SEBI has issued the Merchant Bankers (Amendment) Regulations, 2025, bringing a sweeping overhaul to how merchant bankers operate in India.

1. Redefinition of ‘Principal Officer’: The term now requires a merchant banker to designate an employee with at least 5 years’ experience to act as principal officer overseeing the core merchant banking operations and regulatory compliance.

2. New Categorisation of Merchant Bankers: MBs must register under one of two categories: Category I allowed to undertake all permitted merchant-banking activities; Category II certain activities (notably mainboard public issue management) are not permitted under Category II.

3.    Capital: Category I MBs must have minimum net worth of ₹50 crore, Category II MBs at least ₹10 crore.

4.    Mandatory liquid net worth: There is a new requirement for LNW. Category I must maintain ₹12.5 crore in liquid assets at all times; Category II ₹2.5 crore.

5.    Tighter definition of ‘permitted activities’ + restrictions on outsourcing core functions: Core roles like due-diligence, drafting offer documents, valuations either need to be done in-house or as per stricter SEBI defined norms.

6.    Conflict of Interest & Insider-Trading Safeguards: Revised norms bar MBs from acting as lead managers for public issues where they or their associates hold securities worth over a certain threshold of the issuer’s share capital. Also, they are barred from trading in securities of issuers during assignments using UPSI.

7.    Appointment of Compliance Officer by MB: A designated CO with minimum 2 years experience must ensure compliance and report to SEBI; the position cannot remain vacant beyond a short period.

8.    New Reporting & Regulatory Oversight Powers: MBs must now periodically report specific activities to SEBI. SEBI also now has explicit power to issue clarifications/guidance under the new regulations.

9.    Separation of Business Units: MBs engaged in activities overseen by other regulators must operate these functions through clearly segregated business units. All activities to be migrated to separate units within 6 months of the amendment.

What It Means?

1. For small/mid-size MBs: The bar is now higher. MBs with low capital may either need to raise funds, restructure or scale down to advisory/private placement roles rather than full fledged issue management.

2. For new applicants: Entry is more demanding but the licence will carry more credibility, signalling better capitalised, serious players.

3. For issuing companies: Likely fewer but stronger, more stable merchant banker partners potentially improving due diligence, underwriting reliability, transparency.

3. For investors & markets: Better safeguards, more disciplined issue management which can boost overall confidence in primary markets, especially in volatile times.