Quick summary: The SEBI (Merchant Bankers) Regulations, 1992 govern every entity that manages public issues, conducts due diligence on offer documents, and provides corporate advisory services related to securities issuances in India. No person may act as a merchant banker without a certificate of registration from SEBI. The December 2025 amendment — the most comprehensive overhaul since 1992 — introduced tiered net worth and liquid net worth requirements, minimum revenue thresholds, a two-category registration structure, and tightened governance and conflict-of-interest rules, all effective January 3, 2026.
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Who Is Affected
- Entities managing public issues on the main board (IPOs, FPOs) — Category I
- Entities managing SME platform issues, private placements, QIPs, rights issues, buybacks, delisting, acquisitions, takeovers, and international offerings — Category I and Category II
- Underwriters associating with public offerings
- Corporate advisory firms providing issue management or due diligence services in relation to securities
- Existing registered merchant bankers needing to re-comply with revised thresholds by January 2, 2028
- Directors, key management personnel, and compliance officers at registered merchant banking firms
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What the Regulations Require
- Registration is mandatory. No entity may act as a merchant banker without a certificate of registration from SEBI. Two categories exist: Category I (all permitted activities including main board public issues) and Category II (all activities except main board public issues).
- Net worth and liquid net worth must be maintained. Category I: ₹50 crore net worth and ₹12.5 crore liquid net worth (phased — ₹25 crore / ₹6.25 crore by January 2, 2027; full amounts by January 2, 2028). Category II: ₹10 crore net worth and ₹2.5 crore liquid net worth (phased — ₹7.5 crore / ₹1.875 crore by January 2, 2027; full amounts by January 2, 2028). Liquid net worth means funds deployed in unencumbered liquid assets: cash, fixed deposits, government securities, treasury bills, and repo on government securities.
- Minimum cumulative revenue from permitted activities must be earned. Category I: ₹25 crore cumulative over three immediately preceding financial years; Category II: ₹5 crore cumulative over three immediately preceding financial years. First assessment begins April 1, 2029 (based on FY 2026–27 onward). Non-compliance triggers registration cancellation.
- Due diligence certificate is mandatory. A merchant banker cannot associate with any issue without furnishing a due diligence certificate confirming that disclosures in the offer document are true, fair, and adequate. Core merchant banking activities — due diligence, offer document preparation — cannot be outsourced.
- Underwriting is capped at 20 times liquid net worth. Total underwriting obligations at any point cannot exceed 20 times the merchant banker's liquid net worth. Compliance with this cap is required by January 2, 2028 (two-year transition).
- Conflict-of-interest prohibitions apply strictly. A merchant banker cannot lead-manage an issue where its directors or key personnel hold more than 0.1% of the paid-up share capital of the issuer, or shares whose nominal value exceeds ₹10,00,000, whichever is lower. The associate threshold (triggering mandatory disclosure) is set at 10% voting rights.
- Personnel must be qualified and certified. The principal officer must have at least five years of experience in securities markets or the financial sector. Employees in specified roles must hold NISM Series-IX: Merchant Banking Certification; compliance officers must additionally hold NISM Series-IIIA: Securities Intermediaries Compliance (Non-Fund) Certification.
- Code of Conduct (Schedule III) is binding. Merchant bankers must maintain high standards of integrity and fairness, protect investor interests, ensure timely and adequate disclosures, and address investor grievances promptly.
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What Changed in the December 2025 Amendment
The Securities and Exchange Board of India (Merchant Bankers) (Amendment) Regulations, 2025 were notified on December 3, 2025 (Notification No. SEBI/LAD-NRO/GN/2025/282) and came into force on January 3, 2026. This was the first comprehensive overhaul since the regulations were introduced in 1992. Key changes:
- Four categories collapsed to two. The earlier four-category structure (Categories I through IV with separately defined activity scopes) was replaced by two categories: Category I for all permitted activities including main board IPOs, and Category II for all activities except main board public issues.
- Net worth requirements substantially raised. The prior uniform ₹5 crore net worth requirement was replaced by tiered, phased thresholds: ₹50 crore (Category I) and ₹10 crore (Category II) as final targets by January 2, 2028. Liquid net worth is now a distinct, separately maintained requirement.
- Revenue generation obligation introduced. A new minimum cumulative revenue threshold was added (₹25 crore for Category I and ₹5 crore for Category II, measured cumulatively over three immediately preceding financial years), with non-compliance leading to registration cancellation. No such requirement existed before.
- Minimum underwriting obligation removed; cap tightened. The prior requirement for lead managers to underwrite a minimum of 5% of total underwriting (or ₹25 lakh, whichever was lower) was eliminated. The maximum underwriting obligation was reset from total net worth to 20 times liquid net worth.
