Sebi Merchant Banker Norms: Net Worth and Revenue Rules

10 December 20251 min read

Why in the news

Sebi tightened capital and revenue conditions for merchant bankers while letting them do some non-regulated fee-based work.

Merchant banker (MB): an intermediary that helps corporates, governments and wealthy clients raise capital and handle financial deals, rather than taking deposits.
Liquid net worth: at least 25% of minimum net worth at all times.
Underwriting cap: 20 times the liquid net worth.
Revenue test exemption: not applicable to MBs handling only non-convertible securities, securitised debt, security receipts, municipal debt, commercial papers, REITs and InvITs.
Non-regulated activities: MBs may undertake fee-based, non-fund work in areas outside any financial sector regulator, subject to conditions; the earlier plan to hive them off into a separate entity was relaxed after feedback.
Valuations: independent registered valuers now value ESOPs and sweat equity shares.

Parameter	Category 1	Category 2
Minimum net worth	₹50 crore	₹10 crore
Activities	All permitted activities	All except main-board equity issue management
Cumulative revenue (last 3 FYs)	₹12.5 crore	₹2.5 crore

Aims at stronger finances to absorb underwriting and market risks, and to limit over-leverage.
Gives room to diversify and improves ease of doing business.
Larger MBs gain autonomy; smaller ones are barred from main-board equity issues but may widen other work.
Expected to encourage consolidation and better compliance.

Test yourself

1. What minimum net worth must a Category 1 merchant banker maintain under Sebi's revised rules?

Category 1 needs ₹50 crore; Category 2 needs ₹10 crore.

2. Sebi capped a merchant banker's underwriting at how many times its liquid net worth?

The underwriting limit is 20 times liquid net worth.

3. Who replaced merchant bankers for valuing ESOPs and sweat equity shares under the Sebi changes?

Sebi replaced MBs with independent registered valuers for these valuations.