This does not seem to be good news for the investment banks such as Ernst & Young and ICICI Securities. Merchant banking activity for initial public offers(IPO) of public sector firms in India could become the sole preserve of PSU banks, according to a report in The Economic Times.

The government, it seems, is keen on implementing this which would mean merchant banking activities for all divestments, and there are some big budgeted ones planned in the near future, would be given to banks such as SBI, PNB and Canara Bank on a platter.

According to an ET report, this was discussed during a meeting between the finance minister and the banks wherein the minister has accepted the proposal. The decision has also been communicated to the department of disinvestment. Apparently, the idea stems from the view that PSU banks need to get more exposure in this field.

This comes at a time when the disinvestment programme is expected to be back on the economic agenda of the nation. There are already more than 20 such PSUs waiting to go for an IPO including big ones such as telecom giant BSNL and Oil India.

The report added that the finance ministry is expected to direct all ministries to appoint only PSU banks for carrying out merchant banking activities for such public floats. If implemented it could be a setback for large private sector merchant bankers such as Kotak, Enam, Merrill Lynch, ICICI Securities among others.

However, the government is likely to keep a window open in cases where the PSU banks may not be able to handle such offers due to technical reasons. This could be true for mega multi billion dollar IPOs such as that of BSNL.

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