Merchant Banker
A merchant banker, also known as a lead manager or book running lead manager (BRLM), is a SEBI-registered financial intermediary that manages the entire process of a company's public offering, from due diligence and DRHP preparation to marketing, pricing, and post-issue compliance.
The merchant banker occupies the most central and accountable role in the entire IPO ecosystem. When a company decides to go public, its first and most consequential appointment is the merchant banker. This entity is responsible not merely for the transactional mechanics of the offering but also for conducting a thorough due diligence of the issuer company — examining its financials, legal standing, regulatory compliance, business operations, and risk factors — before certifying that the DRHP is factually correct and complete.
Merchant bankers in India are regulated under the SEBI (Merchant Bankers) Regulations, 1992. To obtain and maintain a SEBI registration, merchant bankers must maintain a minimum net worth (currently Rs 5 crore for a Category I merchant banker), have qualified professionals with relevant certifications, and comply with SEBI's code of conduct. The registration is granted for a specific category (Category I being the most comprehensive, allowing the merchant banker to manage and underwrite issues of any size), and must be renewed periodically.
Large IPOs typically involve multiple merchant bankers — a lead left merchant banker (who takes primary responsibility), co-book running lead managers (co-BRLMs), and sometimes co-managers. The responsibilities are divided among them, though they all share joint and several liability for the accuracy and completeness of the offer document. SEBI holds merchant bankers accountable for due diligence failures, and there have been instances where SEBI has imposed penalties, directed refund of fees, or debarred merchant bankers from managing issues for lapses in due diligence.
The merchant banker is also responsible for the roadshow — a series of presentations made to institutional investors (including FPIs, domestic mutual funds, and insurance companies) to gauge demand for the IPO and build a preliminary order book before the public issue opens. This pre-IPO demand gauging exercise, conducted under the book-building framework, helps in arriving at an appropriate price band for the issue. The merchant banker coordinates with anchor investors (who are allocated shares one day before the public issue opens) and sets the tone for broader investor sentiment.
Post-issue responsibilities of the merchant banker include filing the final allotment details with SEBI and the stock exchanges, ensuring that the issue proceeds are utilised for the objects stated in the prospectus (a compliance requirement monitored through monitoring agency reports), and submitting the post-issue due diligence certificate to SEBI. In the event of a complaint from investors regarding allotment, refund, or other issues, the merchant banker is expected to coordinate with the registrar and the issuer to resolve the matter.