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What is IPO?
Initial public offering (IPO), also referred to simply as a "public offering" or
"flotation", is when a company issues common stock or shares to the public for the
first time. They are often issued by smaller, younger companies seeking capital to
expand, but can also be done by large privately-owned companies looking to become
publicly traded.
In an IPO the issuer may obtain the assistance of an underwriting firm, which helps it
determine what type of security to issue common or preferred!, best offering price
and time to bring it to market.
"n I#$ can be a risky investment. %or the individual investor, it is tough to predict
what the stock or shares will do on its initial day of trading and in the near future
since there is often little historical data with which to analy&e the company. "lso,
most I#$s are of companies going through a transitory growth period, and they are
therefore sub'ect to additional uncertainty regarding their future value. (owever, in
order to make money, calculated risks need to be taken.
The Initial #ublic $ffering I#$! for a new public company is the first opportunity for
the investing public to be able to purchase shares in the company. "n I#$ is a very
exciting time for the company, and I#$s are often eagerly anticipated by the investing
public as well.
There are several reasons for which a private company may wish to become a public
company. The two biggest reasons are to raise capital and to allow the original
investors or entrepreneurs who started the company to realize profits on their
investment and time. " private company is one in which investment or ownership is
limited to select individuals or organi&ations. " public company is one in which
anyone can invest and obtain ownership by purchasing shares on a publicly traded
exchange.
)ndertaking an I#$ is a large and exciting event for a new company. " well received
I#$ means that the company will have cash to further its development and growth. It
also usually means that the people who started the company reali&e some significant
profits for their efforts.
"n I#$ re*uires a great deal of work, from filing the necessary paperwork with the
regulatory bodies and writing a prospectus for potential investors to devising and
implementing a sales campaign for the sale of the initial shares. +ince the company
also needs to continue to function and complete its normal activities, a financial firm
is usually hired to do this work. This firm is referred to as the underwriting firm for
the I#$. %or a really large I#$, the work may even be split between several
underwriting firms.
The investing public is usually excited about an I#$. It is hard to understand why,
since most stocks that are sold during an I#$ tend to perform badly at first. +ome
companies also do not survive, so investing in an I#$ is more risky and usually less
rewarding then investing in more established stocks. #erhaps investors believe the
,
sales hype that usually accompanies an I#$. #erhaps they are excited about being
among the first to own the next potential I-. or .icrosoft.
Procedure
I#$s generally involve one or more investment banks as "underwriters." The
company offering its shares, called the "issuer," enters a contract with a lead
underwriter to sell its shares to the public. The underwriter then approaches investors
with offers to sell these shares.
The sale that is, the allocation and pricing! of shares in an I#$ may take several
forms. /ommon methods include0
-est efforts contract
%irm commitment contract
"ll-or-none contract
-ought deal
1utch auction
+elf distribution of stock
" company that is planning an I#$ appoints lead managers to help it decide on an
appropriate price at which the shares should be issued. There are two ways in which
the price of an I#$ can be determined0 either the company, with the help of its lead
managers, fixes a price or the price is arrived at through the process of book building.
2ote0 2ot all I#$s are eligible for delivery settlement through the 1T/ system, which
would then either re*uire the physical delivery of the stock certificates to the clearing
agent bank3s custodian, or a delivery versus payment 14#! arrangement with the
selling group brokerage firm . This information is not sufficient
Finding the right IPO process
The traditional method of doing I#$s is the fixed price offering. (ere, the issuer and
the merchant banker agree on an "issue price" - e.g. 5s.166. Then you and I have the
choice of filling in an application form at this price and subscribing to the issue.
7xtensive research has revealed that the fixed price offering is a poor way of doing
I#$s. %ixed price offerings, all over the world, suffer from 8I#$ underpricing3. In
India, on average, the fixed-price seems to be around 96: below the price at first
listing; i.e. the issuer obtains 96: lower issue proceeds as compared to what might
have been the case. This average masks a steady stream of dubious I#$s who get an
issue price which is much higher than the price at first listing. (ence fixed price
offerings are weak in two directions0 dubious issues get overpriced and good issues
get underpriced, with a prevalence of underpricing on average.
