In a circular issued today, SEBI has proposed a higher net-worth threshold with a new requirement to maintain liquid net worth at all times – defined as unencumbered cash or near-cash assets. For Category I merchant bankers, the minimum net worth requirements will increase to Rs. 25 crore and by January 2028 Rs. 50 crore, the corresponding liquid net-worth threshold will be Rs. 6.25 crore and Rs. 12.5 crores (25% of this amount).
Category II entities will receive Rs. 7.5 crore and Rs. 10 crore net worth, once again in Phase-I Rs. 1.875 crore and in Phase-II Rs. 2.5 crore liquid buffer is mandatory.
Underwriting Exposure
Live events
The regulator has also capped underwriting exposure, mandating that total underwriting liabilities should not exceed 20 times the merchant banker’s liquid net worth, with a two-year transition window for existing players. MBs should comply with this requirement within two years from the effective date i.e. 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.
SEBI’s circular also tightens operational and governance norms. Merchant bankers will be required to appoint independent compliance officers, ensure that chief executives have at least five years of market experience and prevent outsourcing of core merchant banking activities after a short transition period. Employees and compliance officers will also be required to pass the specified NISM certification exams within the stipulated time frame.
Income Threshold
SEBI has introduced a minimum income limit from merchant banking activities – for Category I entities over three years of Rs. 25 crore and for Category II Rs. 5 crore- with the first assessment slated for FY29. Failure to meet these criteria may 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 conducting fundraising are well-capitalized, professionally run and able to withstand market stress.
Overall, the phased approach seeks to balance stability with continuity – giving existing merchant bankers time to adjust, while setting a high bar for financial soundness, governance and investor protection in an increasingly dynamic IPO ecosystem.
SEBI has also ordered that merchant bankers shall not manage any public issue, where its directors, other key managerial personnel or their relatives individually or collectively hold more than 0.1% of the paid-up share capital or shares having a nominal value of Rs. 10 lakhs, whichever is less.
(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times.)
(You can now subscribe to our ETMarkets WhatsApp channel)