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    Evolution of Investment Banking in India

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    MayankKumar
    The origin of investment banking in India can be traced back to the 19th century when European merchant banks set up agencies to assist with new projects. In the early 20th century, large Indian businesses also established managing agencies to serve as issuers of securities and providers of finance. However, their services were restricted. Foreign banks then began dominating merchant banking in India until the 1970s, when local commercial banks and financial institutions started their own merchant banking divisions. The securities scam of 1992 was a major setback, but economic reforms in the 1990s led to growth and the entry of new players, both Indian and foreign. However, many new entrants lacked expertise and capital, leading to poor quality offerings and loss of investor confidence.

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    Evolution of Investment Banking in India

    Uploaded by

    MayankKumar
    464 views3 pages
    The origin of investment banking in India can be traced back to the 19th century when European merchant banks set up agencies to assist with new projects. In the early 20th century, large Indian businesses also established managing agencies to serve as issuers of securities and providers of finance. However, their services were restricted. Foreign banks then began dominating merchant banking in India until the 1970s, when local commercial banks and financial institutions started their own merchant banking divisions. The securities scam of 1992 was a major setback, but economic reforms in the 1990s led to growth and the entry of new players, both Indian and foreign. However, many new entrants lacked expertise and capital, leading to poor quality offerings and loss of investor confidence.

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    The origin of investment banking in India can be traced back to the 19th century when European merchant banks set up agencies to assist with new projects. In the early 20th century, large Indian businesses also established managing agencies to serve as issuers of securities and providers of finance. However, their services were restricted. Foreign banks then began dominating merchant banking in India until the 1970s, when local commercial banks and financial institutions started their own merchant banking divisions. The securities scam of 1992 was a major setback, but economic reforms in the 1990s led to growth and the entry of new players, both Indian and foreign. However, many new entrants lacked expertise and capital, leading to poor quality offerings and loss of investor confidence.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    464 views3 pages

    Evolution of Investment Banking in India

    Uploaded by

    MayankKumar
    The origin of investment banking in India can be traced back to the 19th century when European merchant banks set up agencies to assist with new projects. In the early 20th century, large Indian businesses also established managing agencies to serve as issuers of securities and providers of finance. However, their services were restricted. Foreign banks then began dominating merchant banking in India until the 1970s, when local commercial banks and financial institutions started their own merchant banking divisions. The securities scam of 1992 was a major setback, but economic reforms in the 1990s led to growth and the entry of new players, both Indian and foreign. However, many new entrants lacked expertise and capital, leading to poor quality offerings and loss of investor confidence.

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    © All Rights Reserved
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    Evolution of Investment Banking in India

    The origin of investment banking in India can be traced back to the


    th

    19 century when European merchant banks set-up their agency houses in the
    country to assist in the setting of new projects. In the early 20 th century, large
    business houses followed suit by establishing managing agencies which acted as
    issue house for securities, promoters for new projects and also provided finance to
    Greenfield ventures. The peculiar feature of these agencies was that their services
    were restricted only to the companies of the group to which they belonged. A few
    small brokers also started rendering Merchant banking services, but theirs was
    limited due to their small capital base.

    In 1967, ANZ Grindlays bank set - up a separate merchant


    banking division to handle new capital issues. It was soon followed by Citibank,
    which started rendering these services. The foreign banks monopolized merchant
    banking services in the country. The banking committee, in its report in 1972, took
    note of this with concern and recommended setting up of merchant banking
    institutions by commercial banks and financial intuitions. State bank of India
    ventured into this business by starting a merchant banking bureau in 1972. In 1972,
    ICICI became the first financial institution to offer merchant banking services.
    JM finance was set-up by Mr. Nimesh Kampani as an exclusive
    merchant bank in 1973. The growth of the industry was very slow during this
    period. By 1980, the number of merchant banks rose to 33 and was set-up by
    commercial banks, financial institutions and private sector. The capital market
    witnessed some buoyancy in the late eighties. The advent of economic reforms in
    1991 resulted in sudden spurt in both the primary and secondary market. Several
    new players entered into the field. The securities scam in may, 1992 was a major
    set back to the industry. Several leading merchant bankers, both in public and
    private sector were found to be involved in various irregularities. Some of the
    prominent public sector players involved in the scam were Can bank financial

    services, SBI capital markets, Andhra bank financial services, etc. leading private
    sector players involved in the scam included Fairgrowth financial services and
    Champaklal investments and finance (CIFCO).

    The market turned bullish again in the end of 1993 after the tainted shares problem
    was substantially resolved. There was a phenomenal surge of activity in the
    primary market. The registration norms with the SEBI were quite liberal. The low
    entry barriers coupled with lucrative opportunities lured many new entrants into
    this industry. Most of the new entrants were undercapitalized with little or no
    expertise in merchant banking. These players could hardly afford to be discerning
    and started offering their services to all and sundry clients. The market was soon
    flooded with poor quality paper issued by companies of dubious credentials. The
    huge losses suffered by investors in these securities resulted in total loss of
    confidence in the market.
    Most of the subsequent issues started failing and companies
    started deferring their plans to access primary markets. Lack of business resulted in
    a major shake out in the industry.
    Most of the small firms exited from the business. Many foreign
    investment banks started entering Indian markets. These firms had a huge capital
    base, global distribution capacity and expertise. However, they were new to Indian
    markets and lacked local penetration. Many of the top rung Indian merchant banks,
    who had string domestic base, started entering into joint ventures with the foreign
    banks. This energy resulted in synergies as their individual strength complemented
    each other.
    In India, the investment banks have largely concentrated on serving their
    foreign clients by using India as a base for their inter globe operations but with
    rapid economic growth and demand for a professional in the field of finance have
    created a lot of market for investment banks.

    120

    100

    80
    Indian (Govt.)
    60

    International
    Indian (Pvt.)

    40

    20

    0
    1951

    1991

    2007

    2014

    Source- Silicon India.


    (http://www.siliconindia.com/shownews/The_number_of_ibanks_increases_in_India-nid-69727-cid-3.html)

    According to the data issued by Silicon India the number of investment banks (ibank) in India is increasing day by day. Deepti Chaudhry of Mint says According
    to industry estimates, at least 300 i-banks have been set up in India over the past
    18 months, compared to only 50-60 new i-banks in 2006-07, when fund-raising
    was at its peak
    Experts say that the number Indian firms are raising funds for acquisitions now,
    though investment-banks have been around for long. And investment-banks are
    looking to have a share of benefit.
    From the above data we can see that apart from the nationalized banks, others such
    as private sector bank of the investment firms run by a single or two partners are
    growing at a larger scale and yet the Multi National banks still have a strong hold
    over the Indian investment sector.

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