<hat is needed is a way to engage in serious price discovery in setting the price at the
I#$. 2o issuer knows the true price of his shares; no merchant banker knows the true
price of the shares; it is only the market that knows this price. In that case, can we 'ust
ask the market to pick the price at the I#$=
>
Imagine a process where an issuer only releases a prospectus, announces the number
of shares that are up for sale, with no price indicated. #eople from all over India
would bid to buy shares in prices and *uantities that they think fit. This would yield a
price. +uch a procedure should innately obtain an issue price which is very close to
the price at first listing -- the hallmark of a healthy I#$ market.
5ecently, in India, we had an issue from (ughes +oftware +olutions which was a
milestone in our growth from fixed price offerings to true price discovery I#$s. <hile
the (++ issue has many positive and fascinating features, the design adopted was still
riddled with flaws, and we can do much better.
(ow did the (ughes issue work=
1. The .erchant -ankers selected "syndicate members" who helped in selling
the issue.
,. $rders were collected by the merchant bankers or syndicate members only!,
and submitted using the computerised I#$ system created by 2+7. The 2+7
system only accepted these orders; it did not reveal any information to
investors.
>. Investors could place, modify or delete orders in the "book building period" --
however they were doing this in the blind since the system gave them no
information.
?. The 2+7 system revealed information to the merchant bankers. The full
database of orders was passed on by 2+7 to the merchant bankers, who could
then use this for discretionary allocation of shares.
<e can point out numerous flaws in this0
1. %rom a basic economic perspective, the I#$ is a relationship between the
issuer (ughes! and investors. It is hard to 'ustify the re*uirement that orders
only go to merchant bankers or syndicate members; this greatly shrinks the
extent to which the I#$ harnesses 2+73s remarkable distribution machinery. "
superior I#$ process would involve investors going to any 2+7 terminal and
placing orders.
,. The essence of modern market design is superior information display for
superior price discovery. Investors should be able to continuously see how
many shares have been bid for; the shape of the demand function; the cutoff
price, etc. )sing this information they would be able to think more effectively
about order revisions, cancellations, fresh order placement, etc. The (ughes
I#$, done through the space age 4+"T technology of 2+7, uses standards of
transparency associated with a 1@th century market design.
>. In the (ughes I#$, the merchant bankers specified a band, from 5s.?A6 to
5s.B>6, in which orders had to fall. The merchant bankers proved to be wrong,
and the I#$ suffered from severe underpricing. If we take price discovery
seriously, we should let the market set the price.
?. The (ughes I#$ process was too elongated in time. The I#$ process should
obtain price discovery in a short time-period where everyone interested in the
issue is trading on the screen at the same time. "n issue that lasts for more
than an hour raises the cost for participants to constantly monitor the order
book and revise orders.
?
9. The sale of part of the issue at a fixed price discovered at the auction! reduces
the si&e of the auction and raises the probability of market manipulation at the
auction.
B. There should be no discretionary allocation of shares; instead shares should be
allocated purely by price--time priority.
%rom this perspective, we design an idealised I#$ process0
1. $n .onday morning, the newspaper should carry an advertisement which is
the prospectus of the I#$, which only talks about the firm and is silent on
valuation.
,. The I#$ should take place on Tuesday evening, from ? #. to 9 #.. The
auction should be a simple uniform-price auction with full transparency. "
picture of the demand schedule, and the cutoff price, should update on the
screen in realtime.
>. Investors should be able to go to any 2+7 terminal and place orders into the
auction. This harnesses 9,666 odd computer screens in >66 cities all over India
in the auction process. %rom the issuers perspective, 2+// should perform the
credit enhancement exactly as it does on the e*uity market. "t a legal level, all
orders on the screen should be placed by 2+//, thus shielding the issuer from
the credit risk associated with anonymous order placement.
?. There should be no fragmentation of the shares on offer. "ll shares to be sold
should go through a single auction. If a retail investor wanted to "access the
I#$ at prices close to the offer price" she would 'ust place non--competitive
bids at the I#$, where she bids to buy say! 166 shares at the I#$ price,
whatever it proves to be.
9. "llocation of shares in the depository should take place on Tuesday itself.
There should be no physical shares. Trading on 2+7 should start on
<ednesday the next day!. This gives us a one--day lag between the I#$ and
the start of trading.
