The business of banking is vast and packs in a plethora of services. Within the banking business, there are different types of banks that cater to different kinds of customers and their requirements.
Retail banking, for example, offers financial services to individual customers. Similarly, corporate banking addresses all the banking needs of huge corporations and other businesses.
Of all the types of banks present in the marketplace today, investment banking is one such category that plays a crucial role in how businesses manage their money. Investment banks are a vital component of an economy’s equity market.
This article discusses investment banking in detail and also explores different types of investment banking in India.
Investment banking is a specific division of banking that helps business entities, corporations, and governments with the complex task of capital creation. An investment bank acts as a financial intermediary and assists organizations with the entire process of raising capital; from determining the company valuation, setting the per-share price to the very last step of an IPO (Initial Public Offering).
Most people are not very clear about the differences between an investment bank and other types of banks. Investment banking meaning is usually muddled with misinformation and lack of clarity. An investment bank is thrown into the mix of other types of banks. But the functions of investment banking are entirely different from that of retail banking and private banking.
As an intermediary financial institution, investment banks offer host of other important services. But primarily, they act as intermediaries between security issuers and investors and help new firms go public in order to raise capital.
Investment banking involves two important functions. One of them is underwriting debt financing and issuing equity securities (IPO) and the other function is to advise and facilitate mergers and acquisitions (M&As) for corporations of all sizes.
Investment banks also assist high net worth individuals (HNIs) with financial planning, investments, and wealth creation. In addition to these services, investment banks also help with securities issues, stock placement, handling IPOs, debt evaluation, risk evaluation, and brokering trades for corporations and sovereign entities.
Investment banking companies also offer financial advice, financial planning, and corporate restructuring services to their corporate clients. This is why investment banking has become a crucial part of the financial infrastructure of huge corporations.
1. Financial Advisors: Investment banks are seen as trusted financial advisors to large institutional investors because of their in-depth understanding of industry potential, global markets, and client’s objectives. They are responsible for providing strategic advice on a host of important financial decisions.
2. IPOs and M&As: Helping a private company raise capital by taking it public and handling mergers and acquisitions are two key components of investment banking. Some banks exclusively manage these responsibilities.
3. Equity Research: The research division of investment banking analyzes multiple companies and generates reports about their future financial prospects.
Top investment banks offer a combination of all of these services to their clients. Two important verticals of an investment bank include industry-specific division and financial products, division.
Industry-specific divisions are set up to offer investment banking services to specific market sectors such as technology or healthcare. They are responsible for developing client relationships and bringing in new business to the bank.
The financial products division focuses on IPOs, M&As, and corporate restructuring.
Investment banking in India has been a thriving business since the merchant banking industry took off in the 1990s. During this period, over 1500 merchant banks registered with the Securities and Exchange Board of India (SEBI). In order to regulate and monitor the activities of these banks, the Association of Investment Bankers in India (AIBI) was created. AIBI’s sole purpose is to ensure the members strictly comply with banking regulations and conduct their business ethically.
1. ICICI Securities Ltd.
2. Axis Bank Ltd.
3. HDFC Bank Ltd.
4. Central Bank of India
5. Credit Suisse Securities (India) Private Ltd.
6. Deutsche Equities India Private Ltd.
7. Edelweiss Financial Services Ltd.
8. HSBC Securities & Capital Markets (India) Private Ltd.
9. IDBI Capital Market Services Ltd.
10. JP Morgan India Private Ltd.
A career in investment banking is one of the most coveted opportunities across the world. Investment banks often recruit the brightest talent from premier institutions in the country. There are plenty of opportunities for undergraduates, MBAs, and other Masters graduates. For people interested in switching their career to IB there are many recognized online courses available as well. Analytical ability, problem-solving and forecasting are some of the essential skills required for investment bankers.
We hope this article helped you learn a little more about the world of investment banking. As complex as this business may seem, it is also extremely exciting and presents many lucrative opportunities.
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