trading in securities, Investment advises and bought out deals which are not the main activities of Merchant Bankers. The 19th century witnessed the establishment of various banks, with the British introducing new banking regulations. The Indian Banking Regulation Act of 1949 further consolidated this framework, giving the Reserve Bank of India the authority to oversee the banking sector.
The establishment of these banks facilitated international trade, offering services such as currency exchange and credit facilities. Early banking practices in India stemmed from barter systems, where goods and services exchanged based on mutual consent. As trade expanded, the necessity for a more systematic approach to financial transactions emerged. Traders began to deposit valuables with trusted individuals or temples, which acted as safe storage. Some of formal merchant banking activity in india was originated in these deposits were lent to others, creating a primitive form of banking.
No doubt, Merchant Banking firms are subject to a host of control measures, regulations and rules framed and guided by SEBI. To some extent, frequent changes and /or amendments to policies and control measures, are needed for smooth working of the securities Industry. But it prove to be detrimental to the very existence of the Merchant Banking system in the country. The SEBI’s Act 1992 confers power upon SEBI to supervise and control the affairs of the Merchant Banking firms in India. 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.
These regulatory frameworks laid the foundation for a structured banking system and ensured greater accountability, ultimately contributing to the resilience of India’s banking sector post-independence. The establishment of banks during British rule marked a turning point in India’s financial landscape. The Bank of Hindustan, founded in 1770 in Calcutta, represented the first formal banking institution. Following this, numerous European banks emerged, including the Oriental Bank of Commerce and the Bank of Bengal, catering primarily to European interests while imposing restrictions on local Indian businesses.
Private Sector Banks
The acceptance houses would charge a commission for this service and thus there grew up the business of accepting bills of finance trade not merely of themselves, but of others. The post-independence history of banking system in India has been marked by dynamic shifts and transformative policies that have aimed to foster financial inclusion, economic growth, and stability. The Government issued policy guidelines for merchant bankers to ensure sufficient physical infrastructure, necessary expertise, good financial standing, professional integrity and fairness in their transactions.
Introduction of Private Banks
To provide stability and profitability to the Nationalised Public sector Banks, the Government decided to set up a committee under the leadership of Shri. Following the Pre-Independence period was the post-independence period, which observed some significant changes in the banking industry scenario and has till date developed a lot. A category IV merchant banker can merely act as consultant or advisor to an issue of capital. Technological advancements, especially the introduction of online and mobile banking, have revolutionised banking operations in India. The launch of the Unified Payments Interface (UPI) in 2016 streamlined transactions, making digital payments more accessible and enhancing financial inclusion for underserved populations. The history of cooperative bank in India dates back to the late 19th century when the first cooperative credit society was formed in 1904 in Kanagala, Karnataka.
Often, moneylenders belonged to specific castes, establishing trust within communities. Their lending practices included informal agreements and collateral, such as land or livestock. Despite the high-interest rates charged, moneylenders served as a primary source of credit, especially in rural areas where formal banking institutions remained scarce. These practices laid the foundation for future financial systems, highlighting the importance of trust and community in early banking.
The last phase or the ongoing phase of the banking sector development plays a hugely significant role. SEBI has prescribed capital adequacy norms for registration of the various categories of merchant bankers. The capital adequacy is expressed in terms of minimum net worth, i.e., capital contributed to the business plus free reserves. Merchant banks render numerous financial services, advice, consultation, management, counseling, and solutions to big corporate houses. Furthermore, they help them to expand, modernizing, and restructuring the business. They also grant support in registering, buying, and selling shares at the stock exchange.
Co-operative Banks are financial institutions owned and operated by their members, who are often from the same community or locality. Regional Rural Banks are specialised banks that were established to enhance financial inclusion in rural areas. As a result, the vast majority of the populace now has access to banking services, which represents a significant shift in India’s banking environment. Major changes in the banking system and management have been seen over the years with the advancement in technology, considering the needs of people. At present no organisation can act as a ‘merchant banker’ without obtaining a certificate of registration from the SEBI.