B. %irms below a certain si&e should be barred from this I#$ market. )sing
prospective valuations based on #C7, #C- and #C+ ratios prevailing for the
industry, a si&e of 5s.166 crore or so should be re*uired. +maller issuers
should go to venture capitalists and private e*uity funds.
What is erchant !an"=
" erchant !an" deals with the commercial banking needs of international finance,
long term company loans, and stock underwriting. " merchant bank does not have
retail offices where one can go and open a savings or checking account. " merchant
bank is sometimes said to be a wholesale bank, or in the business of wholesale
banking. This is because merchant banks tend to deal primarily with other merchant
banks and other large financial institutions.

The most familiar role of the merchant bank is stock underwriting. " large company
that wishes to raise money from investors through the stock market can hire a
merchant bank to implement and underwrite the process. The merchant bank
determines the number of stocks to be issued, the price at which the stock will be
issued, and the timing of the release of this new stock. The merchant bank files all the
paperwork re*uired with the various market authorities, and is also fre*uently
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responsible for marketing the new stock, though this may be a 'oint effort with the
company and managed by the merchant bank. %or really large stock offerings, several
merchant banks may work together, with one being the lead underwriter.
-y limiting their scope to the needs of large companies, merchant banks can focus
their knowledge and be of specific use to such clients. +ome merchant banks
speciali&e in a single area, such as underwriting or international finance. .any of the
largest banks have both a retail division and a merchant bank division. The divisions
are generally very separate entities, as there is very little similarity between retail
banking and what goes on in a merchant bank. "lthough your life is probably affected
every day in some way by decisions made in a merchant bank, most people reading
this article are unlikely ever to visit or deal directly with a merchanway from the
spotlight.
#ole of erchant !an" in IPO
<hen a company wants to raise funds through initial public offering I#$! it appoints
an investment bank for underwriting the issue. "n Investment bank is also called as
merchant bank. There is no regulatory restriction to use the services of a merchant
bank for I#$. +ince in an I#$ a company participates for the first time, it doesnDt
have complete understanding of the rules and documentation, re*uired to be
submitted, to get a clearance from the regulator.
%amous merchant bankers world over are $oldman %achs& 'redit %uisse and
organ %tanley. !an"s li"e (eutsche& 'iti& )!% etc have investment banking
wings. )nderwriters assess and analy&e firmDs current performance, firmDs future
earnings potential, industry scenario, competition in the same sector, current local and
global market situations etc. to decide the issue priceCprice band. They also work on
the activities like completion of the mandatory documentation as re*uired by the
regulatory body. )nderwriters charge a fee for this activity, which is generally a
percentage of the issue si&e.
If the issue si&e is very large a syndicate of merchant banks takes up the task of
underwriting the issue. (owever one merchant bank leads the other.
*ypes of erchant !an"
+) 'entral !an"
" central ban", reserve ban", or monetary authority is the entity responsible for
the monetary policy of a country or of a group of member states. It is a bank that can
lend money to other banks in times of need.
E1F
Its primary responsibility is to maintain
the stability of the national currency and money supply, but more active duties include
controlling subsidi&ed-loan interest rates, and acting as a lender of last resort to the
banking sector during times of financial crisis private banks often being integral to
the national financial system!. It may also have supervisory powers, to ensure that
banks and other financial institutions do not behave recklessly or fraudulently.
B
.ost richer countries today have an "independent" central bank, that is, one which
operates under rules designed to prevent political interference. 7xamples include the
7uropean /entral -ank 7/-! and the %ederal 5eserve +ystem in the )nited +tates.
+ome central banks are publicly owned, and others are privately owned. %or example,
the 5eserve -ank of India is publicly owned and directly governed by the Indian
government. "nother example is the )nited +tates %ederal 5eserve, which is a *uasi-
public corporation.
E,F
The ma'or difference is that government owned central banks do
not charge the taxpayers interest on the national currency, whereas privately owned
central banks do charge interest.
E
,) -dvising ban"
"n advising ban" also known as a notifying bank! advises a beneficiary exporter!
that a letter of credit GC/! opened by an issuing bank for an applicant importer! is
available and informs the beneficiary about the terms and conditions of the GC/. The
advising bank is not necessarily responsible for the payment of the credit which it
advises the beneficiary of.
