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Contents

Concept of Investment Banks

Importance of Investment Banking

Structure of Investment Banking

Functions of Investment Banking

Role of Investment Banking

Investment Banking in India

Top ten Investment bankers in India

Concept of Investment Banks In the U.S., the Glass–Steagall Act, initially created in the wake of the

Stock Market Crash of 1929, prohibited banks from both accepting deposits and underwriting securities, and led to segregation of investment banks from commercial banks. Glass–Steagall was effectively repealed for many large financial institutions by the Gramm–Leach–Bliley Act in 1999.

In a very broad perspective, Investment Banking as the term suggests, is concerned with the primary function of assisting capital market in the movement of financial resources from those who have them (investors) to those who want them (issuers).

The Dictionary of Banking and Finance defines ‘investment bank’ as a term used in the US to mean ‘ a bank which deals with the underwriting of new issues and advises corporations on their financial affairs.

Importance of Investment Banking

Helps the corporations in raising capital. It facilitates the trading

of securities thereby, increasing the liquidity of the securities.

It provides investment opportunities to the individuals or entities.

Most of the corporations get advisory services from the

investment banks regarding the mergers, acquisitions and

divestiture.

Structure of Investment Banking Investment banks are organized into 3 categories. Front Office

Helping customers raise funds in the capital markets and advise on mergers and acquisitions professional management of various securities and other assets Buying and selling financial products with the goal of making money on each trade Creating and marketing financial products Researching industries, companies, and products

Middle Office Analyzing credit and market risk for the bank Making sure operations are complying with regulations Responsible for capital management and risk monitoring

Back Office Making sure the bank runs smoothly by submitting trades, maintaining databases, and

transacting required money transfers The information technology department

Functions of Investment Banking

Mergers and Acquisitions

Advisory services

Corporate financing Equity & Debt

Underwriting

Equity and fixed income research

Sales and trading

Role of Investment Bank The major work of investment banks includes a lot of consulting. For instance, they

offer advices on mergers and acquisitions to companies. The other arena where they

give advice are tracking the market and determining when should a company come out

with a public offering and what is the best possible way to manage the public assets of

businesses. The role that an investment bank plays sometimes gets overlapped with

that of a private brokerage house. The usual advice of buying and selling is also given

by investment banks.

There is no demarcating line between the investment banking and other forms of

banking in India. This has been observed majorly of late. All banks nowadays want to

provide their customers the best of services and create a niche for themselves and that

is why apart from investment banks, all other banks too are aiming at making it big.

Role of Investment Bank At the macro level, investment banking is related with the primary function of assisting

the capital market in its function of capital intermediation, i.e., the movement of

financial resources from those who have them (the investors), to those who need to

make use of them for producing GDP (the issuers). Over the decades, investment banks

have always suited the needs of the finance community and thus become one of the most

vibrant and exciting segment of financial services.

Globally investment banks handle significant fund-based business of their own in the

capital market along with their non-fund service portfolio which is offered to the clients.

All these activities are broadly segmented across three platforms - equity market

activity, debt market activity and merger and acquisitions (M&A) activity. In addition,

given the structure of the market, there is also a segmentation based on whether a

particular investment bank belongs to a banking parent or is a stand-alone pure

investment bank.

Role of Investment Bank

Investment bank is a financial institution and investment banking plays a very important

role in the economy. Investment banking helps the corporations in raising capital. It

facilitates the trading of securities thereby, increasing the liquidity of the securities. It

provides investment opportunities to the individuals or entities. Most of the corporations

get advisory services from the investment banks regarding the mergers, acquisitions and

divestiture. In addition, because of the importance of the roles of investment banking,

the commercial banks do not perform these roles.

Investment Banking in India

Grindlays bank began Investment Banking (Merchant Banking) in India in 1967 with RBI issuing the second license to Citi in 1970.

These two banks primarily provided services which included loan syndication, equity raising and other advisory services.

In 1972, a Banking Commission report asserted the need for Merchant Banking services in India by public sector banks.

The commission recommended the same structure as American investment banks (Glass-Steagall Act).

Merchant banks were meant to manage investments and provide advisory services.

Investment Banking in India

SBI was the first Indian public sector bank to set up its merchant banking division in 1972.

This was followed by Bank of India, Central Bank of India, Bank of Baroda and many more.

SBI Caps and IDBI Caps are two prime examples of merchant banks in India today.

Currently, there are 136 merchant banks registered with SEBI.

Lastly, without holding a certificate of registration granted by the Securities and Exchange Board of India, no person can act as a merchant banker.

Top 10 Investment Bankers in India

Vendus Capital

Bajaj Capital

Cholamandalam Investment & Finance Company

ICICI Securities Ltd

IDFC

Kotak Mahindra Capital Company

SBI Capital Markets

TATA Investment Corporation Ltd

Yes Bank

UTI Securities Ltd

Global Investment Bankers Bank of America (Bank of America Merrill Lynch) Barclays (Barclays Capital) BNP Paribas (BNP Paribas CIB) Citigroup (Citi Institutional Clients Group) Credit Suisse Deutsche Bank Goldman Sachs HSBC JPMorgan Chase (J.P. Morgan Investment Bank) Morgan Stanley Nomura Holdings UBS (UBS Investment Bank) Royal Bank of Canada (RBC Capital Markets) Royal Bank of Scotland Wells Fargo (Wells Fargo Securities)

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