What is Merchant Banking & how is it distinct from Commercial Banking?

Merchant Banks differ from commercial banks in a myriad of ways, here's a look at how.

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Merchant banking is a combination of banking and consultancy services. It provides consultancy to its client for financial, managerial and legal matters. A merchant banker can be an institution or an organisation which provides a number of services including management of security issues, portfolio services underwriting or capital issues, insurance and project counselling etc. A merchant banker is a finance institution that provide capital to companies in form of share ownership instead of loans. Merchant banks are a financial institution provides specialist services which include acceptance of bills exchange, corporate finance, portfolio management and other banking services.


Merchant Banking and Commercial Banking

Commercial banks basically deal in debt and debt related finance and these activities are carried around credit proposals, credit appraisal and loan sanctions. On the other hand, the area of activity of a merchant banker is "Equity and Equity-related finances".


Commercial bankers are merely financiers. The activities of merchant banker include project counselling, corporate counselling in areas of capital restructuring, takeovers, mergers, underwriting, portfolio management in stock exchange.


The merchant bankers do not act as a depository for savings of the individuals while commercial banks do accept deposits.


Commercial banks are asset-oriented and their lending decisions are based on detailed credit analysis of loan proposals and the value of security offered against loans. They generally avoid risks. Merchant bankers are management oriented they are willing to accept risks of business.


Role of Merchant Banker


Merchant banker guide the wider section of the community possessing surplus money to invest in corporate securities and other productive investment channels.


A merchant banker act as a promoter, advisor, and agent or intermediary for corporate enterprises.


He also acts as a corporate advisor as he provides expert advice on issues related with the management of finance, investment, project.


He also maintains a register of shareholders and debenture holders, hence acting as transfer and paying agent for their interests and dividends.


They are professional experts who opt to safeguard the interest of the shareholders in companies.


Need of merchant bankers in India


Need of merchant bankers in India with the change in are and development of a new financial instruments there has been need of merchant bankers as they play an important role in financial market.


  • Growing complexity in rules and procedure of the government.
  • Need to develop backward areas and states which require different criteria.
  • Exploring the possibility of joint ventures abroad and foreign market.
  • Promoting the role of new issue market mobilizing saving.
  • Providing finance for business enterprises acting as an intermediary between them.


Merchant banks provide loan services, financial advising, private equity, and fundraising services for large corporations and high-net-worth individuals. Merchant banks do not generally provide services for the general public, although they may have retail and commercial arms.