The advising bank is usually located in the beneficiary3s country. It can be 1! a
branch office of the issuing bank or a correspondent bank, or ,! a bank appointed by
the beneficiary.
In case 1!, the issuing bank most often sends the GC/ through its branch office or
correspondent bank to avoid fraud. The branch office or the correspondent bank
maintains specimen signatures! on file where it may counter-check the signatures!
on the GC/, and it has a coding system a secret test key! to distinguish a genuine GC/
from a fraudulent one.
In case ,!, the beneficiary can re*uest the applicant to specify hisCher bank the
beneficiary3s bank! as the advising bank in an GC/ application. In many countries, this
is beneficial to the beneficiary, who may avail the reduced bank charges and fees
because of special relationships with the bank. In addition, it is more convenient to
deal with the beneficiary3s own bank over a bank with which the beneficiary does not
maintain an account.
.) 'ommercial ban"
" commercial ban" is a type of financial intermediary and a type of bank.
/ommercial banking is also known as business ban"ing. It is a bank that provides
checking accounts, savings accounts, and money market accounts and that accepts
time deposits.
E1F
"fter the Hreat 1epression, the ).+. /ongress re*uired that banks
engage only in banking activities, whereas investment banks were limited to capital
market activities. "s the two no longer have to be under separate ownership under
).+. law, some use the term "commercial bank" to refer to a bank or a division of a
bank primarily dealing with deposits and loans from corporations or large businesses.
In some other 'urisdictions, the strict separation of investment and commercial
banking never applied. /ommercial banking may also be seen as distinct from retail
banking, which involves the provision of financial services direct to consumers. .any
banks offer both commercial and retail banking services.
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4) National bank
The term national ban" has several meanings0
especially in developing countries, a bank owned by the state
an ordinary private bank which operates nationally as opposed to regionally
or locally or even internationally!
in the )nited +tates, an ordinary private bank operating within a specific
regulatory structure, which may or may not operate nationally.
In the past, the term "national bank" has been used synonymously with "central bank",
but it is no longer used in this sense today. +ome central banks may have the words
"2ational -ank" in their name; conversely if a bank is named in this way, it is not
automatically considered a central bank. 7xample0 2ational--ank "H in 7ssen,
Hermany is a privately owned commercial bank, 'ust like 2ational -ank of /anada of
.ontreal, /anada. $n the other side, 2ational -ank of 7thiopia is the central bank of
7thiopia and 2ational -ank of /ambodia is the central bank of /ambodia
/) erchant ban"
In banking, a merchant ban" is a financial institution primarily engaged in offering
financial services and advice to corporations and wealthy individuals on how to use
their money. The term can also be used to describe the private e*uity activities of
banking
0) Private ban"
Private ban"s are banks that are not incorporated. " private bank is owned by either
an individual or a general partners! with limited partners!. In any such case, the
creditors can look to both the "entirety of the bank3s assets" as well as the entirety of
the sole-proprietor3sCgeneral-partners3 assets.
These banks have a long tradition in +wit&erland, dating back to at least the
revocation of the 7dict of 2antes 1BA9!. (owever most have now become
incorporated companies, so the term is rarely true anymore. There are a few private
banks remaining in the ).+. $ne is -rown -rothers (arriman J /o., a general
partnership with about >6 members. This is also true of private banks in 7urope, and
reputable old private banks such as the +wiss -ank (ottinger J /ie founded in 1IAB
and the -ritish 1uncan Gawrie -ank founded in 1AB6, are truly hard to find.
"#rivate banks" and "private banking" can also refer to non-government owned banks
in general, in contrast to government-owned or nationali&ed! banks, which were
prevalent in communist, socialist and some social democratic "liberal"! states in the
,6th century. #rivate banks as a form of organi&ation should also not be confused
with "#rivate -anks" that offer financial services to high net worth individuals and
others.
A
1) %avings ban"
" savings ban" is a financial institution whose primary purpose is accepting savings
deposits. It may also perform some other functions.
In 7urope, savings banks originated in the 1@th or sometimes even the 1Ath century.
