SEBI has rolled out major changes to merchant banking rules that could reshape who gets to advise on big deals in India.
What the rules were meant to do
The regulator says the updates aim to make the merchant‑banking business more professional and protect investors. The new framework will start on 3 January 2026.
Key changes you need to know
Higher capital thresholds
- Merchant bankers must now have a much larger net‑worth and liquid net‑worth.
- The limits were designed for a 1990s market where banks actually under‑wrote risk with their balance sheets.
- Today, most merchant bankers act as advisors, so the extra capital may not improve protection.
Minimum revenue requirements
- Firms must also meet a set level of annual revenue to stay registered.
- This could keep talented professionals from starting smaller advisory boutiques.
Forced segregation of activities
- Bankers have six months to split any non‑SEBI‑regulated work into a separate unit and disclose it online.
- In practice, many services – like IPO advice, M&A, REITs, and private‑capital deals – overlap and are hard to separate cleanly.
Why it matters to investors
When only a few large firms meet the new thresholds, competition may shrink. Fewer advisors can mean higher fees and less choice for companies raising money, which ultimately affects shareholders.
Possible impact on the market
- Consolidation: Smaller players might merge or exit, leading to an oligopoly.
- Reduced innovation: New entrants with fresh ideas could find it harder to break in.
- Governance focus: Instead of strict capital rules, stronger disclosure and oversight could protect investors without limiting the pool of advisors.
Looking ahead
The intention to professionalise the sector is sensible, but the current approach may unintentionally favor the big guys. A balanced view would keep capital rules reasonable and rely on clear governance, conflict‑of‑interest walls, and robust inspections.
Conclusion
While the rules are set to take effect, there is still time for SEBI to revisit the tougher requirements. A more flexible framework could preserve a diverse ecosystem of merchant bankers, which is essential for a healthy capital market.
Remember, this is perspective, not a prediction. Do your own research before making any investment decisions.