Parth Shah
on
Parth Shah
Register Valuer | CA | CPA | 15+ Years of Experiance
Parth Shah is the Founder and Team Leader of the company, bringing extensive expertise in business valuation and financial advisory.
A merchant bank is a financial institution that provides fee-based advisory, capital-raising, and issue management services to businesses, high-net-worth individuals, and institutional clients. Unlike commercial banks, merchant banks do not accept public deposits. They serve as strategic financial intermediaries between companies seeking capital and investors looking for opportunity.
In India, merchant banking is regulated by the Securities and Exchange Board of India (SEBI) under the SEBI (Merchant Bankers) Regulations, 1992, as significantly amended by the SEBI (Merchant Bankers) (Amendment) Regulations, 2025, which came into force on January 1, 2026. These amendments represent the most sweeping overhaul of Indian merchant banking regulation in over three decades.
Understanding how merchant banking works matters not just for finance professionals but for any founder planning an IPO, any company raising funds through preferential allotment, or any CFO navigating complex regulatory requirements.
Planning an IPO, preferential allotment, or a SEBI-compliant fundraise? My Valuation’s IBBI-registered team provides audit-ready valuation under SEBI reports that merchant bankers and legal advisors rely on. Schedule a free consultation.
Key Takeaways
- Merchant banking in India refers to specialized financial services including issue management, capital raising, underwriting, M&A advisory, and portfolio management for businesses and institutional clients.
- All merchant bankers in India must register with SEBI under the SEBI (Merchant Bankers) Regulations, 1992. As of September 2024, there are 225 registered merchant bankers in India.
- The SEBI (Merchant Bankers) (Amendment) Regulations, 2025, effective January 1, 2026, overhauled the 1992 framework by raising net worth requirements, defining permitted activities under new Rule 13A, and mandating ring-fencing of merchant banking operations.
- Merchant bankers are not the same as investment bankers. Merchant bankers primarily serve growing companies and SMEs; investment banks typically serve large, publicly listed corporations.
- Many merchant banking mandates, especially IPOs, preferential allotments, and FEMA-governed transactions, require an independent valuation report from an IBBI-registered valuer before SEBI filings can be completed.
- India’s IPO market recorded 338 IPOs in 2024, a 44% increase over 2023, making issue management the highest-demand merchant banking service in the country today.
- Merchant bankers are subject to strict conflict-of-interest rules and cannot manage issues where key personnel hold significant shareholding in the issuer company.
- Businesses working with merchant bankers on compliance-heavy mandates should also engage a separate IBBI-registered valuer, since SEBI mandates independent valuation for certain securities transactions.
What is Merchant Banking in India?
Merchant banking in India is a set of specialized financial, advisory, and capital market services provided to companies, promoters, and institutional clients, delivered on a fee basis rather than through deposit-taking or lending.
A simpler way to understand the difference: when you need a personal loan or a home loan, you approach a commercial bank. When a company needs to raise growth capital, execute an IPO, complete a merger, or structure a complex securities transaction, it turns to a merchant banker.
The global merchant banking services market was projected to reach USD 66.7 billion by 2025, growing nearly 20% over the previous year. India’s contribution to this growth is significant. The country recorded 338 IPOs in 2024 alone, a 44% jump over 2023, raising approximately USD 20.99 billion. Merchant bankers managed the entire lifecycle of these transactions: valuation, SEBI filings, pricing, underwriting, investor roadshows, and post-issue compliance.
For any company seeking to access capital markets in India, engaging a SEBI-registered merchant banker is not optional. It is a regulatory requirement.
How is Merchant Banking Regulated in India?
Merchant banking in India operates under the regulatory authority of SEBI. The foundational law is the SEBI (Merchant Bankers) Regulations, 1992. However, the regulatory landscape changed fundamentally with two significant amendments.
What Did the SEBI (Merchant Bankers) (Amendment) Regulations, 2024 Change?
The November 2024 amendment (Notification No. SEBI/LAD-NRO/GN/2024/214) introduced stricter compliance requirements for disclosures and reporting, increased accountability for lead managers in securities issues, and updated eligibility criteria for individuals involved in merchant banking to ensure higher professional standards. It also simplified the language of Regulation 6 to streamline the certificate acquisition process.
