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Investment Banking in India past, present, future and growth


Submitted By:
Yadvendra Yadav
(14PGP123 )

Investment Banking in India - past, present,

future and growth opportunities
Before going in too deep in the topic we must understand the difference between
commercial banking and investment banks.
So overall banking sector is split into two fundamental divisions: investment
banking and commercial banking. Institutions that mix the two activities have
come under scrutiny lately, accused of being major contributors to the global
economic meltdown of 2008. Debate rages as to whether the two distinct banking
activities should be carried out under a single roof, or whether they should be
forever separate. Knowing the difference between commercial banks and
investment banks can shed some light on this issue. Commercial banks manage
deposit accounts, such as checking and savings accounts, for individuals and
businesses. They make loans to the public using the money held on deposit.
Investment banks differ strongly; these institutions facilitate the buying and
selling of stocks, bonds and other investments, as well as helping companies to
go public with initial public offerings (IPO).Commercial banks are highly regulated
by a number of regulatory authorities such RBI.
Investment banks are financial institution that assists individuals, corporations,
and governments in raising financial capital by underwriting or acting as the
client's agent in the issuance of securities (or both). An investment bank may also
assist companies involved in mergers and acquisitions(M&A) and provide
ancillary services such as market making, trading of derivatives and equity
securities, and FICC services (fixed income instruments, currencies,
and commodities). Investment bankers identify capital opportunities, negotiate
and structure deals, and execute private and public financial transactions. The
essential function of an investment bank is to act as an intermediary between
potential investors and those who seek capital. Investors include individuals,
mutual funds, municipalities, public Corporations, and private institutions.
In India start of investment banking can be traced back to 1972 when SBI set up
their investment banking arms SBI Caps. Currently more than 300 investment
banks are registered with SEBI and prime examples include SBI caps, ICICI
securities, IDBI caps etc.
As and Industry Investment banking is still in its infancy in India. Not many global
leaders have presence in Indian market in Investment banking business. A
majority of industry leaders like UBS, Barclays, Credit Suisse etc have confined
themselves to commercial banking in India. Banks like Goldman Sachs have only
their back office presence in India. Even the banks like JP Morgan & Chase,
Citigroup and BOA- Merrill Lynch with functional front offices are confined to
limited activities due to limited size of the market.

Investment banking industry in India is limited to three major segments:

a) Equity Syndicate/ private Placements: Provide services or advisory to
corporates regarding funding. Considering that IPO is a cumbersome and
costly process they find sponsors for P/E funding or private placements.
b) Debt Syndication: Like equity syndication, this is the process of funding
investors who take a lien on the assets of the borrowing company. This
could be for regular debt or even sub-debt / mezzanine lending. In this
case the investment bank arranges for a third party (like a PSU bank or an
NBFC) to take on the debt, therefore it assume none of the risk of this
debt investment.
c) IPO and FPO: Underwriting and taking care of the whole IPO process.
Generally foreign banks in association with syndicate of Indian Banks
carry out the different steps of going public.
Major investment banks In India: (Foreign and Indian)
1. ABN-AMRO Bank
2. Nomura
3. Bajaj Capital
4. The Bank of New York Mellon
5. BNP Paribas Bank
6. Citi Bank
7. Deutsche Bank
9. JPMorgan Chase Bank
10. Goldman Sachs
11. Morgan Stanley
12. Barclays
13. Bajaj Capital
14. ICICI Securities Ltd
15. Kotak Mahindra Capital Company
16. SBI Capital Markets
17. Yes Bank
18. IDBI Caps
Regulation regarding Investment Banking - Investment Banking in India is
regulated by various legislations and the regulatory powers are also distributed
between different regulators depending on the constitution and status of the
investment bank. Pure investment banks that do not have presence in the
lending or banking business are governed primarily by the capital market
regulator Securities and Exchange Board of India (SEBI). However, multi-national
banks and non banking financial corporations which are investment banks are

