sebi

Copy Page

Published on 2 July 2025

SEBI Revises Merchant Banking Regulations: Key Updates and Implications

SEBI Overhauls Merchant Banker Norms: Flexibility with Accountability

India’s merchant banking landscape is stepping into a new era. On June 18, 2025, SEBI finally brought long-overdue updates to the Merchant Bankers Regulations, introducing a more practical, flexible regime that balances innovation with investor protection.

In an industry where change has been slow—and the rules hadn’t seen a real shake-up in over three decades—this reform is both welcome and necessary.

Why the Shift?

Back in December 2023, SEBI proposed a stricter approach: merchant bankers would have to hive off any non-core or unregulated business into separate legal entities. But the industry pushed back. The concern? That structure would not only increase compliance costs but stifle operational efficiency—especially for firms looking to offer integrated services in today’s fast-moving capital markets.

So, SEBI listened. And what we now have is a more balanced framework that offers operational freedom—but with guardrails firmly in place.

Key Changes: What You Need to Know

1. Wider Scope of Activities—With Boundaries

Merchant bankers can now conduct a broader range of activities within the same company, provided those activities fall into one of two categories:

  • Regulated by another financial sector regulator—like RBI, IRDAI, or PFRDA? It’s allowed.

  • Unregulated but directly related to financial services—like advisory, valuation, due diligence, or fairness opinions? Also permitted, as long as these are strictly fee-based and non-fund-based.

What’s not allowed? Lending, proprietary trading, or unrelated ventures that introduce balance sheet risk or conflict of interest.

This approach lets firms consolidate their service lines, improve efficiency, and still stay within a regulated perimeter.

2. New Two-Tier Structure for Merchant Bankers

SEBI has introduced a clear classification of merchant bankers based on capability and scale:

  • Category I Merchant Bankers

    • Net worth requirement: ₹50 crore
    • Can manage main board IPOs, rights issues, takeovers, and large capital-raising mandates.
    • Also eligible to provide a full suite of financial advisory services.

  • Category II Merchant Bankers

    • Net worth requirement: ₹10 crore
    • Can offer advisory and financial services, but cannot manage main board IPOs or critical public market transactions.

3. No More Dormant Licences

SEBI is drawing a hard line on inactive entities. If a registered merchant banker isn’t generating revenue from permitted activities over time, they risk losing their registration altogether.

This move is aimed at cleaning up the pool, ensuring that only active, credible players operate in this space.

How Did SEBI Arrive Here?

This wasn’t an overnight change. The process began with a consultation paper in August 2024, which received robust feedback from across the spectrum—merchant bankers, legal professionals, financial market associations, and industry observers.

SEBI’s final approach reflects those inputs: practical where it needs to be, but still firm where risks to investor interest are involved.

What This Means for the Industry

Operational Flexibility

Firms can now house multiple financial functions under one roof—something that’s long been standard in international financial centres. That opens the door for fintechs, advisory boutiques, and legacy firms alike to operate more efficiently.

Smarter Oversight

By defining what’s allowed and drawing clear boundaries, SEBI ensures that investors aren’t exposed to hidden risks, and that firms stay focused on activities within their core expertise.

Global Alignment

The move puts India on the path to closer regulatory parity with developed markets, where merchant banks and investment advisory firms often operate under one brand—with suitable checks and supervisory frameworks in place.

Bottom Line: A Thoughtful Reform, Not a Reckless One

SEBI’s modernisation of merchant banking rules isn’t about deregulation. It’s about recognising how the market has evolved, and adapting the regulatory framework accordingly.

By enabling merchant bankers to offer more services—while reserving complex mandates like IPOs for only the strongest players—SEBI is future-proofing the industry without loosening investor safeguards.

Share: