The Securities & Exchange Board of India (SEBI) has announced a phased rollout of new regulations for merchant bankers (MBs).
These rules, first notified in December, will come into effect in phases starting January 2, 2026, and January 2, 2028.
Under the new system, merchant bankers will be divided into two categories based on their capital adequacy and liquidity-based net worth.
Net Worth and Liquidity Requirements
Category I MBs: Must maintain a net worth of Rs 25 crore by January 2, 2027, increasing to Rs 50 crore by January 2, 2028.
Their liquid net worth must be Rs 6.25 crore, rising to Rs 12.5 crore in the second phase.
Category II MBs: Net worth requirements will be Rs 7.5 crore, increasing to Rs 10 crore, with liquid net worth of Rs 1.875 crore and Rs 2.5 crore in the two phases.
Those who fail to meet Category I norms will automatically be reclassified as Category II.
If they fail Category II requirements, they cannot take up fresh permitted activities.
Additionally, the total underwriting obligations of an MB cannot exceed 20 times its liquid net worth.
Existing MBs must comply with this rule by January 2, 2028.
Restrictions on Outsourcing and Conflicts of Interest
SEBI has also introduced stricter rules on outsourcing and conflicts of interest:
No outsourcing of core merchant banking functions: MBs must end existing outsourcing arrangements by April 3, 2026.
Conflict of interest rules: MBs cannot lead-manage public issues if their directors, key personnel, employees, or relatives hold more than 0.1% stake or Rs 10 lakh in the issuer.
Non-permitted activities: These can only be undertaken through separate, ring-fenced units with strict Chinese walls and arms-length operations.
Bottom Line
SEBI’s new regulations aim to strengthen capital and liquidity norms, reduce conflicts of interest, and ensure greater accountability in merchant banking.
Firms must comply in phases to continue operating smoothly under the new framework.
