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Functions of Development Banks 

The role or functions of  development banks in India are depicted below.

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The nine important functions of development  banks in India are as follows:

1.  To promote and develop small-scale industries (SSI) in India.2.  To finance the development of the housing sector in India.

3.  To facilitate the development of large-scale industries (LSI) in India.

4. 

To help the development of agricultural sector and rural India.5.  To enhance the foreign trade of India.

6.  To help to review (cure) sick industrial units.

7.  To encourage the development of Indian entrepreneurs.8.  To promote economic activities in backward regions of the country.

9.  To contribute in the growth of capital markets.

 Now let's discuss each important function of development banks one by one.

1. Small Scale Industries (SSI) 

Development banks play an important role in the promotion and development of the small-scalesector. Government of India (GOI) started Small industries Development Bank of India (SIDBI)

to provide medium and long-term loans to Small Scale Industries (SSI) units. SIDBI provides

direct project finance, and equipment finance to SSI units. It also refinances banks and financial

institutions that provide seed capital, equipment finance, etc., to SSI units.

2. Development of Housing Sector 

Development banks provide finance for the development of the housing sector. GOI started the National Housing Bank (NHB) in 1988.

 NHB promotes the housing sector in the following ways:

1.  It promotes and develops housing and financial institutions.

2.  It refinances banks and financial institutions that provide credit to the housing sector.

3. Large Scale Industries (LSI) 

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Development banks promote and develop large-scale industries (LSI). Development financial

institutions like IDBI, IFCI, etc., provide medium and long-term finance to the corporate sector.

They provide merchant banking services, such as preparing project reports, doing feasibilitystudies, advising on location of a project, and so on.

4. Agriculture and Rural Development 

Development banks like National Bank for Agriculture & Rural Development (NABARD) helpsin the development of agriculture. NABARD started in 1982 to provide refinance to banks,

which provide credit to the agriculture sector and also for rural development activities. It

coordinates the working of all financial institutions that provide credit to agriculture and rural

development. It also provides training to agricultural banks and helps to conduct agricultural

research.

5. Enhance Foreign Trade 

Development banks help to promote foreign trade. Government of India started Export-Import

Bank of India (EXIM Bank) in 1982 to provide medium and long-term loans to exporters and

importers from India. It provides Overseas Buyers Credit to buy Indian capital goods. It also

encourages abroad banks to provide finance to the buyers in their country to buy capital goodsfrom India.

6. Review of Sick Units 

Development banks help to revive (cure) sick-units. Government of India (GOI) startedIndustrial investment Bank of India (IIBI) to help sick units.

IIBI is the main credit and reconstruction institution for revival of sick units. It facilitatesmodernization, restructuring and diversification of sick-units by providing credit and other 

services.

7. Entrepreneurship Development 

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Many development banks facilitate entrepreneurship development. NABARD, State IndustrialDevelopment Banks and State Finance Corporations provide training to entrepreneurs in

developing leadership and business management skills. They conduct seminars and workshops

for the benefit of entrepreneurs.

8. Regional Development 

Development banks facilitate rural and regional development. They provide finance for starting

companies in backward areas. They also help the companies in project management in such less-developed areas.

9. Contribution to Capital Markets 

Development banks contribute the growth of  capital markets. They invest in equity shares anddebentures of various companies listed in India. They also invest in mutual funds and facilitate

the growth of capital markets in India.

What are the Functions of Banks? Diagram ↓ 

The functions of banks are briefly highlighted in following Diagram or Chart.

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These functions of banks are explained in following paragraphs of this article.

A. Primary Functions of Banks ↓ 

The primary functions of a bank are also known as banking functions. They are the main

functions of a bank.

These primary functions of banks are explained below.

1. Accepting Deposits 

The bank collects deposits from the public. These deposits can be of different types, such as :-

a.  Saving Deposits

 b.  Fixed Depositsc.  Current Depositsd.  Recurring Deposits

a. Saving Deposits 

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This type of deposits encourages saving habit among the public. The rate of interest is low. At

 present it is about 5% p.a. Withdrawals of deposits are allowed subject to certain restrictions.

