The Securities and Exchange Board of India (SEBI) has announced detailed phased timelines for merchant bankers to comply with enhanced Merchant Bankers Regulations, including higher capital adequacy, liquid net worth requirements, underwriting limits and strengthened governance norms. The revised framework becomes effective January 3, 2026, raising entry barriers and tightening ongoing compliance for both new and existing merchant bankers. The regulatory tightening comes against the backdrop of a record primary market, with India emerging as the world's second-largest equity issuance hub, raising over $21.00 billion through IPOs and other public issues.

Implementation Timeline and Capital Requirements

Under the new regime, applicants seeking registration from January 3, 2026 must meet enhanced net worth and liquid net worth requirements upfront. Existing merchant bankers will receive a phased transition period extending till January 2028. The framework represents amendments to the SEBI (Merchant Bankers) Regulations, 1992, with staggered compliance timelines for existing entities.

Liquid Net Worth Standards and Asset Definition

SEBI has clearly defined "liquid net worth" as unencumbered cash or near-cash assets that must be maintained at all times. This includes cash, bank deposits, government securities, select mutual fund units and listed Nifty 500 shares, subject to prescribed haircuts. The liquid net worth thresholds represent 25% of the corresponding net worth requirements. Firms failing to meet Category I thresholds will be automatically reclassified as Category II.

Underwriting Limits and Compliance Requirements

SEBI has capped underwriting exposure, mandating that total underwriting obligations cannot exceed 20 times a merchant banker's liquid net worth. Existing entities have until January 2, 2028 to align with this requirement, providing a two-year transition window. Regular half-yearly certification by chartered accountants will be required to demonstrate ongoing compliance with capital, liquidity and underwriting limits.

Enhanced Governance Framework

Governance and personnel norms have been significantly tightened. Merchant bankers must appoint an independent compliance officer, separate from the principal officer and key operational staff, by April 3, 2026. Principal officers must have at least five years of financial market experience, with existing firms given one year to comply. Professional certification has been made mandatory, requiring relevant employees and compliance officers to clear specified NISM examinations within stipulated timelines.

Revenue Requirements and Operational Restrictions

Merchant bankers will now be required to generate minimum revenue from permitted activities - ₹25.00 crore for Category I and ₹5.00 crore for Category II on a cumulative three-year basis, failing which registration may be cancelled. The first assessment will be conducted from April 2029. The circular also bars outsourcing of core merchant banking activities beyond a short transition period, tightens disclosure norms, and mandates that merchant bankers cannot lead manage any public issue where their directors or key personnel hold more than 0.10% of paid-up share capital or shares worth more than ₹10.00 lakh. The phased approach seeks to balance stability with continuity while setting higher standards for financial strength and governance in an increasingly vibrant IPO ecosystem.

SEBI Chairman Tuhin Kanta Pandey has marked the 40th anniversary of the Sensex by highlighting the remarkable transformation of India's capital markets from manual trading systems to sophisticated global integration. Speaking at a BSE celebration event, Pandey emphasized that the next phase of market development will prioritize quality, governance, and technological resilience over traditional scale metrics.

Historical Foundation and Forward-Looking Vision

Pandey reflected on the contrasting market landscape when the Sensex was launched in 1986, describing it as a period when "India's economy and markets were very different from what we see today." He noted that trading was manual, market participation was limited, and the economy remained relatively inward-looking.

"Yet, the idea behind the Sensex was forward-looking to create a transparent, representative and credible benchmark that reflected the performance of leading companies in the economy," the SEBI Chairman stated.

Institutional Resilience and Continuity

The SEBI chief highlighted the remarkable continuity of certain companies that have maintained their Sensex constituent status since the index's inception. "Over four decades marked by liberalisation, technological disruption, regulatory evolution and global shocks, these enterprises have adapted without losing sight of their core principles," Pandey observed.

He emphasized that this sustained presence reflects "sustained attention to governance, competitiveness and long-term value creation," reinforcing that while markets respond to cycles, enduring value is built across generations.

Pandey also noted the BSE's unique position as one of the oldest stock exchanges in Asia, having witnessed and endured global crises including World Wars, the Great Depression of 1929, oil shocks, dot-com bubble-burst, Global Financial Crisis, and the COVID-19 pandemic.

Strategic Priorities for Future Development

Outlining SEBI's vision for the next phase, Pandey emphasized that market development will be defined not just by scale, but by quality and sophistication. The regulator has identified several key priority areas:

Technology and Risk Management

The SEBI Chairman highlighted the regulator's proactive approach to emerging technologies, particularly artificial intelligence in market supervision. He cited specific implementations such as SEBI Sudarshan for detecting unauthorized digital activity and AI-driven systems for monitoring advertisements and corporate disclosures.

"The next frontier for Sebi lies in anticipating risks before they surface as markets evolve with emerging technologies," Pandey stated, emphasizing the importance of staying ahead of potential challenges in an increasingly complex market environment.

As the Sensex celebrates four decades of tracking India's economic pulse, SEBI's strategic focus on quality governance and technological resilience positions the markets for sustainable growth in the evolving global financial landscape.