Summary: This blog deals with the key changes introduced in terms of the SEBI (Merchant Bankers) (Amendment) Regulations, 2025, issued through a notification dated December 3, 2025. Building on SEBI’s proposals, this piece outlines how the amendments overhaul the existing SEBI (Merchant Banker) Regulations, 1992 for the first time since their introduction and highlights the major reforms that will come into effect from January 1, 2026.
Background
Merchant bankers (“MBs”) play an indispensable role in capital markets. Over the years, the roles, responsibilities and scope of business undertaken by MBs have increased significantly. Recognising this, the Securities and Exchange Board of India (“SEBI”) has been releasing various proposals pertaining to their activities and other related matters since August, 2024.
Finally, on June 18, 2025, SEBI approved a more calibrated set of proposals pertaining to the merchant bankers framework (“June 2025 Meeting”) (link), revising certain proposals approved previously. These were notified as law through the Securities and Exchange Board of India (Merchant Bankers) (Amendment) Regulations, 2025, dated December 03, 2025 (“Amendment Regulations”), marking the first comprehensive overhaul of the Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992 (“MB Regulations”) since their introduction. These amendments are set to come into force on January 1, 2026.
Following are the key changes to the MB Regulations introduced by the Amendment Regulations.
Clearing the air on the scope of permitted activities for MBs
A key proposal in the consultation paper issued in August, 2024[1] (“Consultation Paper”) was to restrict the range of activities that MBs could perform. This was based on SEBI’s concerns that MBs were expanding into areas such as project advisory, rupee term loan syndication, and private placements of unlisted securities. SEBI viewed this expansion as problematic, both from a jurisdictional and systemic risk perspective.[2] To remedy this, the Consultation Paper proposed a tightly defined list of permitted activities that MBs could undertake, which were notified with a few changes through the Amendment Regulations.
Accordingly, the scope of permitted activities for MBs is now provided in the MB Regulations. It covers managing capital markets issuances (such as public issues, qualified institutional placements, rights issues of securities and advisory/ consulting services incidental to such issues); transactions in respect of listed and to be listed securities, managing international offering of securities and advisory thereof, etc. (“MB Activities”)[3]. SEBI has clarified that for this purpose; securities will be treated as ‘proposed to be listed’ from the date of approval of the board of the issuer for the issuance of such securities to be listed on a recognised stock exchange.
In addition to the list of MB Activities, SEBI has explicitly permitted MBs to undertake the following activities on an arm’s length basis through separate business units (“SBUs”):[4]
- other SEBI regulated activities per the relevant SEBI regulations and by obtaining relevant registrations;
- activities within the purview of any other financial sector regulator or authority specified by SEBI (“Other Regulator”), as per their respective regulations or guidelines, if any; and
- activities outside the purview of SEBI or any Other Regulator, which are fee-based, non-fund based and pertain to the financial services sector.
A transition period of six months from January 01, 2026, has been provided for transferring such activities to SBUs. One should note that an SBU would not be a separate legal entity.
SEBI adopted a more balanced approach by permitting the above activities to be housed in the same entity, albeit through SBUs. Entities will accordingly have to ensure robustness of their systems and processes (such as having adequate policies with respect to Chinese walls) to ensure in-substance segregation of merchant banking activities from other activities housed in SBUs. An MB must also ensure that the net-worth specified for it is ring-fenced from any adverse impact that may arise from undertaking such other activities.
Revised categorisation, capital adequacy and minimum revenue requirement
SEBI has now divided the categories of MBs into two, viz.,
Category I – high capital MBs can carry out all permitted activities; and
Category II – lower capital MBs can carry out all permitted activities, except main board public issues[5].
All existing MBs will be required to recategorise themselves per the above, within prescribed timelines.
While previously a net worth of INR five crore was applicable across categories,[6] SEBI has now adopted a tiered approach. New requirements with respect to liquid net worth and minimum revenue from MB Activities have also been introduced. A snapshot of the capital adequacy requirements as applicable to each category is set out below:[7]
| Applicable Capital Adequacy Requirements | Category I MBs | Category II MBs |
| Net-worth | At least INR 50 crore | At least INR 10 crore |
| Liquid Net-worth | At least INR 12.50 crore | At least INR 2.5 crore |
Note: ‘liquid net worth’ means “the net worth that is deployed in unencumbered liquid assets, as may be specified by SEBI”, and ‘liquid assets’ means “low risk assets that can be converted into cash in a short period of time such as cash, fixed deposits, government securities, money market instruments, treasury bills, repo on government securities and acceptable marketable securities with applicable haircut”.