This account is suitable to salary and wage earners. This account can be opened in single nameor in joint names.

b. Fixed Deposits 

Lump sum amount is deposited at one time for a specific period. Higher rate of interest is paid,which varies with the period of deposit. Withdrawals are not allowed before the expiry of the

 period. Those who have surplus funds go for fixed deposit.

c. Current Deposits 

This type of account is operated by businessmen. Withdrawals are freely allowed. No interest is

 paid. In fact, there are service charges. The account holders can get the benefit of overdraft

facility.

d. Recurring Deposits 

This type of account is operated by salaried persons and petty traders. A certain sum of money is

 periodically deposited into the bank. Withdrawals are permitted only after the expiry of certain period. A higher rate of interest is paid.

2. Granting of Loans and Advances 

The bank advances loans to the business community and other members of the public. The ratecharged is higher than what it pays on deposits. The difference in the interest rates (lending rate

and the deposit rate) is its profit.

The types of bank loans and advances are :-

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a.  Overdraft

 b.  Cash Credits

c.  Loansd.  Discounting of Bill of Exchange

a. Overdraft 

This type of advances are given to current account holders. No separate account is maintained.All entries are made in the current account. A certain amount is sanctioned as overdraft which

can be withdrawn within a certain period of time say three months or so. Interest is charged on

actual amount withdrawn. An overdraft facility is granted against a collateral security. It issanctioned to businessman and firms.

b. Cash Credits 

The client is allowed cash credit upto a specific limit fixed in advance. It can be given to currentaccount holders as well as to others who do not have an account with bank. Separate cash credit

account is maintained. Interest is charged on the amount withdrawn in excess of limit. The cash

credit is given against the security of tangible assets and / or guarantees. The advance is given for 

a longer period and a larger amount of loan is sanctioned than that of overdraft.

c. Loans 

It is normally for short term say a period of one year or medium term say a period of five years. Now-a-days, banks do lend money for long term. Repayment of money can be in the form of 

installments spread over a period of time or in a lumpsum amount. Interest is charged on the

actual amount sanctioned, whether withdrawn or not. The rate of interest may be slightly lower 

than what is charged on overdrafts and cash credits. Loans are normally secured against tangible

assets of the company.

d. Discounting of Bill of Exchange 

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The bank can advance money by discounting or by purchasing bills of exchange both domestic

and foreign bills. The bank pays the bill amount to the drawer or the beneficiary of the bill by

deducting usual discount charges. On maturity, the bill is presented to the drawee or acceptor of the bill and the amount is collected.

B. Secondary Functions of Banks ↓ 

The bank performs a number of secondary functions, also called as non-banking functions.

These important secondary functions of banks are explained below.

1. Agency Functions 

The bank acts as an agent of its customers. The bank performs a number of agency functions

which includes :-

a.  Transfer of Funds

 b.  Collection of Cheques

c.  Periodic Payments

d.  Portfolio Managemente.  Periodic Collections

f.  Other Agency Functions

a. Transfer of Funds 

The bank transfer funds from one branch to another or from one place to another.

b. Collection of Cheques 

The bank collects the money of the cheques through clearing section of its customers. The bank 

also collects money of the bills of exchange.

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c. Periodic Payments 

On standing instructions of the client, the bank makes periodic payments in respect of electricity bills, rent, etc.

d. Portfolio Management 

The banks also undertakes to purchase and sell the shares and debentures on behalf of the clients

and accordingly debits or credits the account. This facility is called portfolio management.

e. Periodic Collections 

The bank collects salary, pension, dividend and such other periodic collections on behalf of theclient.

f. Other Agency Functions 

They act as trustees, executors, advisers and administrators on behalf of its clients. They act asrepresentatives of clients to deal with other banks and institutions.

