SEBI Notifies New Merchant Banker Regulations, Mandates Higher Net-Worth and Liquidity Norms [Read Notification]
New measures ensure that merchant bankers cannot function as lead managers in matters in which their senior management people or associated parties have large shareholdings, eliminating conflict-of-interest problems.
The Securities and Exchange Board of India ( SEBI ) has notified the SEBI (Merchant Banker) (Amendment) Regulations, 2025, which make major revisions to the regulatory framework that regulates merchant bankers.
These changes, published in the Gazette of India on December 3, 2025, relax eligibility restrictions, improve governance norms, and demand much greater net-worth and liquidity requirements for commercial bankers.
The regulations take effect 30 days after their release, marking one of the most significant changes to the commercial banking regulatory environment since 1992.
The adjustment of capital adequacy standards is a key component of the changes. The new Regulation 7 mandates a minimum net value of ₹50 crore for Category-I merchant bankers and ₹10 crore for Category-II companies.
These levels reflect an enormous rise above previous regulations, with the goal of guaranteeing that only financially viable firms conduct commercial banking services. The new Regulation 7A mandates liquid net worth criteria (₹12.5 crore for Category-I and ₹2.5 crore for Category-II merchant bankers) to enhance short-term financial resilience.
SEBI has also modified the definition of the Principal Officer, mandating that such an officer have at least five years of expertise in financial markets and oversee core merchant banking operations.
Definition of ‘Principal Officer’ amended as per SEBI Amendment: “principal officer” means an employee of the merchant banker, who has at least five years of experience in working in the financial markets, and who has been designated as such by the merchant banker, and is responsible for the decisions made by the merchant banker for the management or administration of merchant banking activities and all other operations of the merchant banker: Provided that a merchant banker that already holds a certificate of registration under these regulations shall ensure compliance with this clause within such time and in the manner, as may be specified by the Board;”
Furthermore, compliance officers must now hold legal or company secretary qualifications in addition to statutory certifications, which improve accountability and protect investors. The restrictions expressly prohibit the outsourcing of important operations like due diligence, offer document preparation, and actions central to public problem management.
The revisions expand the scope of allowed merchant banking operations by specifying obligations for underwriting, private placement, takeovers, delisting, and REIT/InvIT transactions. New measures ensure that merchant bankers cannot function as lead managers in matters in which their senior management people or associated parties have large shareholdings, eliminating conflict-of-interest problems.
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SEBI has also implemented severe reporting and disclosure requirements for securities transactions conducted during underwriting and market-making activities.
There are a number of transitional measures that will give current merchant bankers time to meet the new standards, according to dates that SEBI will set separately. Additionally, under the recently established Chapter VII, the regulator has the authority to provide instructions or explanations to eliminate challenges in the application of these regulations.
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