Merchant Banking

SEBI Tightens Regulatory Framework for Merchant Bankers

By D R Yadav | Published on 15 February 2026

SEBI Tightens Regulatory Framework for Merchant Bankers – Effective 3 January 2026
(SEBI Circular No.: HO/49/11/11(106)2025-CFD-RAC-DIL3/I/1796/2026)

The SEBI (Merchant Bankers) Amendment Regulations, 2025 introduce a significantly strengthened compliance architecture for Merchant Bankers (MBs), with a clear focus on capital adequacy, governance, accountability, and operational segregation.

Key highlights:

1️Revised Capital & Liquid Net Worth (Phased Implementation)
Existing MBs must comply in two phases:

  • Category I
    • Phase I (by Jan 2, 2027): ₹25 Cr Net Worth | ₹6.25 Cr Liquid Net Worth
    • Phase II (by Jan 2, 2028): ₹50 Cr Net Worth | ₹12.5 Cr Liquid Net Worth
  • Category II
    • Phase I: ₹7.5 Cr | ₹1.875 Cr
    • Phase II: ₹10 Cr | ₹2.5 Cr

Liquid Net Worth now defined with prescribed haircuts (Cash 0%, G-Sec 10%, Nifty 500 securities 30%, etc.)

2️. Underwriting Cap Introduced
Total underwriting obligations capped at 20x Liquid Net Worth (to be complied by Jan 2, 2028).

3️. Mandatory Categorisation
Existing MBs must declare Category I or II by Jan 2, 2027 with CA-certified net worth confirmation.

4️. Revenue Threshold (Structural Reform)
Minimum cumulative revenue over 3 preceding FYs:

  • Category I: ₹25 Cr
  • Category II: ₹5 Cr
    First assessment: April 1, 2029
    Non-compliance may trigger cancellation proceedings.

5️. Governance & Certification Requirements

  • NISM Series-IX mandatory for key employees
  • Compliance Officer must be independent
  • Principal Officer must have minimum 5 years financial market experience
  • No outsourcing of core merchant banking activities

6️. Arms-Length Segregation for Non-SEBI Activities
Mandatory Chinese Wall, separate business units, independent grievance mechanism, and investor disclosures.

This circular marks a decisive shift from “registration-based oversight” to “capital-backed, revenue-backed, governance-driven regulation.”

Merchant Banking is no longer just a licensing regime — it is now a capital-intensive, accountability-focused institution model.

 

Frequently Asked Questions

All existing SEBI-registered Merchant Bankers must meet the revised capital thresholds under Category I or Category II within the prescribed phased timelines (2027 and 2028). New applicants will generally be expected to meet the higher benchmarks from the outset.

The underwriting cap is designed to control excessive risk exposure by linking underwriting capacity directly to a merchant banker’s liquid financial strength. This ensures better investor protection and promotes disciplined balance-sheet management.

Failure to satisfy revenue thresholds, certification norms, or governance standards may lead to regulatory action, including enhanced scrutiny, restrictions on activities, or even cancellation proceedings under SEBI regulations.
D R Yadav

Published on 15 February 2026

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