Ministry : Ministry of Finance (SEBI)

Specification of the consequential requirements with respect to Amendment of Sec

Subject : ministry of finance

Specification of the Consequential Requirements with Respect to Amendment of Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992

The Securities and Exchange Board of India (SEBI) has issued a comprehensive circular outlining the phased implementation of revised regulatory requirements for registered Merchant Bankers (MBs), effective January 03, 2026. This directive introduces significant changes in capital adequacy, liquid net worth, certification, governance, and operational boundaries, marking a major shift in the regulatory framework for merchant banking in India.

Key Points

• Phased Capital and Liquid Net Worth Compliance: Existing Merchant Bankers must meet revised capital adequacy and liquid net worth thresholds in two phases: by January 02, 2027 (Phase I) and January 02, 2028 (Phase II), with higher requirements for Category I (e.g., Rs. 50 crore net worth, Rs. 12.5 crore liquid net worth by 2028) than Category II.
• Mandatory Certification for Personnel: All key employees and compliance officers must obtain NISM certifications—Series IX for merchant banking and Series IIIA for compliance—by January 02, 2027, or within 90 days of appointment for new hires after January 03, 2026.
• Stricter Operational Boundaries: MBs are prohibited from outsourcing core merchant banking activities and must terminate existing outsourcing arrangements within 90 days of the effective date (i.e., by April 03, 2026).
• Revenue Generation Mandate: From April 01, 2029, MBs must demonstrate minimum cumulative revenue over the past three years—Rs. 25 crore for Category I and Rs. 5 crore for Category II—or face potential deregistration, with limited exceptions for emergencies like pandemics or wars.
• Segregation of Non-Regulated Activities: Any activities not regulated by SEBI must be conducted through separate business units (SBUs) with Chinese wall safeguards, distinct grievance mechanisms, standalone records, and clear disclosures about the absence of SEBI investor protections.
• Transparency in Issue Marketing: If an MB is only involved in marketing a public issue due to director/employee shareholding above 0.1%, it must disclose its affiliation, investment amount, and holding details in all offer documents and marketing material.

Strengthening Merchant Banker Accountability and Structural Integrity

SEBI’s 2026 circular represents a sweeping enhancement of oversight over merchant bankers, aimed at bolstering financial resilience, operational independence, and market transparency. By enforcing higher capital standards, mandating professional certification, ending core activity outsourcing, and requiring strict segregation of non-regulated business lines, the regulator is aligning merchant banking practices with systemic risk management principles. The new revenue criteria and disclosure obligations further ensure that only viable, transparent, and accountable entities remain active in capital market intermediation. This marks a pivotal step in SEBI’s broader agenda to professionalize India’s financial intermediaries and protect market integrity.