Description

SEBI specifies phased implementation timelines and compliance requirements for revised capital adequacy and liquid net worth norms for Merchant Bankers effective January 03, 2026.

Summary

SEBI has issued detailed implementation guidelines for the SEBI (Merchant Bankers) Amendment Regulations, 2025, which come into effect on January 03, 2026. The circular specifies phased compliance timelines for revised capital adequacy and new liquid net worth requirements for Merchant Bankers. Category I MBs must achieve Rs. 50 crore net worth and Rs. 12.5 crore liquid net worth, while Category II MBs require Rs. 10 crore net worth and Rs. 2.5 crore liquid net worth by January 02, 2028 through a two-phase implementation.

Key Points

  • Amendment Regulations effective from January 03, 2026
  • Two-phase implementation: Phase I by January 02, 2027 and Phase II by January 02, 2028
  • New applicants from January 03, 2026 must meet full requirements immediately
  • Existing MBs must intimate SEBI of their chosen category by January 02, 2027
  • MBs failing Category I requirements will be automatically designated as Category II
  • MBs failing Category II requirements cannot undertake fresh permitted activities
  • Half-yearly certification of net worth and liquid net worth compliance required

Regulatory Changes

Capital Adequacy Requirements:

Phase I (by January 02, 2027):

  • Category I: Net worth Rs. 25 crore, Liquid net worth Rs. 6.25 crore
  • Category II: Net worth Rs. 7.5 crore, Liquid net worth Rs. 1.875 crore

Phase II (by January 02, 2028):

  • Category I: Net worth Rs. 50 crore, Liquid net worth Rs. 12.5 crore
  • Category II: Net worth Rs. 10 crore, Liquid net worth Rs. 2.5 crore

Categorization Requirements:

  • Existing MBs can continue as Category I or II until January 02, 2027
  • Must notify SEBI via email to mb@sebi.gov.in with CA-certified net worth certificate
  • Automatic downgrade to Category II if Category I requirements not met
  • Restriction on fresh activities if Category II requirements not met

Compliance Requirements

For New Applicants (from January 03, 2026):

  • Must fulfill revised capital adequacy under Regulation 7
  • Must meet liquid net worth requirements under Regulation 7A at time of application

For Existing Merchant Bankers:

  • Continue operations in current category until January 02, 2027
  • Submit category choice intimation with CA-certified net worth certificate by January 02, 2027
  • Achieve Phase I targets by January 02, 2027
  • Achieve Phase II (final) targets by January 02, 2028
  • Submit half-yearly reports with CA certification of net worth and liquid net worth maintenance
  • Certificate must confirm compliance “at all times during the corresponding half year period”

Definition Requirements:

  • Liquid net worth definition specified under Regulation 7A (content incomplete in provided excerpt)

Important Dates

  • December 05, 2025: SEBI (Merchant Bankers) Amendment Regulations, 2025 notified
  • January 03, 2026: Effective date of Amendment Regulations
  • January 02, 2027:
    • Phase I compliance deadline
    • Deadline for intimating chosen category to SEBI
    • Existing MBs must meet interim capital requirements
  • January 02, 2028: Phase II final compliance deadline for full capital adequacy and liquid net worth requirements

Impact Assessment

Industry Impact: This circular creates significant capital pressure on Merchant Bankers, particularly smaller entities. The phased approach provides 2 years for full compliance, but the requirements represent substantial increases (Category I: 100% increase in net worth from Rs. 25 cr to Rs. 50 cr).

Operational Impact:

  • Smaller MBs may need to raise additional capital or downgrade to Category II
  • MBs unable to meet Category II requirements will face business restrictions on fresh activities
  • Increased compliance burden through mandatory half-yearly CA certifications
  • Potential market consolidation as smaller players may exit or merge

Risk Mitigation: The higher capital requirements aim to strengthen financial stability of intermediaries and protect investor interests by ensuring MBs have adequate financial resources to conduct operations and manage risks effectively.

Impact Justification

Significant changes to capital requirements for all Merchant Bankers with strict phased compliance timelines and potential restrictions on non-compliant entities