2. General Utility Functions 

The bank also performs general utility functions, such as :-

a.  Issue of Drafts, Letter of Credits, etc.

 b.  Locker Facility

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c.  Underwriting of Shares

d.  Dealing in Foreign Exchange

e.  Project Reportsf.  Social Welfare Programmes

g.  Other Utility Functions

a. Issue of Drafts and Letter of Credits 

Banks issue drafts for transferring money from one place to another. It also issues letter of credit,especially in case of, import trade. It also issues travellers' cheques.

b. Locker Facility 

The bank provides a locker facility for the safe custody of valuable documents, gold ornamentsand other valuables.

c. Underwriting of Shares 

The bank underwrites shares and debentures through its merchant banking division.

d. Dealing in Foreign Exchange 

The commercial banks are allowed by RBI to deal in foreign exchange.

e. Project Reports 

The bank may also undertake to prepare project reports on behalf of its clients.

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f. Social Welfare Programmes 

It undertakes social welfare programmes, such as adult literacy programmes, public welfarecampaigns, etc.

g. Other Utility Functions 

It acts as a referee to financial standing of customers. It collects creditworthiness information

about clients of its customers. It provides market information to its customers, etc. It providestravellers' cheque facility.

Changing Role of Banks in India Since Economic Reforms of 1991 Post : Gaurav Akrani Date : 4/07/2012 05:32:00 AM IST

No Comments Labels : Banking, India 

Changing Role of Banks in India 

The role of banks in India has changed a lot since economic reforms of 1991. These changescame due to LPG, i.e. liberalization, privatization and globalization policy being followed by

GOI. Since then most traditional and outdated concepts, practices, procedures and methods of  banking have changed significantly. Today, banks in India have become more customer-focused

and service-oriented than they were before 1991. They now also give a lot of importance to their 

rural customers. They are even willing ready to help them and serve regularly the banking needs

of country-side India.

The changing role of banks in India can be glanced in points depicted below.

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The following points briefly highlight the changing role of banks in India.

1.  Better customer service,

2.  Mobile banking facility,

3.  Bank on wheels scheme,

4.  Portfolio management,

5.  Issue of electro-magnetic cards,

6.  Universal banking,

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7.  Automated teller machine (ATM),

8.  Internet banking,

9.  Encouragement to bank amalgamation,

10. Encouragement to personal loans,

11. Marketing of mutual funds,

12. Social banking, etc.

The above-mentioned points indicate the role of banks in India is changing. Now let's discuss

how banking in India is getting much better day after day.

1. Better Customer Service 

Before 1991, the overall service of banks in India was very poor. There were very long queues(lines) to receive payment for cheques and to deposit money. In those days, some bank staffs

were very rude to their customers. However, all this changed remarkably after Indian economicreforms of 1991.

Banks in India have now become very customer and service focus. Their service has become

quick, efficient and customer-friendly. This positive change is mostly due to rising competition

from new private banks and initiation of Ombudsman Scheme by RBI.

2. Mobile Banking 

Under mobile banking service, customers can easily carry out major banking transactions bysimply using their cell phones or mobiles.

Here, first a customer needs to activate this service by contacting his bank. Generally, bank 

officer asks the customer to fill a simple form to register (authorize) his mobile number. After registration, this service is activated, and the customer is provided with a username and

 password. Using secret credentials and registered phone, customer can now comfortably and

securely, find his bank balance, transfer money from his account to another, ask for a cheque book, stop payment of a cheque, etc.

Today, almost all banks in India provide a mobile-banking service.

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3. Bank on Wheels 

The 'Bank on Wheels' scheme was introduced in the North-East Region of India. Under this

scheme, banking services are made accessible to people staying in the far-flung (remote) areas of India. This scheme is a generous attempt to serve banking needs of rural India.

4. Portfolio Management 

In portfolio management, banks do all the investments work of their clients.

Banks invest their clients' money in shares, debentures, fixed deposits, etc. They first enter acontract with their clients and charge them a fee for this service. Then they have the full power to

invest or disinvest their clients' money. However, they have to give safety and profit to their clients.

