SEBI constrains merchant bankers on phased net-worth demands
SEBI constrains merchant bankers on phased net-worth demands
Failure to meet benchmarks could result in registration cancellation
The Securities and Exchange Board of India (SEBI) has introduced an implementation process in net-worth and liquid capital norms for existing merchant bankers (MBs) beginning this month. This is in addition to tighter underwriting limits, governance standards and financial benchmarks.
The amendment will strengthen market intermediaries amid India’s booming initial public offering (IPO) pipeline. It will ensure stronger compliance, protective capital and revamped investor safety.
Part of the SEBI (Merchant Bankers) Regulations, 1992, with staggered compliance timelines for existing entities, the framework became effective from 3 January 2026.
The market regulator’s circular proposed higher net-worth thresholds along with a new requirement to maintain liquid net worth for unencumbered cash or near-cash assets.
For Category I merchant bankers: The minimum net worth requirements will rise to Rs.25 crore by January 2027. It will 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).
For Category II merchant bankers: They will need Rs.7.5 crore and Rs.10 crore of net worth across the two phases, respectively. The liquid buffers are mandated at Rs.1.875 crore in Phase-1 and Rs.2.5 crore in Phase-2.
SEBI has also capped the underwriting exposure. It has mandated that the total underwriting obligations must not exceed 20 times an MBs liquid net worth, with a two-year transition window for existing players. The MBs must comply with the conditions within two years from the effective date (2 January 2028).
Similarly, the regular half-yearly certification by chartered accountants must demonstrate ongoing compliance with capital, liquidity and underwriting limits.
While tightening the operational and governance standards. SEBI mandates MBs to appoint independent compliance officers, ensure principal officers have a minimum of five years’ market experience, and prevent outsourcing of core merchant banking activities beyond a short transition period. The circular stated that employees and compliance officers will have to pass the specified National Institute of Securities Markets (NISM) Certification Exams in Securities Markets & Finance within the defined timelines.
The regulator has initiated minimum revenue thresholds for permitted MB activities. It is Rs.25 crore over three years for Category I entities and Rs.5 crore for Category II. The initial assessment will be for the Financial Year 2029.
Meanwhile, failure to meet the benchmarks could result in registration cancellation.
The new norms come as the backdrop of a record primary market, wherein India emerged as the world’s second-largest equity issuance hub in 2025. It raised over $21 billion through IPOs and other public issues, underscoring SEBI’s drive to ensure that intermediaries managing fund raises were well-capitalized, professionally run and capable of withstanding market upheavals.
The approach will balance stability with continuity. It will offer existing MBs time to adjust, while setting a higher bar for financial strength, governance and investor safety in an increasingly vibrant IPO ecosystem.
SEBI has dictated that MBs bankers will not supervise any public issue, where its directors, other key managerial personnel or their relatives (individually or in aggregate) hold over 0.1 percent of the paid-up share capital or shares whose nominal value is over Rs.10 lakh.
