Who is a Merchant Banker and How to Get Merchant Banker License?
In India, a Merchant Banker is a person or an individual who is involved in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as a consultant, manager or providing corporate tax advisory services regarding such issue management. Also, Merchant Bankers helps entrepreneurs right from the initial idea to the moment of commencement of production. They oversee the process of issuance. Merchant Bankers serve as intermediaries between investors & companies. They are responsible for preparing the prospectus & marketing the issue. In the financial industry of India, Merchant Bankers plays an important role and they serve as trusted consultants & facilitators for important tasks like public offerings, M&A deals & strategic reorganization. If you are a financial expert looking for an ambitious career with great opportunities for advancement, getting Merchant Banker License in India may be the key to achieving success.
The following are the various services provided by Merchant Bankers in India:
- Project Counselling;
- Issue Management;
- Offshore Finance;
- Equity offerings & Debt Management;
- Syndication of loans;
- Portfolio Management;
- Pre-investment studies;
- Sponsoring Leases;
- Underwriting of public issues;
- Sponsoring Leases;
- Restructuring Strategies;
- Non-resident Investment & so on.
Different Categories of Merchant Banker in India
Category 1:
- Activities: Merchant Bankers can act as an issue managers, consultants, advisors, portfolio administrators & underwriters. They perform the tasks of issue management and creating the prospectus, making decisions about financial structure, tie-up of financiers & final allocation.
- Minimum Net Worth Requirement: Capital net worth of Rs. 5 crores.
Category 2:
- Activities: These types of bankers are able to serve as consultant/advisors, an underwriter or co-manager. They can also be a portfolio manager.
- Minimum Net Worth Requirement: Capital net worth of Rs. 50 lakhs.
Category 3:
- Activities: These bankers may serve as the advisor or underwriters & consultant. They cannot take on issues management on their own, nor can they serve as co-managers. They aren’t able to perform the tasks that are involved in portfolio management.
- Minimum Net Worth Requirement: Capital net worth of Rs. 20 lakhs.
Category 4:
- Activities: Merchant Bankers can merely act only as advisors/consultants to the issue.
- Minimum Net Worth Requirement: Nil Capital.
Regulatory Authority for Merchant Bank Establishment
SEBI or Securities & Exchange Board of India is the regulatory body responsible for commercial banking in India. SEBI is the law governing the operations of the commercial bank in India. To set up a Merchant Bank in India, the concerned individual or person must approach the SEBI. The other authority regulates the other is the RBI. Moreover, the 2015 Foreign Exchange Administration Rules apply to financial institutions covered by commercial banks. Banking institutions conducting commercial banking transactions must comply with the criteria specified in the Prudential Exposure Guidelines of RBI as well as the legal restrictions imposed.
What are the Functions of Merchant Banking in India?
The following are the functions of Merchant Banking in India are governed by SEBI Regulations, 1972:
- The Merchant banks help in the promotion of the business institute in its starting stage. It helps the organisation to work on their business idea & to get the approval from the government;
- They also provide investment advice to the investors to make the investment decisions. The merchant bank provides portfolio managing support to the investors by trading securities on their behalf;
- Leasing Services Merchant Banks provide leasing services to their customers;
- Loan Syndication, this service provided by Merchant Banks to its clients for raising credit from banks & financial institutions;
- Raising funds for Clients Merchant Banks help clients in raising funds from the domestic & international market by buying securities.
Examples of Merchant Banking
In India, Merchant Banking is an extensive field that provides a range of financial services including Merger & Acquisition (M&A), private equity, venture capital, structured finance, corporate finance, advisory services, real estate finance, underwriting, international trade finance & wealth management.
The following are some examples of Merchant Banking in India:
- Private Equity: Merchant Banks may invest in private companies via private equity funds. This involves buying a stake in the company & working with management to improve operations with the goal of eventually selling the stake at a profit.
- Wealth Management: Some Merchant Banks offer Wealth Management services to high-net worth individuals & families. This may include investment management, estate planning, tax planning & other services.
- Underwriting: Merchant Banks may provide underwriting services for IPOs & other securities issuances. This involves taking on the risk of buying securities from the issuer & then selling them to investors at a profit.
- Venture Capital: Similar to private equity, Merchant banks may also invest in initial stage startups via Venture Capital Funds. This involves taking on more risk in exchange for potentially higher returns.
- Corporate Finance: Such banks may provide an extensive range of corporate finance services, like debt & equity financing, restructuring & risk management.