5. Issue of Electro-Magnetic Cards 

Banks in India have already started issuing Electro-Magnetic Cards to their customers. Thesecards help to carry out cash-less transactions, make an online purchase, avail ATM facility, book 

a railway ticket, etc.

Banks issue many types of electro-magnetic cards, which are as follows:

1.  Credit cards help customers to spend money (loaned up to a certain limit as previously settled

by the bank) which they don't have in hand. They get a monthly statement of their purchases

and withdrawals. Along with the transacted amount, this statement also includes the interest

and service fee. The entire amount (as reflected in the statement of credit card) must be paid

back to the bank either fully or in installments, but before due date.

2.  Debit cards help customers to spend that money which they have saved (credited) in their

individual bank accounts. They need not carry cash but instead can use a debit card to make a

purchase (for shopping) and/or withdraw money (get cash) from an ATM. No interest is charged

on the usage of debit cards.

3.  Charge cards are used to spend money up to a certain limit for a month. At the end of the

month, customer gets a statement. If he has a sufficient balance, then he only had to pay a small

fee. However, if he doesn't have a necessary balance, he is given a grace period (which is

generally of 25 to 50 days) to repay the money.

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4.  Smart cards are currently being used as an alternative to avail public transport services. In India,

this covers Railways, State Transport and City (Local) Buses. Smart card has an integrated circuit

(IC) embedded in its plastic body. It is made as per norms specified by ISO.

5.  Kisan credit cards are used for the benefit of the rural population of India. The Indian farmers

(kisans) can use this card to buy agricultural inputs and goods for self-consumption. These cards

are issued by both Commercial and Co-operative banks.

6. Universal Banking 

In India, the concept of universal banking has gained recognition after year 2000. The customers

can get all banking and non-banking services under one roof. Universal bank is like a super store.

It offers a wide range of services, including banking and other financial services like insurance,

merchant banking, etc.

7. Automated Teller Machine (ATM) 

There are many advantages of ATM. As a result, many banks have opened up ATM centres tooffer convenience to their customers. Now banks are operating ATM centres not only in their 

 branches but also at public places like airports, railway stations, hotels, etc. Some banks have

 joined together and agreed upon to set up common ATM centres all over India.

8. Internet Banking 

Internet banking is also called as an E-banking or net banking. Here, the customer can do banking transactions through the medium of the internet or world wide web (WWW). The

customer need not visit the bank's branch. Through this facility, the customer can easily inquiry

about bank balance, transfer funds, request for a cheque book, etc. Most large banks offer this

service to their tech-savvy customers.

9. Encouragement to Bank Amalgamation 

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Failure of banks is well-protected with the facility of amalgamation. So depositors need notworry about their deposits. When weaker banks are absorbed by stronger banks, it is calledamalgamation of banks.

10. Encouragement to Personal Loans 

Today, the purchasing power of Indian consumers has increased dramatically because banks givethem easy personal loans. Generally, interest charged by the banks on such loans is very high.

Interest is calculated on reducing balance. Large banks offer loans up to a huge amount like one

crore. Some banks even organise Loan  Mela (Fair) where a loan is sanctioned on the spot to

deserving candidates after they submit proper documents.

11. Marketing of Mutual Funds 

A mutual fund collects money from many investors and invests the money in shares, bonds,short-term money market instruments, gold assets; etc. Mutual funds earn income by interest and

dividend or both from its investments. It pays a dividend to subscribers. The rate of dividend

fluctuates with the income on mutual fund investments. Now banks have started selling thesefunds in their own names. These funds are not insured like other bank deposits. There are

different types of funds such as open-ended funds, closed-ended funds, growth funds, balanced

funds, income funds, etc.

