SEBI initiates phased hike in net-worth demand for merchant bankers

SEBI initiates phased hike in net-worth demand for merchant bankers

The guidelines became effective on 03 January, with staggered compliance timelines for existing entities

The Securities and Exchange Board of India (SEBI) has initiated a rollout of net worth demands and liquid capital norms for existing merchant bankers (MBs) by amending the SEBI (Merchant Bankers) Regulations, 1992.

The phased-out requisites of tight underwriting limits, governance standards and revenue thresholds are aimed at strengthening market intermediaries. The move has been taken to ensure stronger compliance, better capital buffers and improved investor protection in India’s booming initial public offerings (IPO).

The SEBI circular defined the all-time requirements of unencumbered cash or near-cash assets.

It stated that for Category I MBs, the minimum net worth requirements would rise to Rs.25 crore by January 2027. It would double to Rs.50 crore by January 2028, with corresponding liquid net-worth thresholds of Rs.6.25 crore and Rs.12.5 crore (25 percent of the amounts).

Similarly, the Category II MBs would require Rs.7.5 crore and Rs.10 crore of net worth across two phases. In Phase 1, the with liquid buffers is mandated at Rs.1.875 crore and in Phase 2, it will be Rs.2.5 crore.

The market regulator has also limited the underwriting exposure by mandating that the total underwriting obligations are not to exceed 20 times an MBs liquid net worth, with a two-year transition period for existing players. They must comply with the norms within two years of the effective date (02 January 2028).

Meanwhile, regular half-yearly certification by chartered accountants will have to demonstrate ongoing compliance with capital, liquidity and underwriting limits.

SEBI has also consolidated operational and governance standards, wherein MBs must appoint independent compliance officers, ensure principal officers have a minimum of five years’ market experience, and prevent outsourcing of core MB activities beyond a short transition time. Additionally, employees and compliance officers must pass the specified National Institute of Securities Markets (NISM) certification exams within a stipulated period.

According to the SEBI circular, the minimum revenue thresholds from permitted MB activities are Rs.25 crore (over three years) for Category I entities and Rs.5 crore for Category II entities. The first assessment will happen in Financial Year 2029 and failing to meet the guidelines could invite the registration’s cancellation.

The new norms have been introduced after observing India emerging as the world’s second-largest equity issuance hub in 2025. It raised over $21 billion through IPOs and other public issues. It has led the regulator to ensure that intermediaries managing fund raises are well-capitalized, professionally run and capable of withstanding market upheavals.

While the phased-out approach will balance stability with continuity, it will also provide existing MBs the time to adjust and raise the bar for financial strength, governance and investor safety in an ongoing thriving IPO market.

For further investor protection, SEBI has decided that MBs will not lead manage any public issue, where its directors, key managerial personnel or their relatives can individually hold over 0.1 percent of the paid-up share capital or shares whose nominal value is over Rs.10 lakh.