Their original ob'ective was to provide easily accessible savings products to all strata
of the population. In some countries, savings banks were created on public initiative,
while in others, socially committed individuals created foundations to put in place the
necessary infrastructure.
2) 'ustodian ban"
" custodian ban", or simply custodian, is a financial institution responsible for
safeguarding a firm3s or individual3s financial assets. The role of a custodian in such a
case would be the following0 to hold in safekeeping assets such as e*uities and bonds,
arrange settlement of any purchases and sales of such securities, collect information
on and income from such assets dividends in the case of e*uities and interest in the
case of bonds!, provide information on the underlying companies and their annual
general meetings, manage cash transactions, perform foreign exchange transactions
where re*uired and provide regular reporting on all their activities to their clients.
/ustodian banks are often referred to as global custodians if they hold assets for their
clients in multiple 'urisdictions around the world, using their own local branches or
other local custodian banks in each market to hold accounts for their underlying
clients. "ssets held in such a manner are typically owned by pension funds.
3unctions of a erchant !an"er4
+) anagement of debt and e5uity offerings- This forms the main function of the
merchant banker. (e assists the companies in raising funds from the market. The
main areas of work in this regard include0 instrument designing, pricing the issue,
registration of the offer document, underwriting support, marketing of the issue,
allotment and refund, listing on stock exchanges.
,) Placement and distribution- The merchant banker helps in distributing various
securities like e*uity shares, debt instruments, mutual fund products, fixed deposits,
insurance products, commercial paper to name a few. The distribution network of the
merchant banker can be classified as institutional and retail in nature. The institutional
network consists of mutual funds, foreign institutional investors, private e*uity funds,
pension funds, financial institutions etc. The si&e of such a network represents the
wholesale reach of the merchant banker. The retail network depends on networking
with investors.
.) 'orporate advisory services- .erchant bankers offer customised solutions to
their clients financial problems. The following are the main areas in which their
advice is sought0 %inancial structuring includes determining the right debt-e*uity ratio
and gearing ratio for the client, the appropriate capital structure theory is also framed.
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.erchant bankers also explore the refinancing alternatives of the client, and evaluate
cheaper sources of funds. "nother area of advice is rehabilitation and turnaround
management. In case of sick units, merchant bankers may design a revival package in
coordination with banks and financial institutions. 5isk management is another area
where advice from a merchant banker is sought. (e advises the client on different
hedging strategies and suggests the appropriate strategy.
6) Pro7ect advisory services- .erchant bankers help their clients in various stages of
the pro'ect undertaken by the clients. They assist them in conceptualising the pro'ect
idea in the initial stage. $nce the idea is formed, they conduct feasibility studies to
examine the viability of the proposed pro'ect. They also assist the client in preparing
different documents like the detailed pro'ect report.
/) 8oan syndication- .erchant bankers arrange to tie up loans for their clients. This
takes place in a series of steps. %irstly they analyse the pattern of the clientDs cash
flows, based on which the terms of borrowings can be defined. Then the merchant
banker prepares a detailed loan memorandum, which is circulated to various banks
and financial institutions and they are invited to participate in the syndicate.
The banks then negotiate the terms of lending on the basis of which the final
allocation is done.

0) Providing venture capital and mezzanine financing- .erchant bankers help
companies in obtaining venture capital financing for financing their new and
innovative strategies.
erchant ban" activities
.erchant banks, now so called, are in fact the original "banks". These were invented
in the .iddle "ges by Italian grain merchants. "s the Gombardy merchants and
bankers grew in stature based on the strength of the Gombard plains cereal crops,
many displaced Kews fleeing +panish persecution were attracted to the trade. They
brought with them ancient practices from the middle and far east silk routes.
$riginally intended for the finance of long trading 'ourneys, these methods were now
utili&ed to finance the production of grain.
The Kews could not hold land in Italy, so they entered the great trading pia&&as and
halls of Gombardy, alongside the local traders, and set up their benches to trade in
crops. They had one great merchant bank is a traditional term for an Investment -ank.
It can also be used to describe advantage over the locals. /hristians were strictly
forbidden the sin of usury. The Kewish newcomers, on the other hand, could lend to
farmers against crops in the field, a high-risk loan at what would have been
considered usurious rates by the /hurch, but did not bind the Kews. In this way they
could secure the grain sale rights against the eventual harvest. They then began to
advance against the delivery of grain shipped to distant ports. In both cases they made
their profit from the present discount against the future price. This two-handed trade
was time consuming and soon there arose a class of merchants, who were trading
grain debt instead of grain.