12. Social Banking 

The government uses the banking system to alleviate poverty and unemployment. Many socialdevelopment programmes are initiated by the banks from time to time. The success of these programmes depends on financial support provided by the banks. Banks supply a lot of finance

to farmers, artisans, scheduled castes (SC) and scheduled tribe (ST) families, unemployed youth

and people living below the poverty line (BPL).

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Definition of Development Banks 

The definition of the term 'development banks' can be stated as follows,

1. In General sense,

"Development banks are those financial institutions whose prime goal (motive) is to finance the primary (basic) needs of the society. Such funding results in the growth and development of 

social and economic sectors of the nation. However, needs of the society vary from region to

region due to differences seen in its communal structure, economy and other aspects."

2. As per Banking subject (mainly in Indian context),

"Development banks are financial institutions established to lend (loan) finance (money) on

subsidized interest rate. Such lending is sanctioned to promote and develop important sectors likeagriculture, industry, import-export, housing and allied activities."

Development Banks in India 

Development banking was started after the World War II. It provided finance to reconstruct the buildings and industries which were destroyed in the war.

In India, development banking was started immediately after independence.

The arrangement of development banks in India is depicted below.

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Development banks in India are classified into following four groups:

1.  Industrial Development Banks : It includes, for example, Industrial Finance

Corporation of India (IFCI), Industrial Development Bank of India (IDBI), and Small

Industries Development Bank of India (SIDBI).2.  Agricultural Development Banks : It includes, for example, National Bank for 

Agriculture & Rural Development (NABARD).

3.  Export-Import Development Banks : It includes, for example, Export-Import Bank of India (EXIM Bank).

4.  Housing Development Banks : It includes, for example, National Housing Bank (NHB).

Industrial Finance Corporation of India (IFCI) is the first development bank in India. It started in

1948 to provide finance to medium and large-scale industries in India.

Non-Banking Activities 

All  banks  perform non-banking activities along with their traditional functions.

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A bank cannot survive without performing the following non-banking activities:

1.  Banks help their customers to make utility payments with ease.2.  They perform merchant banking for their customers.

3.  They provide factoring services to their clients.

4.  They manage mutual funds and minimize investment risks.

5.  They issue gift cheques to the people.

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6.  They conduct feasibility study and submit the feasibility report.

7.  They facilitate the share transactions by maintaining demat accounts.

8.  They offer credit and debit cards facility.9.  They also offer leasing services.

10. They give hire-purchase services to owners of various goods.

11. They are now allowed to offer insurance services.12. They provide funds (capital) for starting new ventures.

 Now let's discuss important non-banking activities performed by banks.

1. Utility Payments 

Banks make utility payments for their customers. Utility payments include payment of anElectricity bill, Insurance premiums, phone bill, water bill, etc. They also pay SIP (SystmaticInvestment Plan) payments to Mutual funds for their customers. These payments are made by

using the Electronic Clearance Scheme (ECS). Banks charge a small (nominal) fee for making

these payments.

2. Merchant Banking 

Large banks perform merchant banking for their customers. They help them to raise finance. 

They give them advice about starting and running a  business. They help their customers to make

a profit in the stock exchange. They even do project management. They also help in expandingand modernizing the business of their clients. Today, banks help to revive (cure) sick industries.

They also help in restructuring the business.

3. Factoring Services 

Banks also provide factoring services to their clients. Factoring is an agreement between a bank 

(factor) and a business firm (client). Under this agreement, the business firm sells goods and

services to their customers on credit. The bank (factor) purchases the customers' Bills Receivableor debtors account from the business firm. So, the business firm is guaranteed payment for their 

credit sales. However, the bank (factor) decides whom to give credit and how much credit to

give.

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4. Mutual Funds 

Mutual funds are very popular because of expansion and diversification of the financial sector.The Unit Trust of India (UTI) was the first financial institution to start mutual funds in India.

