SEBI Notifies Consequential Requirements For Amended Merchant Bankers Regulations

The Securities and Exchange Board of India (“SEBI”) by way of circular dated 02.01.2026 (“MB Circular”)¹, has specified the consequential requirements and implementation timelines with respect to the SEBI (Merchant Bankers) Amendment Regulations, 2025, which were notified on 05.12.2025 and shall be applicable from 03.01.2026.

The key highlights of the MB Circular are as follows:

1. Capital adequacy and liquid net worth requirements: SEBI has introduced a phased structure to maintain capital adequacy and new liquid net worth requirements for Merchant Bankers (“MBs”), which is as follows:
   1. Phase I (by 02.01.2027): Category I MBs must maintain net worth of atleast INR 25 Crore and liquid net worth of atleast INR 6.25 Crore, and Category II MBs must maintain net worth of atleast INR 7.5 Crore and liquid net worth of atleast INR 1.875 Crore.
   2. Phase II (by 02.01.2028): Category I MBs must maintain net worth of atleast INR 50 Crore and liquid net worth of atleast INR 12.5 Crore, and Category II MBs must maintain net worth of atleast INR 10 Crore and liquid net worth of atleast INR 2.5 Crore.

Existing MBs must intimate SEBI by 02.01.2027 regarding their intended category (Category I or II) along with a CA certified net worth certificate. MBs failing to meet Category I requirements will be automatically designated as Category II, and those failing Category II requirements shall not undertake any fresh permitted activities.

2. Calculation of liquid net worth: Liquid net worth means net worth deployed in unencumbered liquid assets with applicable haircuts, such as 0% for cash and bank fixed deposits, 10% each for government securities and certain mutual fund schemes and 30% for listed securities of Nifty 500 companies.
3. Underwriting obligations: Total underwriting obligations of an MB shall not exceed 20 times its liquid net worth. Existing MBs must comply with this requirement by 02.01.2028.
4. Certification requirements: Employees specified under Regulation 6(b), i.e., those professionally qualified in finance or law or accountancy or business management, must possess NISM Series-IX: Merchant Banking Certification. Existing employees shall obtain the certification by 02.01.2027 and new employees appointed on or after 03.01.2026 must obtain certification within 90 days of appointment. Compliance officers must possess both NISM Series IX: Merchant Banking Certification and NISM Series-IIIA: Securities Intermediaries Compliance (Non-Fund) Certification, with similar timelines.
5. Independence of compliance officer: The compliance officer must be separate and independent from the principal officer and employees referred to in Regulation 6(b). Existing MBs must comply by 03.04.2026.
6. Principal officer experience: The principal officer must have at least five years of experience in financial markets. Existing MBs must comply with this requirement by 02.01.2027.
7. Prohibition on outsourcing core activities: MBs shall not outsource core merchant banking activities. Existing MBs with open mandates/agreements for outsourcing must close them by 03.04.2026.
8. Minimum revenue requirements: MBs must generate minimum revenue from permitted activities on a cumulative basis over three immediately preceding financial years: Category I (INR 25 Crore) and Category II (INR 5 Crore). The first assessment will be carried out with effect from 01.04.2029. MBs must submit revenue details within three months from the end of each financial year, starting from FY 2026-27.
9. Disclosures for marketing-only involvement: Where an MB is only involved in marketing (due to conflicts under Regulation 21C, i.e., when its directors, key managerial personnel, compliance officer, employees or their relatives, individually or in aggregate, hold more than 0.1% of paid-up share capital or shares whose nominal value is more than INR 10,00,000, whichever is lower, in the issuer), it must disclose the nature of instruments, investment amounts, quantum of holdings, and relationships in the offer document and marketing materials. This applies to public issues filed on or after 03.01.2026.
10. Conditions for Non-SEBI regulated activities: MBs undertaking activities not regulated by SEBI must do so through separate business units (SBUs) segregated by a Chinese Wall and ring-fenced from SEBI regulated activities. Such key requirements include:
    1. segregation to be completed by 03.07.2026;
    2. separate grievance redressal mechanisms and records;
    3. distinct staff for non-SEBI regulated activities (with certain exceptions);
    4. website disclosure of non-SEBI regulated activities by 02.02.2026 for existing MBs;
    5. upfront written disclosures to stakeholders with confirmation/acknowledgement;
    6. compliance report for existing mandates by 03.07.2026.

Footnote

1. Specification of the consequential requirements with respect to amended SEBI (Merchant Bankers) Regulations, 1992.

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