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Investment Banking - Overview, Types and All You Need to Know

Most people get awed when someone mentions that they are investment bankers. You think of a high-profile corporate professional, decked up in a smart suit making a crisp presentation to the top management. But do we really know what does an investment banker do or what is investment banking? Read on to know more.

What is investment banking

Investment banking is the arm of a bank or any other financial institution that offers financial consultancy and advisory services to entities, government or individuals. They render a wide range of services to their customers which includes:

• Capital Issue Management
Indian investment banks offer public issue management through two routes:
o Fixed Price Method
o Book Building Method
They also offer assistance to firms during IPO (Initial Public Offer), FPO (Follow on public offer), Rights issue, Preferential Issue and debt placement.

• Advisory services during mergers and acquisitions
Investment banks play a crucial role during mergers and acquisitions. They help the entities to make the right deals by checking feasibility, minimizing risk and maximizing ROI. They either represent the seller (target representation) or the buyer (acquirer representation). Some key activities in M&As include:
o Establishing a fair and just value for the involved parties
o Sourcing deals
o Financing

• Debt Syndication
Investment banks also help companies to look for new finance opportunities and sources. This includes project finance, working capital loan, term loans, commercial borrowing, etc.

• Buybacks
Another common activity performed by investment banks is to advise their clients when and how much to buy-back their shares.

• Legal compliance
Investment bankers help their clients in ensuring that they adhere to all the statutory requirements and compliances as laid down by SEBI.

• Corporate Advisory
These services are usually offered to large-scale organizations or corporate bodies. Investment banking includes doing business appraisals, developing business plans, strategic advisory, valuation, corporate restructuring, etc. These services are often tailor-made as per the needs of the clients.

Investment Banking in India

Investment banking in India is not a new concept. The roots of modern day investment banking can be traced back in India to the 19th century. This was the period when European banks created trading banks in the country. Investment banking in India used to be referred to as merchant banking. For many years, foreign (non-Indian) banks continued to dominate the merchant banking scene.

However, in the year 1970 State Bank of India decided to venture into this domain. It created the Bureau of Merchant Banking and many national banks registered in this initiative. The first national financial institution that offered merchant banking services was ICICI Securities. Within a decade, the number of merchant banks grew beyond 30. The rapid growth in the financial industry especially commercial banks further fueled this growth in the later years.
Since its inception, there have been numerous developments in the structure, role and services provided by investment banking.

Association of Investment Bankers of India (AIBI)
AIBI is a SEBI recognised body and acts as the nodal body of Indian investment banks. Its objective is to set in place standard practices, professional benchmarks and guidelines for rendering efficient services in the field of investment banking.

Initially formed as Association of Merchant Bankers of India (AMBI), it has recently undergone a transformation phase to come in sync with the current market scenario. It was during this brand transformation that the name of the body (along with the logo) was updated to Association of Investment Bankers of India (AIBI) as investment banking’s scope is much broader than the erstwhile merchant banking. Currently, there are 59 investment banks (SEBI registered) who are members of AIBI.

Some of their key activities include:

• Code of Conduct
AIBI comes out with the Code of Conduct that needs to be followed by all members. This ensures quality, uniformity and standardisation in the investment banking services. Additionally, a Due Diligence Manual is also shared with all the participating members.

• Watchdog
AIBI acts as the watchdog for the Investment Banking industry in India. It ensures that all members follow ethical practices and adhere to all the legal / statutory guidelines.

• Thought Leadership and central repository
AIBI acts as the nodal point for assimilation and distribution of information related to the investment banking ecosystem.

• Representation at PMAC
It represents the investment banking industry at the PMAC (Primary Markets Advisory Committee) formed by SEBI.

• Events, seminars and annual summits
AIBI frequently organises events and workshops on matters related to the investment banking domain.

Types of investment banking
There are different types of investing banking service providers. Such as:

• Full-Service Firms
Full-service investment banks offer the whole suite of services. For instance, underwriting, Mergers and Acquisitions, merchant banking, distribution, brokerage, asset management, structured investments and research.

• Boutique Firms
These are specialist investment banks which offer niche or specific investment banking services. These are relatively newer entrants in the market and have evolved as a result of market demand by smaller entities and start-ups.

• Commercial Banks
Some commercial banks have also extended their scope beyond pure banking and offer some investment banking services.

• Brokerage Firms
These firms only offer trading services to their clients. They are often used by underwriting investment banks while placing issues.

Choosing an investment bank
Choosing the right investment bank plays a crucial role in achieving the desired results. Here are some factors that you should take into consideration.

• Capabilities and credentials
Professionals in their team and their skills, market experience and credibility. This also includes support teams such as research, information technology, etc.

• Experience
Experience with relevant services and your sector / sub-sector needs to be checked.

• Size/Volume of transactions
Details of comparable transactions (basis your requirement) completed in the last five years will help with this information.

• Accessibility and transparency
Level of transparency displayed by the investment bank in their transactions along with their day-to-day accessibility needs to be assessed. Many times, local support or presence is preferred.

• Valuation Methodology
Alignment with your business’s needs and the valuation methodology of the financial partner is important.

IndiaNivesh is a well-known name in the Indian financial solutions industry. It offers a wide range of services including investment banking. Their ability to offer customised solutions and connect businesses enables them to act as a professional navigator for the long-run growth of their clients. They specialise in:

• raising capital (from domestic and global sources)
• facilitating entry of foreign enterprises in India
• globalisation of domestic entities
• corporate finance activities and
• support during mergers and acquisitions.

For a runner, the perfect running shoes can make all the difference. Similarly, the correct investment banking partner can help you get the much needed competitive edge. With a suite of unique products and market expertise, IndiaNivesh can be that partner for you.

Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.