The Securities and Exchange Board of India (SEBI) has set out phased timelines for merchant bankers to comply with the tighter Merchant Bankers Regulations, including higher capital adequacy, liquid net worth, underwriting limits and sharper governance norms.
The revised framework, effective January 3, 2026, raises entry barriers and tightens ongoing compliance for both new and existing merchant bankers, with SEBI aiming to strengthen financial resilience and accountability in the primary markets ecosystem.
Under the new regime, applicants seeking registration from January 3 must meet enhanced net worth and liquid net worth requirements upfront. Existing merchant bankers will be given a phased transition period till January 2028.
For Category I merchant bankers, minimum net worth will rise to ₹25 crore by January 2, 2027 and further to ₹50 crore by January 2, 2028, with corresponding liquid net worth thresholds of ₹6.25 crore and ₹12.5 crore. Category II entities must meet net worth of ₹7.5 crore by 2027 and ₹10 crore by 2028, with liquid net worth of ₹1.875 crore and ₹2.5 crore, respectively. Firms that fail to meet Category I thresholds will be automatically reclassified as Category II.
Underwriting limits
SEBI has also capped underwriting exposure, mandating that total underwriting obligations cannot exceed 20 times a merchant banker’s liquid net worth. Existing entities have time till January 2, 2028, to align with this requirement.
The regulator has clearly defined “liquid net worth”, restricting it to unencumbered liquid assets such as cash, bank deposits, government securities, select mutual fund units and listed Nifty 500 shares, subject to prescribed haircuts.
Governance and personnel norms have been tightened as well. Merchant bankers must appoint an independent compliance officer, separate from the principal officer and key operational staff, by April 3, 2026. Principal officers must have at least five years of financial market experience, with existing firms given one year to comply.
SEBI has also made professional certification mandatory. Relevant employees and compliance officers must clear specified NISM examinations within stipulated timelines.
Merchant bankers will now be required to generate minimum revenue from permitted activities, ₹25 crore for Category I and ₹5 crore for Category II on a cumulative three-year basis, failing which registration may be cancelled. The first assessment will be carried out from April 2029.
The circular also bars outsourcing of core merchant banking activities, tightens disclosure norms where firms are involved only in issue marketing, and mandates ring-fencing of non-SEBI-regulated activities through separate business units.