The Securities & Exchange Board of India (Sebi) has introduced a phased roll out of the changes in merchant banker (MB) regulations which it had notified in early December. The new rules effective in phases from January 2 next year and January 2, 2028 divides the bankers into two categories based on capital adequacy and liquidity based net worth.
According to Friday’s circular, Category I merchant bankers will need to maintain net worth of Rs 25 crore by January 2, 2027, rising to Rs 50 crore by January 2, 2028, along with liquid net worth of Rs 6.25 crore and Rs 12.5 crore respectively. For Category II, the threshold rises to Rs 7.5 crore and Rs 10 crore in net worth and Rs 1.875 crore and Rs 2.5 crore in liquid net worth across the two phases.
Stricter reclassification and underwriting caps
Those failing to meet Category I norms will be automatically reclassified as Category II, and failing Category II requirements will lead them to be barred from taking up fresh permitted activities. The new rules also specify that the total underwriting obligations of MB shall not exceed 20 times of its liquid net worth and existing MBs shall comply with this requirement within two years from the effective date (January 2, 2028).
No-otsourcing of core roles
In addition, they have been prohibited from outsourcing core merchant banking activities and must unwind existing outsourcing arrangements by April 3, 2026. The regulator has also barred them from lead-managing public issues where their directors, key personnel, employees or relatives hold more than 0.1% stake or Rs 10 lakh in the issuer while allowing them to undertake non-permitted, non-Sebi regulated activities only through separate, ring-fenced business units with strict Chinese walls and arms-length operations.