It was a short step from financing trade on their own behalf to settling trades for
others, and then to holding deposits for settlement of "billete" or notes written by the
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people who were still brokering the actual grain. "nd so the merchant3s "benches"
bank is a corruption of the Italian for bench, as in a counter! in the great grain
markets became centers for holding money against a bill billette, a note, a letter of
formal exchange, later a bill of exchange, later still, a che*ue!.
These deposited funds were intended to be held for the settlement of grain trades, but
often were used for the bench3s own trades in the meantime. The term bankrupt is a
corruption of the Italian banca rotta, or broken bench, which is what happened when
someone lost his traders3 deposits. -eing "broke" has the same connotation.
" sensible manner of discounting interest to the depositors against what could be
earned by employing their money in the trade of the bench soon developed; in short,
selling an "interest" to them in a specific trade, thus overcoming the usury ob'ection.
$nce again this merely developed what was an ancient method of financing long
distance transport of goods.
.erchant -anking is an activity that includes corporate finance activities, such as
advice on complex financings, merger and ac*uisition advice international or
domestic!, and at times direct e*uity investments in corporations by the banks.
.erchant banks are private financial institution. Their primary sources of income are
#I#7 financings and international trade. Their secondary income sources are
consulting, .ergers J "c*uisitions help and financial market speculation. -ecause
they do not invest against collateral, they take far greater risks than traditional banks.
-ecause they are private, do not take money from the public and are international in
scope, they are not regulated. "nyone considering dealing with any merchant bank
should investigate the bank and its managers before seeking their help.
The reason that businesses should develop a working relationship with a merchant
bank is that they have more money than venture capitalists. Their advice tends to be
more pragmatic than venture capitalists. It is rare for a merchant bank to fail. The last
ma'or failure was -arings -ank 1@@,!. It failed because of unsupervised trading of
copper futures contracts and buybacks. <hen the 1ot/om -ubble burst in ,661,
scores of venture capital firms failed. The greatest merchant bank failure in history
was the Lnights Templar. "fter the /rusades, the $rder became immensely wealthy
controlling and funding the trade between the .iddle 7ast and <estern 7urope. They
foolishly loaned money to the %rench Hovernment. To avoid repaying the money,
Ling Gouie had the #ope declare the $rder heretics. Thousands of monks lost their
lives, but %rance balanced its budget.
To understand .erchant -anks, you should know something of their history. .odern
merchant banking started in Italy during the Ith /entury. The banking practices
evolved from the financing structure of the +ilk 5oad Trading that predates the
5oman 7mpire. The basic financing structure was the advance payment for goods by
merchant bankers at a great discount to the delivery value of those goods. In the case
of Italy and then Hermany, wheat was the product. The merchant banks purchased the
wheat soon after planting. They accepted the risk of crop failure. They profited when
they sold the wheat. In most countries today, the national government accepts the risk
through government crop insurance.
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"s the -ritish 7mpire expanded in the 1Ath and 1@th /enturies, merchant banks
prospered in Gondon. %or instance, merchant bankers funded /anadaDs (udson -ay
/ompany. This period saw the rise of such merchant banks as +chroders, <arburgs or
5othschilds. "msterdam benefited from the trade created by the 1utch 7ast Indian
/ompany. +ince the 1Ath century, the role of the merchant banker has been
considerably broadened to include a composite of modern day skills. +uch skills are
inherently entrepreneurial, managerial, financial and transactional.
<hile the "merican Triangular Trade and /lipper ships of the 1@th /entury should
have created ma'or merchant banking centers in -oston and 2ew Mork.
)nfortunately, the "merican global trade wasnDt a ma'or catalyst for merchant
banking growth. (owever, the 5ockefellers and -ack -ay <ealth in -oston owe their
fortunes to ancestors involved in merchant banking activities.