What Did the SEBI (Merchant Bankers) (Amendment) Regulations, 2025 Change?
The December 2025 amendment (effective January 1, 2026) is the most consequential reform since the original 1992 regulations. The key changes include:
Higher net worth requirements: Under the 1992 regulations, a merchant banker needed a net worth of only Rs. 5 crore to obtain a Category I license. By 2024, this figure was insufficient to cover even basic operational costs, let alone support the underwriting risks of mainboard IPOs exceeding Rs. 1,000 crore. The 2025 amendments significantly raised the minimum liquid net worth threshold.
New Rule 13A: Defined permitted activities: The amendments introduced Rule 13A, which specifies the activities a registered merchant banker may undertake. Permitted activities now include management of public issues, qualified institutional placements (QIPs), rights issues, acquisitions and takeovers, buybacks, delistings, international offerings of securities, secondary market transactions of listed securities, and private placements of securities proposed for listing.
Separate Business Units (SBUs): Non-core activities, including valuation and consulting, must be conducted through separate business units within the same legal entity. This is a significant departure from the earlier proposal to mandate full legal separation, which the industry had resisted due to tax and operational concerns.
Conflict of interest rules: Merchant bankers are now prohibited from managing issues where their key personnel hold significant shareholding in the issuer company.
Ring-fencing of accounts: Net worth must be ring-fenced and preserved in designated accounts. All accounts must be maintained for at least eight years, with strict data localization requirements.
How Does a Merchant Banker Register with SEBI?
To become a registered merchant banker in India, an entity must:
- Apply to SEBI for registration as a merchant banker
- Meet the updated minimum net worth requirements
- Maintain a certificate of registration, which must be renewed every three years along with the applicable registration and renewal fees
- Comply with all ongoing disclosure, reporting, and conduct obligations under the amended regulations
Registration is mandatory for entities providing issue management services as manager, consultant, advisor, underwriter, or portfolio manager. As of September 2024, there were 225 registered merchant bankers in India.
What Services Do Merchant Bankers Provide in India?
Merchant banking services in India span the full lifecycle of a company’s capital and growth needs. The four broad categories are advisory, financial, underwriting, and management services. Within these categories, the key services are:
1. Issue Management (IPO, FPO, Rights Issue)
Issue management is the flagship service in merchant banking. When a company decides to go public or issue fresh capital through an IPO, FPO, or rights issue, the merchant banker serves as the lead manager for the entire process. This includes preparing the Draft Red Herring Prospectus (DRHP), coordinating SEBI filings, setting the price band, managing investor roadshows, and overseeing the subscription process.
To illustrate: when Burger King India launched its Rs. 810 crore IPO in December 2020, Kotak Mahindra Capital, Edelweiss, JM Financial, and CLSA served as merchant bankers. They managed investor outreach, regulatory filings, pricing strategy, and underwriting arrangements, resulting in the IPO being oversubscribed within hours of opening.
2. Capital Raising and Underwriting
Merchant bankers help companies raise capital by issuing equity shares, debentures, or bonds. Underwriting is a core part of this function. When a merchant banker underwrites a public issue, it guarantees to purchase any unsold portion of the securities offering, removing the subscription risk from the issuer. This guarantee of capital is a critical service for companies seeking certainty in their fundraising outcomes.
3. Mergers and Acquisitions Advisory
When companies plan to merge with, acquire, or be acquired by another business, merchant bankers provide valuation support, deal structuring, due diligence coordination, negotiation strategy, and regulatory compliance guidance. They leverage their connections and sector expertise to identify counterparties, structure terms, and navigate regulatory approvals.
For example, when KKR moved to restructure its 63% stake in Avendus Capital in 2024, merchant bankers played a central role in valuation, transaction structuring, and negotiation.
4. Private Placement and Preferential Allotment
Under SEBI ICDR Regulations 2018, companies can raise capital through private placements and preferential allotments. Merchant bankers manage the regulatory process for these transactions, including preparation of the offer document, SEBI filings, and coordination with stock exchanges. These transactions also require an independent valuation certificate, which must be obtained from an IBBI-registered valuer.
5. Portfolio and Wealth Management
Merchant bankers manage investment portfolios on behalf of high-net-worth individuals and institutional clients. This includes asset allocation, investment selection, tax-efficient structuring, and regular performance reporting.