Many other banks now have mutual funds such as ICICI Mutual Fund, SBI Mutual Fund, HDFCMutual Fund, etc. Mutual Funds are controlled by SEBI. Mutual Funds are purchased by

investors because they offer minimum risk, maximum return and liquidity. Mutual funds with

their resources and expertise invest on behalf of individual investors giving them capital

appreciation with minimum risk. Mutual funds publish the NAV (Net Asset Value) of their fundsdaily. They also repurchase the units issued by them based on their NAV. Investors who like to

 play safe go for mutual funds.

5. Gift Cheques 

Gift cheques are printed in attractive colours and designs. Gift cheques are issued by banks to the public. They can give these cheques as a present on auspicious occasions like marriage,

 birthdays, retirements, promotion, anniversary, etc. They are normally issued for Rs. 11, 21, 51

and 101. The purchaser makes full payment at the time of purchase. Gift cheques are transferable by hand delivery. These cheques have an expiry date. If a gift cheque is lost, a duplicate is

issued. These cheques are payable on demand. The payee can claim the money at any branch of the issuing bank.

6. Feasibility Reports 

Banks conduct feasibility study on behalf of the client and submit the feasibility report. Thisreport shows chances of success of the project. Feasibility study is conducted before starting the

 project or business. Conducting feasibility study is not compulsory, but it gives many benefits tothe businessman. Banks like IDBI or any commercial bank can conduct feasibility study in

functional areas such as technical, managerial, financial and economic. After completion of feasibility study, the banks submit a feasibility report. Based on this report the businessman

decides whether to do the project / business or not.

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7. Demat Account 

Demat is a commonly used name for dematerialization. Traditionally, shares were held in a

 physical form. Under dematerialization, shares are held in an electronic form. Demat account islike money kept in a savings account. You can deposit and withdraw the amount whenever you

want. The transactions in electronic shares are quick, safe and simple. The shares purchased by a

shareholder are transferred in his name on the next day of payout. A shareholder can sell and

transfer his electronic shares from his office / house through a broker. Most of the shares areunder demat. Banks facilitate the share transactions by maintaining demat accounts in their 

 branch.

8. Credit and Debit Cards 

Most large banks offer credit card facilities. Indian credit card market is growing at 30-35% per 

annum. ICICI, Citi, HDFC and SBI are the leading banks that offer  credit card facilities. Most of 

the banks also offer debit cards to their customers. With the help of debit cards, the customerscan make payments for the goods and services. This amount gets deducted from the balance they

hold with the banks.

9. Leasing Services 

Indian banks offer leasing services. In March 1994, RBI permitted banks to enter leasing finance

 provided following conditions are fulfilled:

1.  Specialized branches must be opened for doing this work.

2.  Banks may give lease finance up to 10% of their total advances.

3.  Assets in leasing will be treated as assets carrying 100% risk weightage.

10. Hire Purchase 

Banks provide hire-purchase services. They finance hire-purchase contracts. Here, the owner of goods hires them to another party for a certain period and for the payment of a specific

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installment. The transfer of goods is passed on to the user after a definite period provided

 payment of all specified installments is clear.

11. Insurance 

Banks are now allowed to offer insurance services through separate branches. Many Indian

 banks such as ICICI, IDBI, HDFC, etc., have entered into foreign collaborations to provide life

insurance service in India. ICICI has joined Prudential Life, HDFC with Standard Life, IDBIwith Fortis (now Federal) to provide life insurance services to Indians.

12. Venture Capital Services 

Banks like ICICI, SBI, IDBI provides venture capital services. Here, banks provide funds for starting new ventures and for high-risk businesses with high-profit potential. Venture capital

helps businessmen to get funds for highly risky projects. Venture capital means to buy shares in

high-risk projects / businesses with high-profit potential.

Merchant Banking Meaning 

Merchant Banking is a combination of  Banking and consultancy services. It providesconsultancy, to its clients, for financial, marketing, managerial and legal matters. Consultancymeans to provide advice, guidance and service for a fee. It helps a businessman to start a

 business. It helps to raise (collect) finance. It helps to expand and modernise the business. It

helps in restructuring of a business. It helps to revive sick business units. It also helps companiesto register, buy and sell shares at the stock exchange. 