The Lennedy fortune comes in part from Koseph LennedyDs involvement as a
merchant banker to the pre-/rash +tock .arket. -y the 1@B6s, the cost of going
public in the +tates began to increase. .any "merican brokerage house clients lacked
the resources to pay these costs. .a'or brokerage firms responded by creating
merchant banking departments. In the 1@,6s, "merican merchant banks began to
become involved in investor These departments became known as Investment -anks.
Their role was to loan the parent brokerage firmDs client companies the money to go
public. They recovered the loan from the proceeds of the Initial #ublic $ffering
I#$!. %or their service, they received a large bloc of shares in the new public
company. Their secondary 'ob was to arrange ac*uisitions that made the client
company a more attractive I#$ candidate. +uccessful .J" work is very rewarding.
Today, 2orth "merican merchant banks have taken the form of "bouti*ues"-
whereby, each offers its own speciali&ed services. The hallmarks of these merchant
bank bouti*ues are that they typically charge fees payable in cash andCor the client3s
stock for each service rendered. Mou can find a merchant bank that meets any
reasonable set of needs.
3actors responsible for the 'hanges4
Hlobali&ation of Indian 7conomy has made the whole economy open, which has more
multinational player in the era of the financial services= This has resulted in to the
emergence of the global investment in financial sector. Hovernment has now open up
the doors of investments especially in the area of banks and insurance, which leads to
competitive environment for the present players. 2ow they have to bring something
new which is efficient and best services to live in the competitive environment.
/ompetition arising out of #rivate /ompany #articipation is due to the liberali&ation
of the economy. 2ow along with the publicCgovernment players, private players are
also offering financial services and instruments, which are more innovative and
different than the earlier offering. "ll around, there is a fresh thinking on the financial
products, structure of banking and insurance instruments with value creation.
%inancial markets are being redefined, reinvented and reconfigured on a persistent
basis.
1,
'hanging 'ustomer (emographics4
If we look at the all-growing economies like /hina, Hermany and -ra&il, India has
>9: of the population in the age group of 19years to >? years. It is estimated that by
1>6mn plus people get added to working population by ,66@ with 99 million families
>,6 million people! will be added in the middle-income group 6.1 to 6.> .illion
5s!. The demographic change leads to the change in the need of the customer.
/hanging /ustomer 2eeds customers have larger segment in corporate decision-
making they are the final 'udges of the every single activity offered by the marketer.
-anks in India have traditionally offered mass banking products. %inancial market has
turned into a buyer3s market. .arket focus is shifting from mass banking products to
class banking with introduction of value added products. Today, financial institutions
are co-designing the productsCservices with their customers and striving to provide
them with global solutions
Technology Improvements Technology is also helping market players redefine the
way they have been operating in the market. In today3s time it becomes vary easy for a
customer to transfer a fund from one location to another location with /GI/L of
.ouse. "vailability of the concepts like phone banking, anytime banking etc. has
become possible because of the technological developments only.
Hovernment 5eforms Hovernment is ma'or decision player in the financial market. It
decides the proportion of the investment limits as well as the regulation and control.
In last ten years government is designing its policy with more liberal and competitive
content. <hich it are welcome trends for the emerging financial services.
(eightened focus on customer relations the bank of the future has to be essentially a
marketing organi&ation that also sells banking products. 2ew distribution channels are
being used; more J more banks are outsourcing services like disbursement and
servicing of consumer loans, /redit card business. 1irect +elling "gents 1+"s! of
various -anks go out and sell their products. They make house calls to get the
application form filled in properly and also take your passport-si&ed photo.
-anking in India originated in the first decade of 1Ath century with the Heneral -ank
coming into existence in 1IAB. -ank of (industan followed this. -oth these banks are
now defunct. The oldest bank in existence in India is the +tate -ank of India being
established as the -ank of /alcutta in /alcutta in Kune 1A6B.
In the early 1@@6s the then 2arasimha 5ao government embarked on the policy of
liberali&ation and gave license to small number of private banks, which came to be
known as new generation tech-savvy banks such as I/I/I -ank and (1%/ -ank.
/urrently in ,669, banking in India is considered fairly matured in terms of supply,
product range and reach-even though reach in rural India still remains a challenge for
the private sector and foreign banks. <ith the growth of Indian economy expected to
be strong for *uite some time especially in its service sector, the demand for banking
services specially retail banking, mortgage and investment services are expected to be
strong.