Investment Banking 101: The Indian Investment Banking Market: Part I

Investment BankingThe Indian Investment Banking scene is dotted with investment banks of the middle market variety. In fact, international bulge brackets have been reluctant to set up a strong investment banking presence in India primarily because large transactions in the country do not happen often enough to warrant that kind of presence.

As far as I am aware, bulge bracket investment banks having functional front-office presence in Mumbai are Bank of America – Merrill Lynch, Citigroup and JP Morgan. UBS, Barclays, Credit Suisse, et al have a presence in India in the retail banking sector only. Goldman Sachs and a few other banks have a presence in India in the back-office part of the value chain only (as of a couple of years ago – this might have changed as of today – but I doubt that their numbers exceed even 50 bankers).

Investment banking in India is still confined to simple investment banking products. Investment banking products that I have commonly seen are financing for project finance in the form of debt and equity. In fact, the investment banking industry in India is concentrated in three major segments:

(a) Equity Syndication / Placement: Simply put, it the process of finding sponsors to subscribe to a company’s equity. These investments may be made by strategic investors (other corporates) or by PE firms operating in India. Issuing equity in the form of IPOs is a cumbersome process and is a trade skill mastered by a few investment banking players.

(b) Debt Syndication / Placement: 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 assumes none of the risk of this debt investment.

(c) Structured Finance – High-yield lending: Investment banks lend off their own balance sheet. Since they’re lending off their own balance sheet, they assume the risk of the investment.

Since the products are simple, banks in India do not have formalized discrete ‘coverage’ and ‘product’ groups. Additionally, investment banks in India tend not to be ‘flat’ in their structures like banks in the west. Banks in the US have a flat structure of:
Analyst < Associate < Vice President < Managing Director < Regional Head The banks that I worked for in Mumbai had an extensive hierarchical structure of: Associate < Sr. Associate < Manager < Sr. Manager < Asst. Vice President < Vice – President < Sr. Vice-President

Read the other articles in the series: Introduction to Investment Banking

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1 Comment

  1. Sarah Hodgson-Karry says:

    Agree about the simple products. The cap needs to be lifted and product variety needs to flourish. I realise part of it is to keep a wildfire of exotic products with great potential danger entering the market but for a rising power there needs to be more diversity of financial products.

    Also India needs to accommodate more foreign investment. It’s still difficult…only select investors go in who can afford strong local partners.

    As a former investment banker I used to work closely with our team in India (Bangalore) and I will admit that the potential for the several key cities (Mumbai, Delhi, Kolkata) to become leading financial cities in the Asia region is great.

    India needs more Indian ibankers like the ibanker ( to shake things up!

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