Understanding SEBI's 2025 Merchant Banker Regulations

SEBI's 2025 Overhaul of merchant banker regulations

In December 2025, the Securities Exchange Board of India (SEBI) announced a comprehensive overhaul of merchant banker (MB) regulations. This initiative introduced a new capital adequacy framework, which mandates specific requirements for liquid net worth (NW) and minimum revenue generated from permitted activities.

What Changes Were Made?

The recent changes encompass various aspects of merchant banking operations. Here are the key highlights:

• Category Classification: Merchant bankers are now classified into two categories.
  • Category I: Minimum NW of Rs 50 crore (cr); eligible for all permitted activities.
  • Category II: Minimum NW of Rs 10 cr; restricted from managing equity issues on the main board.
• Liquid Net Worth Requirement: All MBs must maintain liquid net worth of at least 25% of their minimum required net worth. Additionally, their underwriting obligations are capped at 20 times their liquid NW.
• Minimum revenue criteria:
  • Category I MBs must achieve cumulative revenues of at least Rs 12.5 cr over the last three financial years.
  • Category II MBs must have cumulative revenues of at least Rs 2.5 cr over the same period.

Merchant Banker Defined

According to the SEBI (Merchant Bankers’) Regulation Act, 1992, a merchant banker is defined as “any person who is engaged in the business of issue management.” This includes making arrangements for selling, buying, or subscribing to securities and providing corporate advisory services.

Objectives of the New Regulations

The primary objectives behind these regulations are:

• financial stability: The new rules aim to ensure the stability of financial institutions.
• Improved risk management: Enhancements in risk management practices are a focal point of the new framework.
• Ease of Doing Business: The regulations are designed to facilitate smoother operations within the financial services sector.

Expanded Activities for Merchant Bankers

Under the revamped rules, merchant bankers can engage in activities regulated by any other Financial Sector Regulator (FSR). Furthermore, activities not covered by SEBI or any other FSB must be fee-based and non-fund-based, primarily focusing on the financial services sector.

Conclusion

In summary, the overhaul of merchant banker regulations by SEBI in 2025 is a significant step towards enhancing the financial landscape in India. By instituting stringent requirements for capital adequacy and revenue generation, SEBI aims to fortify the stability and integrity of the financial system.

Frequently Asked Questions (FAQs)

Q1. What is the main purpose of SEBI's 2025 merchant banker regulations?
Answer: The primary purpose is to ensure financial stability, improve risk management, and facilitate ease of doing business within the financial services sector.

Q2. What are the minimum net worth requirements for Category I and II merchant bankers?
Answer: Category I must maintain a minimum net worth of Rs 50 crore, while Category II must have at least Rs 10 crore.

Q3. How is liquid net worth calculated for merchant bankers?
Answer: Liquid net worth must be at least 25% of the minimum required net worth for all merchant bankers.

Q4. What are the revenue criteria for merchant bankers under the new regulations?
Answer: Category I must have cumulative revenues of Rs 12.5 crore, and Category II must have Rs 2.5 crore over the last three financial years.

Q5. Can merchant bankers engage in activities regulated by other financial sector regulators?
Answer: Yes, under the new regulations, merchant bankers can undertake activities under any other Financial Sector Regulator.

UPSC Practice MCQs

Question 1: What is the minimum net worth for Category I merchant bankers as per SEBI's 2025 regulations?
A) Rs 10 crore
B) Rs 50 crore
C) Rs 25 crore
D) Rs 15 crore
Correct Answer: B

Question 2: What percentage of minimum required net worth must merchant bankers maintain as liquid net worth?
A) 15%
B) 25%
C) 30%
D) 20%
Correct Answer: B

Question 3: How much revenue must Category II merchant bankers generate over three years?
A) Rs 5 crore
B) Rs 2 crore
C) Rs 2.5 crore
D) Rs 3 crore
Correct Answer: C

Question 4: What is the cap on underwriting obligations for merchant bankers based on their liquid net worth?
A) 10 times
B) 15 times
C) 20 times
D) 25 times
Correct Answer: C

Question 5: Which act defines a merchant banker in India?
A) SEBI Act, 1992
B) Companies Act, 2013
C) Merchant Bankers’ Regulation Act, 1992
D) Financial Services Act, 2006
Correct Answer: C