SEBI has also introduced a minimum revenue requirement, although the quantum has not been specified in the Amendment Regulations, despite being approved in the June 2025 Meeting.
Conflict of Interest
Under the existing framework, where an MB is an associate of an issuer or of a person making an offer to sell or buy securities, it can only be involved in the marketing of the issue. The threshold for assessment of an “associate” basis voting rights has been reduced from 15% to 10%, (in line with the threshold for determining significant beneficial owner under the Companies Act, 2013, and other SEBI regulations).[8]
SEBI has introduced a new provision which prohibits MBs from lead managing any public issue if its directors, other key managerial personnel, compliance officers, specified employees or their relatives (individually / together) hold over 0.1% of the paid up share capital or shares whose nominal value is more than INR 1 million, whichever is lower, in the issuer. In such scenarios, MBs will only be allowed to undertake marketing of the issue with appropriate disclosures in the offer document.[9]
Further, SEBI has restricted MBs from managing their own issues or be associated with any other activity undertaken under any of the SEBI regulations in respect of their own issues.[10]
Other notable changes
Some of the other changes notified through the Amendment Regulations are:
Outsourcing: While the SEBI had already prohibited outsourcing of core activities in terms of its Circular titled “Guidelines on Outsourcing of Activities by Intermediaries” dated December 15, 2011, it has now identified core functions of an MB and explicitly included a provision prohibiting outsourcing of such activities viz., (i) due diligence activities; (ii) preparation of offer related document; and (iii) any other activity as may be specified by SEBI.[11]
Minimum qualifications for certain personnel: Comprehensive qualifications have been introduced for compliance officers to be appointed by MBs.[12] Further, the criteria for a principal officer have now been updated, stipulating at least five years of experience in financial markets.[13]
Local presence: SEBI has clarified that MBs will need to have a local presence in India through a body corporate or a limited liability partnership firm. Body corporates incorporated outside India (other than RBI-licenced foreign banks) have been excluded, along with One Person Companies and non-banking financial companies.[14]
Uderwriting obligations: The minimum underwriting obligation of 5% of the total underwriting commitment or INR 25 lakh (whichever is less) has been done away with, to align the underwriting obligations under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. The maximum threshold has now been pegged to 20 times the ‘liquid net worth’ instead of the previous ‘net worth’.[15]
Preservation of data: The minimum period for preserving the books of account and other records has been increased from five years to eight financial years.[16] Additionally, an MB will be required to maintain all data and information within the territorial limits of India as per the data storage and localisation norms.
Concluding Remarks
This entire process reflects a securities market regulator that is willing to listen, evolve and adapt basis market feedback. In response to these amendments, in the coming months, the MBs may have to review the potential internal restructuring to meet regulatory requirements.
For further information, please contact:
Yash J. Ashar, Partner, Cyril Amarchand Mangaldas
ash.ashar@cyrilshroff.com
[1] Consultation paper titled ‘Review of Securities and Exchange Board of India (Merchant Bankers) Regulations, 1992’
[2] Paragraph 8.2.2 of the Consultation Paper.
[3] Regulation 13A of Amendment Regulations. The complete list of MB Activities is as under: (i) Managing public issues, qualified institutional placements, rights issues of securities and advisory/ consulting services incidental to such issues; (ii) Managing (a) acquisitions and takeovers; (b) buybacks; (c) delisting; (d) compliances in respect of schemes of arrangement; (e) implementation of schemes with respect to share-based benefits and sweat equity, under the relevant SEBI regulations and other advisory or consulting services incidental to such activities; (iii) Underwriting; (iv) Private placement of listed or proposed to be listed securities and activities incidental thereto; (v) Managing international offering of securities and incidental advisory/ consulting services to such offering; (vi) Filing placement memorandum of alternative investment funds; (vii) Issuing fairness opinion; (viii) managing secondary market transactions of listed securities and activities incidental thereto; (ix) market making in accordance with the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018; and (x) Any other activity as may be specified by SEBI.
[4] Regulation 13A(2) of Amendment Regulations.
[5] Regulation 3(4) of Amendment Regulations.
[6] Regulation 7 of MB Regulations.
[7] Regulation 7A of Amendment Regulations.
[8] Regulation 21A of Amendment Regulations.
[9] Regulation 21C of Amendment Regulations.
[10] Regulation 21B of Amendment Regulations.
[11] Regulation 9A(1) of Amendment Regulations.
[12] Regulation 28A of Amendment Regulations.
[13] Regulation 2(1)(d) of Amendment Regulations.
[14] Regulation 6(a) of Amendment Regulations.
[15] Regulation 22B(2) of Amendment Regulations.
[16] Regulation 16(1) of Amendment Regulations.
