Promoters planning an IPO over the next year or two will find that merchant banker conversations look a little different now. SEBI notified the SEBI (Merchant Bankers) (Amendment) Regulations, 2025 on December 3, 2025, with the changes taking effect January 3, 2026, and followed up with an operational circular on January 2, 2026 that spells out exactly how the new framework works. This is the first substantial overhaul of the merchant banker regulations since they were first introduced in 1992, and it directly changes who is eligible to lead your issue.
For three decades, merchant banker essentially meant one thing: a firm holding a SEBI certificate that managed issues under a single registration category. That single-tier structure is gone. SEBI now recognises two categories, each with its own net worth thresholds, revenue benchmarks, and list of permitted activities. SEBI also revised several of the original deadlines in a June 2026 circular after industry feedback, so the compliance calendar looks a bit different today than it did when the rules were first notified.
Here is what actually changed, with the current figures and dates, and what a promoter or CFO should check before signing a mandate.
Why SEBI Decided to Rewrite the Rulebook
Merchant banking activity had expanded well beyond issue management over the years, into valuations, advisory, and M&A support, without a matching increase in capital and governance requirements. SEBI’s board first proposed addressing this in December 2024, and the original plan was fairly aggressive: firms would have had to hive off non-SEBI-regulated activities into a separate legal entity altogether.
After feedback from market participants, SEBI backed away from a full corporate split and settled on a lighter-touch version instead. Non-regulated, fee-based activities can stay within the same entity, but they now have to run through a Separate Business Unit (SBU) with proper Chinese walls, separate personnel, and separate records. The bigger structural change ended up being the net worth-based categorisation rather than a forced break-up.
The Two Categories, by the Numbers
SEBI has replaced the earlier structure with two categories.
Category I merchant bankers can manage mainboard IPOs, handle underwriting, and run every activity a merchant banker is permitted to undertake. Net worth needs to reach ₹25 crore in Phase I and ₹50 crore in Phase II, with at least 25% of that held as liquid net worth at all times. Minimum cumulative revenue from permitted activities over the preceding three financial years must be at least ₹25 crore, first assessed from April 1, 2029.
Category II merchant bankers face a lower bar: ₹7.5 crore net worth in Phase I, rising to ₹10 crore in Phase II, with the same 25% liquid net worth condition and a minimum cumulative revenue of ₹5 crore. They can still lead SME IPOs, rights issues, buybacks, open offers, and private placements. What they can no longer do is act as lead manager on a mainboard equity IPO.
Underwriting exposure is capped at 20 times an MB’s liquid net worth, regardless of category. Core due diligence work can no longer be outsourced. An independent compliance officer has been mandatory since April 3, 2026, and principal officers need a minimum of five years’ experience in the securities or financial markets.
On timelines: the original circular set Phase I compliance for January 2, 2027 and Phase II for January 2, 2028, with self-categorisation intimation to SEBI due by January 2, 2027. SEBI revised these in June 2026 after industry representations. Phase I compliance is now due March 31, 2027, Phase II is due March 31, 2028, and the self-categorisation deadline moved to March 31, 2027. The SBU transfer deadline for non-regulated activities was also pushed from July 3, 2026 to December 31, 2026.
What This Means If You're Taking an SME Company Public
Most SME issuers will still find plenty of Category II bankers to work with, and that’s the natural fit for an SME listing anyway given the lower net worth and revenue thresholds. The thing to watch for is what happens later. If your SME company is planning to migrate to the mainboard down the line, a Category II banker who took you through the SME listing may not be eligible to lead that mainboard issue unless they’ve upgraded to Category I by then.
Worth asking about this upfront, not two years in when you’re actually ready to migrate. A banker’s category isn’t fixed forever given the phased compliance window running through March 2028, but you want to know their upgrade plans, not just their current registration.
What This Means If You're Eyeing the Mainboard
For mainboard-bound companies, the pool of eligible lead managers is likely to shrink over the next couple of years as smaller firms either raise capital to hit the ₹50 crore Category I threshold or settle into Category II and stop competing for mainboard mandates. Some consolidation among merchant banking firms looks like a fairly natural outcome of these thresholds, and it appears to be an intended one: fewer, better-capitalised players leading the largest issues.
A firm that looks like solid Category I material today could still be mid-transition on its net worth build-up when you’re ready to file, given the phased deadlines running to March 2028. Ask directly where they stand against those thresholds, not just which category they’ve told SEBI they intend to hold.
Questions Worth Asking Before You Sign a Mandate
A few things worth confirming directly with any banker you’re evaluating:
- Which category are they registered under right now, and which category have they intimated to SEBI they intend to hold?
- If you might migrate from SME to mainboard later, can this banker lead that migration, or will you need to switch partners midway?
- Who’s actually performing due diligence on your issue? Outsourcing core diligence work is no longer permitted, so it should be an in-house team.
- Does their principal officer meet the five-year minimum experience requirement in securities or financial markets?
- Have they filed their CA-certified net worth and liquid net worth certificates on schedule, and where do they stand against the Phase I and Phase II thresholds?
Where a Growth Advisory Partner Fits Into This
A merchant banker’s job is to lead the issue and satisfy the regulator. That’s necessary, but it’s not the whole picture for a promoter. Getting IPO-ready means having your financials audited and defensible well before filing, your compliance history clean, and your equity story built months in advance, not scrambled together once a banker is on board.
This is where a firm like ASB Growth Ventures comes in, working alongside your merchant banker as an IPO consultant rather than instead of one. For SME issuers specifically, bringing in an SME IPO consultant early, someone who understands the SME platform’s compliance rhythm and not just the mainboard playbook, tends to save a lot of last-minute scrambling. The pre-IPO advisory services that matter most in this window are usually the less glamorous ones: financial modeling that actually holds up under a banker’s due diligence, transaction advisory on how the deal itself is structured, and ESOP advisory if employee stock plans need sorting out before the offer document goes out. Getting this readiness work done early makes the actual banker selection conversation a lot simpler, because you’re negotiating from a position of strength rather than trying to fix gaps at the last minute.
The Bottom Line
SEBI’s new categorisation isn’t just paperwork. It changes who’s eligible to lead your issue, how long they’ll stay eligible, and what questions you need to ask before you commit to a banker. Promoters who understand the two-category system, and who check where a prospective banker sits within it, are going to have a much smoother IPO process than those who find out midway through.
If you’re starting to think about a listing, whether SME or mainboard, it’s worth having this conversation early. Regulations like this tend to reward the companies that plan ahead and catch out the ones that don’t.