She has spent a lot of time researching and writing about the ever-changing world of money-making games and websites, making her an expert at finding ways to make money online. Other banks also started these services such as PNB, Bank of India, UCO Bank, etc. The Reserve Bank of India (RBI) was given more authority to oversee and regulate the banking system. All these banks were later merged with the State Bank of India in 2017, except for the State Bank of Saurashtra, which merged in 2008 and State Bank of Indore, which merged in 2010. Candidates can check the list of Banking sector reforms and Acts at the linked article.
- Thus, the history of banking in India shows that with time and the needs of people, major developments have been brought about in the banking sector with an aim to prosper it.
- The Indian Banking Regulation Act of 1949 further consolidated this framework, giving the Reserve Bank of India the authority to oversee the banking sector.
- One of the most important things to remember is that no organization would be able to become a merchant banker until and unless they get a certificate of registration from SEBI.
- The emergence of the securities markets into the main stream of the financial system of the country was thus one of the major economic processes of the 1980s – an inevitable outcome of the maturing process of the financial system.
The progress of any economy mainly depends on the efficient financial system of the country. The importance of the financial sector reforms affirms an efficient means for solving the problems of economic, financial and social in India and also where in the developing nations of the world. The progress of the Securities Industry of any country depends mainly on the flow of funds.
Difference between Merchant banking and Investment banking
Deregulation and liberalisation of the industry in India has accounted for changes in the financial sector. With the passage of time merchant banking activities have changed in line with the changing need pattern of the enterprises in the wake of economic development. The merchant banker primarily came into being as corporate counsellors for restructuring base of capital, thereafter for issue management and underwriting of the same. With the advent of the industrial boom in India, there has been a growing need of Merchant Bankers.
The Evolution of Merchant Banking in the Indian Scenario
Today, merchant banks play a crucial role in the Indian financial market, offering a wide array of services that cater to the complex needs of modern businesses. Merchant banking, a critical financial services industry segment, plays a pivotal role in fostering corporate growth and facilitating complex financial transactions. In India, merchant banks are essential in guiding businesses through mergers and acquisitions, underwriting, and providing advisory services, thereby contributing significantly to the nation’s economic development. These institutions serve as intermediaries between issuers and investors, providing specialized financial services that traditional banks do not offer.
What is Merchant Banking in India?
Compliance with these regulations is crucial for maintaining the integrity and stability of the financial system. Merchant banks are also subject to periodic inspections and audits by SEBI to ensure ongoing compliance. Any violations can result in penalties, including suspension or cancellation of the registration certificate. In 1969, the nationalisation of banks aimed to ensure credit availability in rural areas and promote economic equality.
This initiative redirected funds from wealthy sectors to underprivileged communities, focusing on priority sector lending. Subsequent expansions reinforced the government’s commitment to social welfare through banking. The British colonial period established formal banking practices, initially serving colonial interests. Regulations limited indigenous banks’ growth, leading to the founding of the Reserve Bank of India in 1935, which implemented structured banking practices and accountability, ultimately impacting the sector’s resilience after independence. Once the banks were established in the country, regular monitoring and regulations need to be followed to continue the profits provided by the banking sector.
Later, the ICICI set up its merchant banking division in 1973 followed by a number of other commercial banks like Canara Bank, Bank of Broada, Bank of India, Syndicate Bank, Punjab National Bank, Central Bank of India, UCO Bank, etc. Merchant banking services, in India, were started only in 1967 by National Grindlays. The State Bank of India was the first Indian commercial bank to set up a separate merchant banking division in 1972. In United Kingdom, Merchant Banks arrived in the late eighteenth century and early nineteenth century. Rich merchant houses which made their fortunes in a colonial trade diversified into banking.
Many banks opted for merchant banking in the 1960s to take advantage of the economies produced when private equity investing is added to other bank services, particularly commercial lending. Lenders to small and medium-sized companies, banks became familiar about individual firms’ products and prospects and consequently are natural providers of direct private equity investment to these firms. In the middle to late 1980s, compelled to go for merchant banking due to other banks and bank holding companies were 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. Over the years, merchant banking has played a critical role in shaping the economy of the country, especially the corporate industry.
The Imperial Bank of India was later nationalised in 1955 and was named The State Bank of India, which is currently the largest Public sector Bank. Further below in this article, we shall discuss the different phases of Bank industry evolution. Project counselling which includes credit-syndication and the working capital. The first authoritative definition for the term ‘Merchant Banker’ has been given in the Rule 2 (e) of SEBI (Merchant Bankers) Rules, 1922.
Finally, the top players, which exist in merchant banking, are also dealt with their services are also been focused. To get the practical knowledge about merchant banking activities, the researcher visited and interviewed State bank of India, Kotak Mahindra bank and SPA Merchant Bankers Ltd. However, it was only in 1992 after the formation of Securities and Exchange Board formal merchant banking activity in india was originated in of India that it is defined and a set of rules and regulations in place.
The emphasis switched to market-driven regulations that promote competition, effectiveness, and client-centred services. These banks, along with others, laid the foundation for evolution of the banking system in India. With an aim to solve this problem, the then Government decided to nationalise the Banks. The first bank of India was the “Bank of Hindustan”, established in 1770 and located in the then Indian capital, Calcutta.
