The Securities & Exchange Board of India (Sebi) has rolled out new rules for merchant bankers (MBs) in a phased manner.
The rules, first notified in December, will come into effect in two stages: January 2 next year and January 2, 2028.
Under the new framework, merchant bankers are divided into two categories based on capital adequacy and liquidity-based net worth.
These changes aim to strengthen the financial stability of MBs and ensure safer operations in the market.
Net Worth Requirements for MBs
Category I MBs will need:
By January 2, 2027: Net worth of ₹25 crore, liquid net worth of ₹6.25 crore
By January 2, 2028: Net worth of ₹50 crore, liquid net worth of ₹12.5 crore
Category II MBs will need:
By January 2, 2027: Net worth of ₹7.5 crore, liquid net worth of ₹1.875 crore
By January 2, 2028: Net worth of ₹10 crore, liquid net worth of ₹2.5 crore
If a merchant banker fails to meet Category I requirements, they will be reclassified as Category II.
Those not meeting Category II norms will be barred from taking up new permitted activities.
Stricter Underwriting and Outsourcing Rules
The new rules also impose underwriting limits.
Merchant bankers’ total underwriting obligations cannot exceed 20 times their liquid net worth, and existing MBs must comply within two years of January 2, 2028.
Additionally, MBs are prohibited from outsourcing core merchant banking activities.
Any existing outsourcing arrangements must be unwound by April 3, 2026.
Sebi has also barred MBs from lead-managing public issues if their directors, key personnel, employees, or relatives hold more than 0.1% stake or ₹10 lakh in the issuer.
Non-permitted activities can only be conducted via separate, ring-fenced business units with strict operational separation.
These rules are designed to make merchant banking more transparent, financially sound, and secure, protecting investors and strengthening the capital market ecosystem.