In a circular issued today, Sebi has proposed higher net-worth thresholds along with a new requirement to maintain liquid net worth —defined as unencumbered cash or near-cash assets — at all times. For Category I merchant bankers, minimum net worth requirements will rise to Rs 25 crore by January 2027 and 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% of these amounts).
The Category II entities will need Rs 7.5 crore and Rs 10 crore of net worth across the two phases, respectively, again with liquid buffers mandated at Rs 1.875 crore in phase-1 and Rs 2.5 crore in phase-2.
Underwriting exposure
The regulator has also capped underwriting exposure, mandating that total underwriting obligations must not exceed 20 times a merchant banker’s liquid net worth, with a two-year transition window for existing players. The MBs should comply with this requirement within two years from the effective date, i.e. by January 02, 2028.
Regular half-yearly certification by chartered accountants will be required to demonstrate ongoing compliance with capital, liquidity and underwriting limits, the circular said.The Sebi circular also tightens operational and governance standards. Merchant bankers will be required 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. Employees and compliance officers will also need to clear specified NISM certification exams within defined timelines.
Revenue thresholds
Sebi has introduced minimum revenue thresholds from permitted merchant banking activities — Rs 25 crore over three years for Category I entities and Rs 5 crore for Category II—with the first assessment slated for FY29. Failure to meet these benchmarks could invite cancellation of registration.
The regulatory tightening comes against the backdrop of a record primary market. India emerged as the world’s second-largest equity issuance hub in 2025, raising over $21 billion through IPOs and other public issues, underscoring SEBI’s push to ensure that intermediaries managing fund raises are well-capitalised, professionally run and capable of withstanding market stress.
Overall, the phased approach seeks to balance stability with continuity—giving existing merchant bankers time to adjust, while setting a higher bar for financial strength, governance and investor protection in an increasingly vibrant IPO ecosystem
Sebi has also mandated that merchant bankers will not lead manage any public issue, where its directors, other key managerial personnel or their relatives individually or in aggregate hold more than 0.1% of the paid-up share capital or shares whose nominal value is more than Rs 10 lakh, whichever is lower.
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