regulated primarily by the Reserve Bank of India (RBI) in their core business of
banking or lending and insofar as the investment banking segment is concerned,
they are also regulated by SEBI. The major regulatory framework are :
a. All investment banking companies incorporated under the Companies Act
1956, are governed by the provisions of that Act.
b. Multi-national banks are regulated by the Reserve Bank of India under the
Reserve Bank of India Act, 1934 and the Banking Regulation Act, 1949.
c. Investment banking companies that are constituted as non-banking
financial companies are regulated operationally by the RBI under Chapter
IIIB of the RBI Act, 1934.
d. Functionally, different aspects of investment banking are regulated under
the Securities and Exchange Board of India (SEBI) Act, 1992 and the
guidelines and regulations issued thereunder. These are as follows:
1. SEBI (Issue of capital & Disclosure Requirements)
2. SEBI (Substantial Acquisition of Shares and Takeovers)
3. SEBI (Prohibition of Insider Trading) Regulations 1992.
4. SEBI (Foreign Institutional Investors) Regulations 1995.
5. SEBI (Venture Capital Funds) Regulations 1996.
6. SEBI (Foreign Venture Capital Investors) Regulations 2000.
7. SEBI (Mutual Funds) Regulations 1996.
8. SEBI (Merchant Bankers) Regulations 1992.
9. SEBI (Buy-Back of Securities) Regulations, 1998.
10. Private Limited Company and Unlisted Public Limited Company
(BuyBack of Securities) Rules, 1999.
11. SEBI (Underwriters) Regulations, 1993.
12. Securities Contracts (Regulation) Act,1956
e. Investment banks that are set up in India with foreign direct investment are
governed in respect of the foreign investment by the Foreign Exchange
Management Act, 1999. 14.
f. Apart from the above specific regulations relating to investment banking,
investment banks are also governed by other general laws applicable to
all other businesses in India like tax laws, contract laws, arbitration law

Opportunities in Indian context (Different divisions with opportunities of

1. Corporate Finance - The job of the corporate finance officer is to create
value for a company. Those in this field work for a company in order to
help it generate money to run the business, grow the business, make
acquisitions, plan for its financial future and manage any cash on hand.
Corporate Finance professionals determine the funding needs of their
clients and analyze the best alternatives to meet these needs, such as
debt or equity issuance. Typical clients include corporations and public
institutions. Other duties may involve working with investors interested in
financing these ventures. Corporate finance professionals are trying to
maximize shareholder value. They do this through managing cash flow,
negotiating terms with leaders and suppliers, monitoring liquidity,
managing risk, and raising funds. Typical job titles in this area include
treasurer, credit analyst, cash manager, investor relations officer, and
controller. Corporate Finance opportunities can be found in both large and
small companies and in diverse industries. With India at a cusp of a
takeoff and increasing interest of Indian public in capital markets this
segment seems to be one of the most lucrative one. Increased
involvement of retail traders and increase in transaction in secondary
markets calls for companies to improve upon their practices and thus
presents an enormous opportunities for Investment banks.
2. Sales & Trading - Positions in this area involve analyzing stocks, bonds,
and other securities for potential trading. This information is then shared
with institutional investors and corporations. The growth of capital markets
and an upsurge in public listings in recent times provides for a growing
opportunity in this domain.
3. Mergers & Acquisitions - Companies utilize investment banks when they
want to sell all or a portion of their corporation. Role of Investment banks
includes analyzing the value of assets and negotiating the sale. In Indian
scenario a lot of consolidation is expected in the coming years in E
commerce Industry which will serve as huge opportunities for investment
Investment banking industry as such has minor presence in India but there is
certainly huge growth opportunities which can be seen by the fact that both the
secondary markets and primary markets have been growing along with the
changing business scenario. The increasing presence of global Investment
banking giants is also a proof of the expected growth in future. Indian banks too
have increased their presence. Finance professionals in India to have huge

career opportunity in this field. It remains to be seen that how much the industry
grows but as of now being a nascent one, it does provides huge growth potential.