TLDR: The Indian financial market has always been dynamic, but recent reforms by the Securities and Exchange Board of India (SEBI) have truly set the stage for a major shakeup in merchant banking activities. Whether you’re an investor, a business planning a public offering, or simply someone keeping an eye on market trends, these amendments are bound to catch your attention.

Imagine a world where merchant bankers operate with the highest levels of professionalism, free from conflicts of interest, and financially equipped to navigate even the most turbulent times. This is the vision SEBI is striving to achieve with its latest amendments to the SEBI (Merchant Bankers) Regulations, 1992. Curious to know how this impacts you? Let’s break it down.

 

What’s Changing? The Big Picture

SEBI’s recent amendments aim to make merchant banking in India more transparent, professional, and aligned with global standards. By introducing stricter norms around permissible activities, net worth requirements, and operational conduct, SEBI is taking bold steps to enhance the integrity of the sector. Here’s a deep dive into the key changes:
 

1. Segregation of Permissible and Non-Permissible Activities

Let’s start with the big one. SEBI now mandates that merchant bankers (MBs)—except banks, public financial institutions, and their subsidiaries—stick to specified permissible activities. Any non-permissible activities must be segregated into separate legal entities within two years.

Why This Matters:

  • By separating core merchant banking operations from other activities, SEBI aims to prevent conflicts of interest.

  • Each entity will now operate under a distinct brand name and adhere to SEBI’s code of conduct.

This move ensures that MBs can focus on their core functions like managing public offerings, mergers and acquisitions, and underwriting, without the distractions of unrelated activities.
 

2. Categorized Merchant Bankers – A New Framework

One size doesn’t fit all, and SEBI recognizes that. Hence, the introduction of a two-tier categorization for merchant bankers based on net worth:

  • Category 1 MBs: With a net worth of at least ₹50 crore, they can undertake all permitted activities, including managing equity issues on the main board.

  • Category 2 MBs: With a minimum net worth of ₹10 crore, they can engage in all activities except managing equity issues on the main board.

What Does This Mean for the Industry?

  • This classification ensures that only well-capitalized MBs manage large-scale public offerings.

  • For businesses planning IPOs, this change boosts market stability and investor confidence, knowing that only financially robust entities handle their offerings.

3. Liquid Net Worth – A New Safety Net

SEBI now requires MBs to maintain a liquid net worth of at least 25% of their total net worth at all times.

Why This is a Game-Changer:

  • Liquid net worth ensures that merchant bankers have enough liquidity to meet their financial obligations.

  • This safeguard protects investors and clients, especially during periods of market volatility.

By promoting financial resilience, SEBI is setting a standard that ensures the merchant banking industry is always prepared for contingencies.
 

4. Valuation Services – A Line in the Sand

One of the most notable changes is the prohibition on MBs undertaking fresh valuation assignments without obtaining a separate registration from the appropriate regulatory authority within nine months.

Existing Assignments?
They can continue, but future engagements will require compliance with this directive.

Impact:

  • This move eliminates potential conflicts of interest, ensuring that valuation services remain objective and unbiased.

  • For businesses seeking valuation services, this change guarantees more transparency and trust in the process.

5. Revenue and Underwriting Limits – Keeping Things Realistic

SEBI has introduced revenue thresholds for MBs:

  • Category 1: Must achieve a cumulative revenue of at least ₹25 crore over the three immediately preceding financial years.

  • Category 2: Must achieve cumulative revenue of at least ₹5 crore over the same period.

Additionally, MBs are now restricted to underwriting commitments not exceeding 20 times their liquid net worth.

What’s the Purpose?

  • These revenue benchmarks ensure that MBs remain active players in the market.

  • Underwriting limits prevent MBs from taking on excessive financial risks, protecting both themselves and their clients.

 

How These Amendments Impact the Merchant Banking Industry

Enhanced Professionalism

By enforcing activity segregation and stricter net worth requirements, SEBI is raising the bar for professionalism in the industry. MBs are now better equipped to provide reliable and trustworthy services.

Conflict of Interest Mitigation

With valuation services and merchant banking operations separated, the chances of biased financial advice or reporting are minimized. This change promotes credibility across the board.

Market Stability

Stronger net worth and liquidity requirements ensure that only financially sound MBs operate in the market. This creates a more stable and resilient financial ecosystem, benefiting both businesses and investors.

 

What Lies Ahead?

SEBI’s proactive approach demonstrates its commitment to keeping pace with evolving market dynamics and aligning with global best practices. As these changes take effect, here’s what stakeholders can expect:

  1. For Businesses:
    Companies planning IPOs or M&A transactions can now engage with merchant bankers who are more financially stable, credible, and focused.

  2. For Investors:
    With stricter norms and conflict mitigation measures, investors can enjoy enhanced transparency and trust in financial advisory services.

  3. For the Merchant Banking Industry:
    Adapting to these changes might initially pose challenges, but in the long run, these reforms will elevate the overall quality and reliability of merchant banking services in India.

 

Why Choose Corpzo for Your Merchant Banking Needs?

Navigating SEBI’s updated regulations can be overwhelming, but that’s where Corpzo steps in. We specialize in simplifying compliance processes and helping businesses meet regulatory requirements with ease.

Here’s Why Corpzo is Your Trusted Partner:

  • Expertise You Can Count On: Our team has in-depth knowledge of SEBI regulations, ensuring that you’re always one step ahead.

  • Tailored Solutions: We understand that every business is unique. That’s why we offer customized solutions that align with your specific needs.

  • Time-Saving Efficiency: From documentation to regulatory filings, we handle it all, saving you valuable time and effort.

  • Transparent and Affordable Services: No hidden costs, no surprises—just straightforward, cost-effective support.

Need help navigating SEBI’s new regulations? Call +91 9999 139 391 or WhatsApp for a free consultation today!

 

Final Thoughts

SEBI’s amendments to the Merchant Bankers Regulations are a much-needed step toward a more professional, transparent, and resilient financial market. While the changes may seem daunting at first, they promise long-term benefits for businesses, investors, and the merchant banking industry as a whole.

As India aligns its financial regulations with global standards, the future of merchant banking looks brighter than ever. Ready to adapt to these changes? Let’s make it happen together.