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In short, merchant banking provides a wide range of services for starting until running a

 business. It acts as Financial Engineer for a business.

Image credits © VFR Photography. 

Merchant banking was first started in India in 1967 by Grindlays Bank. It has made rapid progress since 1970.

Functions of Merchant Banking 

The important functions of merchant banking are depicted below.

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The functions of merchant banking are listed as follows:

1.  Raising Finance for Clients : Merchant Banking helps its clients to raise finance through

issue of shares, debentures, bank loans, etc. It helps its clients to raise finance from thedomestic and international market. This finance is used for starting a new business or 

 project or for modernization or expansion of the business.

2.  Broker in Stock Exchange : Merchant bankers act as brokers in the stock exchange. They buy and sell shares on behalf of their clients. They conduct research on equity shares.

They also advise their clients about which shares to buy, when to buy, how much to buy

and when to sell. Large brokers, Mutual Funds, Venture capital companies andInvestment Banks offer merchant banking services.

3.  Project Management : Merchant bankers help their clients in the many ways. For e.g.

Advising about location of a project, preparing a project report, conducting feasibility

studies, making a plan for financing the project, finding out sources of finance, advisingabout concessions and incentives from the government.

4.  Advice on Expansion and Modernization : Merchant bankers give advice for expansionand modernization of the business units. They give expert advice on mergers andamalgamations, acquisition and takeovers, diversification of business, foreign

collaborations and joint-ventures, technology upgradation, etc.

5.  Managing Public Issue of Companies : Merchant bank advice and manage the public

issue of companies. They provide following services:i.  Advise on the timing of the public issue.

ii.  Advise on the size and price of the issue.

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iii.  Acting as manager to the issue, and helping in accepting applications and

allotment of securities.

iv.  Help in appointing underwriters and brokers to the issue.v.  Listing of shares on the stock exchange, etc.

6.  Handling Government Consent for Industrial Projects : A businessman has to get

government permission for starting of the project. Similarly, a company requires permission for expansion or modernization activities. For this, many formalities have to be completed. Merchant banks do all this work for their clients.

7.  Special Assitance to Small Companies and Entreprenuers : Merchant banks advise small

companies about business opportunities, government policies, incentives and concessionsavailable. It also helps them to take advantage of these opportunities, concessions, etc.

8.  Services to Public Sector Units : Merchant banks offer many services to public sector 

units and public utilities. They help in raising long-term capital, marketing of securities,

foreign collaborations and arranging long-term finance from term lending institutions.9.  Revival of Sick Industrial Units : Merchant banks help to revive (cure) sick industrial

units. It negotiates with different agencies like banks, term lending institutions, and BIFR 

(Board for Industrial and Financial Reconstruction). It also plans and executes the fullrevival package.

10. Portfolio Management : A merchant bank manages the portfolios (investments) of its

clients. This makes investments safe, liquid and profitable for the client. It offers expert

guidance to its clients for taking investment decisions.11. Corporate Restructuring : It includes mergers or acquisitions of existing business units,

sale of existing unit or disinvestment. This requires proper negotiations, preparation of 

documents and completion of legal formalities. Merchant bankers offer all these servicesto their clients.

12. Money Market Operation : Merchant bankers deal with and underwrite short-term money

market instruments, such as:

i.  Government Bonds.ii.  Certificate of deposit issued by banks and financila institutions.

iii.  Commercial paper issued by large corporate firms.

iv.  Treasury bills issued by the Government (Here in India by RBI).13. Leasing Services : Merchant bankers also help in leasing services. Lease is a contract

 between the lessor and lessee, whereby the lessor allows the use of his specific asset such

as equipment by the lessee for a certain period. The lessor charges a fee called rentals.14. Management of Interest and Dividend : Merchant bankers help their clients in the

management of interest on debentures / loans, and dividend on shares. They also advise

their client about the timing (interim / yearly) and rate of dividend.