CURRENT AFFAIRS
CURRENT AFFAIRS
Description
In a significant regulatory shift, the Securities and Exchange Board of India (SEBI) has recently announced that merchant bankers (MBs) are now permitted to engage in unregulated activities such as consultancy and advisory services without the requirement of setting up an independent legal entity. This move is expected to ease compliance burdens, encourage diversification of services, and expand the role of merchant banks in India’s growing financial ecosystem.
Understanding Merchant Banking: Functions And Importance
Merchant banking refers to a specialized domain within the financial services sector that primarily caters to corporate clients, institutional investors, and large business entities. Unlike commercial banks, merchant banks do not offer traditional banking services such as savings accounts or retail loans to the general public. Instead, they focus on facilitating capital formation, corporate restructuring, and financial advisory.
Key Roles And Functions Of Merchant Bankers
Merchant bankers play a pivotal role in the financial market by acting as intermediaries between corporates seeking capital and investors willing to provide funds. Their activities are crucial for enabling business growth, financial restructuring, and capital market development.
Core Services Offered by Merchant Banks:
Issue Management:
Assisting companies in raising funds from the capital market through Initial Public Offerings (IPOs), Follow-on Public Offerings (FPOs), rights issues, and private placements.
Handling end-to-end processes such as regulatory compliance, pricing, underwriting, and marketing.
Corporate Advisory Services:
Providing strategic advice on mergers, acquisitions (M&A), joint ventures, and business restructuring.
Supporting due diligence, valuation, and negotiation processes.
Capital Raising:
Helping businesses access long-term and short-term financing through debt instruments, convertible bonds, or equity issuance.
Underwriting Services:
Offering underwriting support during public issues by guaranteeing the sale of securities, thereby reducing risk for issuers.
Portfolio and Investment Management:
Managing large investment portfolios for institutions or high-net-worth individuals (HNIs), ensuring optimal asset allocation and returns.
Risk Management and Financial Consultancy:
Advising clients on financial risks, regulatory changes, market conditions, and business strategies.
Formulating customized solutions to minimize risk exposure and maximize returns.
Regulatory Oversight By SEBI
Merchant bankers in India operate under a robust regulatory framework enforced by SEBI. To ensure credibility and financial soundness, SEBI mandates several compliance requirements:
Registration Requirement: All merchant bankers must register with SEBI and obtain a valid certificate of registration.
Minimum Net Worth: SEBI imposes minimum net worth criteria to ensure that merchant banks have adequate capital to support their operations and withstand financial shocks.
Code of Conduct: They must adhere to SEBI’s strict code of ethics and fair practices, ensuring transparency, client confidentiality, avoidance of conflicts of interest, and honest dealings.
Audits and Inspections: SEBI routinely conducts inspections and audits to monitor merchant bankers’ compliance with laws and regulations. Violations can lead to penalties such as fines, suspension, or even cancellation of registration.
Impact Of SEBI’s Latest Relaxation
By allowing merchant bankers to engage in non-core advisory and consultancy activities without forming a separate entity, SEBI aims to:
Reduce operational complexity and regulatory costs
Enhance the scope of services offered by merchant bankers
Encourage innovation in financial advisory and corporate consulting
Promote deeper penetration of financial expertise across sectors
This step aligns with SEBI's broader goal of fostering a more agile and efficient capital market system, capable of supporting the dynamic needs of a growing economy.
Conclusion
The evolution of merchant banking in India reflects the country’s push toward a more sophisticated financial services ecosystem. SEBI’s new directive is poised to unlock greater flexibility for merchant bankers, enabling them to expand their service offerings while continuing to support corporate India through capital raising, strategic advice, and risk management.
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