Last Updated on February 24, 2025 by Rakshitha

Study of merchant banking in India

Financial performance of merchant banking in India plays a crucial role in the financial ecosystem by providing advisory, underwriting, and fundraising services to businesses, especially during mergers, acquisitions, and public offerings. The evolution of merchant banking in the Indian scenario gained prominence in the 1990s with economic liberalization, allowing private and foreign players to enter the market. Download free report on merchant banking in India, The Securities and Exchange Board of India (SEBI) regulates merchant banking activities to ensure transparency and investor protection. Merchant banks assist companies in capital raising through Initial Public Offerings (IPOs), rights issues, and private placements, as well as provide financial restructuring, corporate advisory, and loan syndication services. Major players in India include ICICI Securities, SBI Capital Markets, and Kotak Mahindra Capital.

Despite its growth, merchant banking in India faces challenges such as stringent regulations, market volatility, and increasing competition from investment banks and fintech firms. The rise of digital transformation and technology-driven solutions is reshaping the industry, enabling faster decision-making and improved client services. Merchant banks are now focusing on specialized services such as venture capital funding, private equity placements, and cross-border advisory to stay competitive. As India’s economy continues to expand, merchant banking is expected to play a significant role in supporting corporate growth, infrastructure development, and financial market stability.

The evolution of merchant banking in the Indian scenario

Merchant banking in India has evolved significantly over the past few decades, driven by economic reforms, regulatory developments, and the increasing complexity of financial markets. The concept was introduced in the 1960s when foreign banks such as Grindlays and Citi started offering corporate advisory services. However, it gained momentum in the 1970s with the entry of domestic banks like State Bank of India (SBI) and ICICI, which began providing investment banking and financial consultancy services. Merchant banks were created when private sector engagement and international capital rose during the 1990s Indian economic liberalization. Merchant banking regulations by SEBI provide openness, investor safety, and market stability. This period saw a rise in Initial Public Offerings (IPOs), corporate restructuring, and financial advisory services, further strengthening the role of merchant bankers.

In the 21st century, merchant banking has expanded beyond traditional functions to include mergers and acquisitions (M&A) advisory, private equity funding, venture capital assistance, and risk management services. The growing adoption of digital technologies and fintech innovations has further transformed the industry, making financial transactions more efficient and accessible. However, merchant banks continue to face challenges such as increased competition from global investment banks and regulatory constraints. With India’s economy poised for further growth, merchant banking is expected to play a vital role in capital formation, corporate financing, and infrastructure development, making it a key pillar of the country’s financial ecosystem.

Financial performance of merchant banking in India

Merchant banking in India has grown steadily due to corporate finance, capital market transactions, and consulting services. Merchant banks mostly make money from underwriting, advising, and investment management. Leading merchant banks like ICICI Securities, SBI Capital Markets, and Kotak Mahindra Capital have earned more due to economic liberalization and private and international engagement. IPOs and M&As have increased income, especially investment banking divisions. The move to digital financial services has reduced operating costs and improved efficiency.

However, economic cycles and market volatility affect merchant bank finances. Corporate investments and capital market activity decrease during economic downturns, lowering profitability. SEBI regulatory changes also affect their financial performance. Some profit margins have been reduced by tougher IPO underwriting and corporate debt restructuring standards. For local merchant banks, competition from global investment banks and fintech startups offering comparable financial products makes revenue growth difficult.

Despite these obstacles, Indian commercial banking has a bright future. Merchant banks are likely to flourish as private equity and venture capital investments rise and the Indian government invests in infrastructure. Artificial intelligence, blockchain, and other fintech advances boost efficiency and service delivery, improving financial performance. Merchant banks would help India engage with global financial markets by enabling capital creation, corporate finance, and investment advice services, ensuring their long-term profitability and sustainability.

Importance and need of merchant banking in India

Importance of merchant banking in India

1. Capital market development

• Merchant banks help companies raise funds through Initial Public Offerings (IPOs), Follow-on Public Offerings (FPOs), and private placements.
• They act as intermediaries between issuers and investors, ensuring smooth capital mobilization

2. Corporate advisory services

• Provide strategic guidance on mergers, acquisitions, takeovers, and corporate restructuring.
• Offer financial planning and risk management solutions to businesses.

3. Facilitate foreign investments

• Assist in attracting Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) into Indian companies.
• Help Indian businesses expand globally through joint ventures and collaborations.

4. Underwriting services

• Reduce financial risks for companies by underwriting shares and securities, ensuring successful fundraising.

5. Bridge between investors and corporations

• Merchant banks help investors identify profitable investment opportunities while enabling companies to secure funding.

Need for merchant banking in India

1. Growing corporate sector: With the rapid expansion of businesses, companies require professional financial services to manage investments, mergers, and fundraising.

2. Increasing complexity of financial markets: Merchant banks provide expertise in handling complex financial instruments, investment strategies, and regulatory frameworks.

3. Government disinvestment and privatization: Merchant banks play a vital role in advising and facilitating government divestment programs and public-private partnerships.

4. Start-up and SME growth: Start-ups and small businesses require financial advisory and funding support, which merchant banks efficiently provide.

5. Infrastructure and industrial development: Large-scale infrastructure projects need structured financing, debt syndication, and risk management solutions, which merchant banks offer.

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