- Associate threshold tightened. The voting rights threshold defining an "associate" was lowered from 15% to 10%, expanding conflict-of-interest disclosure obligations.
- Core activity outsourcing prohibited. Merchant bankers must not outsource due diligence, offer document preparation, or other core merchant banking activities. Existing outsourcing arrangements must be wound down by April 3, 2026.
- Record retention extended. The requirement to retain books, accounts, and records was extended from five to eight financial years.
- Mandatory NISM certifications and independent compliance officer. These governance requirements were new to the framework.
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Action Items for Compliance
1. Determine your category and submit net worth notification. Existing merchant bankers must notify SEBI of their intended category (I or II) with a CA-certified net worth certificate before the January 2, 2027 Phase I deadline. If Category I net worth milestones are missed, automatic re-designation to Category II applies.
2. Appoint an independent compliance officer by April 3, 2026. The compliance officer must be separate from the principal officer and must obtain both NISM Series-IX and NISM Series-IIIA certifications. Existing compliance officers must complete certifications by January 2, 2027; new appointees within 90 days of appointment.
3. Wind down outsourced core activity agreements by April 3, 2026. Review all existing agreements for due diligence, offer document drafting, or other core merchant banking services and terminate them within 90 days of January 3, 2026.
4. Segregate non-SEBI-regulated business by July 3, 2026. If the firm undertakes activities outside SEBI-regulated merchant banking, establish separate business units with Chinese wall procedures, distinct grievance mechanisms, separate record-keeping, and separate marketing materials. Disclose non-SEBI-regulated activities on the firm's website by February 2, 2026.
5. Start tracking permitted-activity revenue from FY 2026–27. Submit revenue details to SEBI within three months of each financial year-end. The first formal assessment (against the ₹25 crore / ₹5 crore cumulative three-year threshold) begins April 1, 2029, based on the three preceding fiscal years.
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Key Dates and Penalties
| Deadline | Requirement | |---|---| | January 3, 2026 | Regulations effective; new registrations under revised framework | | February 2, 2026 | Disclose non-SEBI-regulated activities on website | | April 3, 2026 | Independent compliance officer appointed; existing outsourcing closed; ring-fencing of non-core business begun | | July 3, 2026 | Segregation of non-SEBI-regulated business units complete | | January 2, 2027 | Phase I net worth (Category I: ₹25 Cr / ₹6.25 Cr LNW; Category II: ₹7.5 Cr / ₹1.875 Cr LNW); NISM certifications for existing employees; principal officer experience rule | | January 2, 2028 | Phase II (final) net worth (Category I: ₹50 Cr / ₹12.5 Cr LNW; Category II: ₹10 Cr / ₹2.5 Cr LNW); underwriting cap (20x LNW) | | April 1, 2029 | First revenue threshold assessment (3-year cumulative look-back from FY 2026–27) |
Consequences for non-compliance:
- Failure to meet Category I net worth milestones: automatic re-designation to Category II.
- Failure to meet Category II net worth milestones: prohibited from undertaking any fresh permitted activities.
- Failure to meet minimum cumulative revenue threshold (assessed from April 1, 2029): registration cancellation.
- Monetary penalties for violations of the regulations are imposed under the SEBI Act, 1992 (Sections 15A–15HB) and SEBI's adjudication process. The specific penalty quantum for each violation is as specified in the SEBI Act and applicable SEBI orders.
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FAQ
Q: Can a merchant banker continue operating under the old four-category structure after January 3, 2026? No. The four-category structure (Categories I–IV) has been abolished. All existing registered merchant bankers must re-designate themselves as Category I or Category II and notify SEBI with a CA-certified net worth certificate before the January 2, 2027 deadline.
Q: What counts as "liquid net worth" for the purposes of these regulations? Liquid net worth is the portion of net worth deployed in unencumbered liquid assets, specifically: cash and cash equivalents, fixed deposits, government securities, treasury bills, and repo instruments on government securities. Applicable haircuts apply per SEBI's computation methodology.
Q: Can a Category II merchant banker manage an SME IPO? Yes. Category II merchant bankers can manage issue management on SME platforms, advisory mandates, due diligence assignments, valuations, rights issues, QIPs, private placements of listed or to-be-listed securities, acquisitions, buybacks, and delisting. The only activity reserved exclusively for Category I is managing public issues on main board stock exchanges.
Q: What happens if a merchant banker fails to generate the minimum required revenue by the assessment date? If a merchant banker fails to meet the minimum cumulative revenue threshold (₹25 crore for Category I, ₹5 crore for Category II, measured over three immediately preceding financial years beginning FY 2026–27) over the three-year assessment window, its certificate of registration is liable to be cancelled. The first formal assessment takes place on April 1, 2029.
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This summary is for informational purposes only and does not constitute legal advice. Refer to the official SEBI website (sebi.gov.in) for the authoritative text.