- Mergers & Acquisitions: Merchant banks may also act as intermediaries in Mergers & Acquisitions transactions, advising both sellers & buyers on deal structure, valuation & other aspects of the transaction.
Benefits of Becoming a Merchant Banker in India
The following are some benefits of becoming a Merchant Banker:
- Financial Rewards: Merchant Banking has the potential to be profitable. As a Merchant Banker, you have the opportunity to make important profits by providing services like underwriting & advisory.
- Global Presence: Merchant banks often have a global presence which can assist clients expand their business globally & access foreign markets.
- Long-term Relationships: Merchant banks generally work closely with clients over the long term, building strong relationships & providing ongoing support & advice.
- Customized Solutions: Merchant banks provide various solutions to meet the specific requirements of clients rather than offering off the shelf products & services.
- Diverse Opportunities: Merchant banking includes various financial services such as corporate finance, investment banking & advisory services and this variety of projects & transactions offers chances to be involved in a broad scope of work.
Eligibility Criteria to get Merchant Banker License
The following is the eligibility criteria to get a Merchant Banker License:
- Infrastructure: The applicant must have sufficient infrastructure like office space, equipment & manpower in order to successfully conduct merchant banking operations.
- Body Corporate: The applicant company must be registered under the Companies Act, 2013 to get a Merchant Banker License.
- Experience: The applicant must hire a minimum of 2 individuals who have appropriate experience in the Merchant Banking Sector.
- Capital Adequacy: The lowest required capital adequacy is a net worth of at least Rs. 5 crores. Net worth is the total of the applicant’s paid-up capital & free reserves at the time they apply under this rule.
Team & Qualification Requirements for Becoming a Merchant Banker in India
In India, Merchant Bankers are required to have high-level finance credentials like MBAs, CFAs, or CAs. Essential Staff needs to be skilled in financial modelling, risk management, regulatory compliance & strategic financial planning. The team must follow the ethical guidelines & actively participate in ongoing professional growth.
Prerequisites for Merchant Banker License
The following are some Prerequisites for Merchant Banker License:
- For the issuance of a Certificate of permanent registration, the Merchant Banker shall be liable to pay the fees under Schedule II;
- An application for a Merchant Banker License needs to provide details in Form-A along with the non-refundable fees;
- A Merchant Banker is required to possess a minimum net worth in the same manner duly mentioned under category minimum requirement.
- If restricted those to undertaking the activities of Merchant Bankers without having any relevant Merchant Banker License duly granted by SEBI;
- Every Merchant Banker must pay the Registration fees during the issuance of Certificate of Registration;
- A Merchant Banker in India who has been issued a Certificate of Registration needs to pay the fees every 3 years from the 6th year from the Registration date or from the date of grant of initial certificate registration before SEBI Amendment Regulations 2014 to keep their certificate in force.
- Professionals are required to get NISM-Series-IX exam Certification which covers the basics of Merchant banking, regulatory framework & securities markets. This Certification is important in guaranteeing adherence to standards & expertise in the industry. Furthermore, SEBI mandates that a minimum of 2 employees must complete the NISM Series III-A Certification.
Documents Required for Merchant Banker License
The following are the documents required for obtaining a Merchant Banker License in India:
- MoA & AoA;
- Financial Statements of the applicant;
- Declaration made by minimum 2 Directors;
- A detail report is required from principal bankers;
- Undertaking required;
- UIN or Unique Identification Number of the applicant;
- Educational Qualification of the Directors in the field of Merchant Banking;
- Organisation internal structure details;
- Details of associated registered intermediaries;
- Need to provide details of businesses handled by the applicant during the last 3 years in specific areas like Portfolio Management, Issue Management, Underwriting, Consultants, Investment Advisers, etc.
Step-by-Step Process to get Merchant Banker License
Our SEBI experts are here to help you as a business consulting firm by providing a wide range of services, the following is the step-by-step process we follow for getting a Merchant Banker License:
Step 1: Application Process: We have a team of professionals who will help you to prepare & submit the SEBI application form & the required documents.
Step 2: Documentation: We will help you prepare documents like MoA & AoA, other financial statements & details of key personnel.
Step 3: Compliance & Advisory: Our experts also provide you with advisory & compliance services related to Merchant Banking Ops.
Step 4: Training & Support: We will also help you to provide training to your staff in the compliance requirements & operational procedures for Merchant Banking.
Step 5: End-to-End Service: We will also help you in providing end-to-end services from the initial consultation to the final approval of the Merchant Banker License.