6. Loan Syndication
When a company needs large-scale debt financing, a single lender may not be able to meet the requirements. Merchant bankers arrange syndicated loans by coordinating multiple lenders, structuring the loan terms, and placing the debt with appropriate financial institutions. SBI Capital Markets, for example, served as lead arranger and financial advisor for a Rs. 15,137 crore syndicated loan to fund the Sudharit Hybrid Annuity Project in Maharashtra.
7. Corporate Advisory
Merchant bankers provide ongoing strategic and regulatory advisory to boards, promoters, and finance teams. This includes compliance monitoring, corporate restructuring guidance, SEBI regulations navigation, and assistance with regulatory filings.
Merchant Banking vs Investment Banking vs Commercial Banking: Key Differences
These three types of institutions are frequently confused. The table below clarifies the critical distinctions.
Parameter | Merchant Banking | Investment Banking | Commercial Banking |
Primary clients | SMEs, growing companies, high-net-worth individuals | Large listed corporations, governments | General public, retail and corporate borrowers |
Core service | Issue management, capital raising, advisory | Securities underwriting, M&A, large-scale deal structuring | Deposits, loans, payment services |
Accepts deposits | No | No | Yes |
Revenue model | Fee-based (advisory and management fees) | Fee-based plus trading revenues | Interest spread on deposits and loans |
Regulatory authority in India | SEBI under Merchant Bankers Regulations, 1992 (as amended 2025) | SEBI (for market activities) | RBI under Banking Regulation Act, 1949 |
Capital requirements | Minimum liquid net worth (revised upward in 2025 amendments) | Higher capital requirements | Statutory minimum capital and CRR/SLR requirements |
Typical deal size | Rs. 500 crore and above | Varies by product | |
Best suited for | IPOs, preferential allotments, startup fundraising, M&A for mid-market | Mega IPOs, sovereign deals, international capital markets | Working capital, retail banking, trade finance |
A startup or mid-market company planning an IPO or preferential allotment will typically work with a merchant banker, not an investment bank. For cross-border deals or large mainboard IPOs, the lines can overlap.
What is the Role of a Merchant Banker in an IPO?
A merchant banker’s role in an IPO is arguably the most complex and regulated function in Indian capital markets. The role begins well before the IPO filing and continues after listing.
Pre-IPO stage: The merchant banker evaluates the company’s readiness for a public issue, advises on the optimal offer size and structure, and begins preparation of the Draft Red Herring Prospectus (DRHP). This stage requires close coordination with the company’s auditors, legal counsel, and independent valuers. Under SEBI ICDR Regulations 2018, certain financial instruments and share classes must be valued independently before the DRHP can be filed.
SEBI filing stage: The merchant banker files the DRHP with SEBI and coordinates responses to SEBI’s observations. All disclosures must be complete, accurate, and compliant with applicable regulations.
Pricing and book building: The merchant banker determines the price band for the IPO, runs the book-building process, and manages allocation to different investor categories (qualified institutional buyers, non-institutional investors, and retail investors).
Post-issue compliance: After listing, the merchant banker oversees allotment, refund processing, and coordinates with the Registrar and Transfer Agent.
The SME IPO segment has been particularly active between 2020 and 2025. This growth exposed weaknesses in due diligence processes, which is precisely what the SEBI (Merchant Bankers) (Amendment) Regulations, 2025 sought to address by raising standards across the board.
If your company is preparing for an IPO, preferential allotment, or a SEBI-regulated fundraise, an independent valuation report is mandatory. My Valuation’s IBBI-registered valuers provide SEBI-compliant valuation certificates that your merchant banker’s filing will require. Get a quote for your valuation.
How Does Merchant Banking Connect to Business Valuation in India?
This is a critical and often misunderstood point: merchant bankers and IBBI-registered valuers serve different but complementary roles in many capital market transactions.
A merchant banker manages the transaction and coordinates regulatory filings. An IBBI-registered valuer provides the independent, defensible valuation of shares or securities that SEBI, FEMA, or the Companies Act requires before that transaction can proceed.
Under Section 62(1)(c) of the Companies Act, 2013, any preferential allotment of shares requires an independent valuation from a Registered Valuer. Under FEMA, shares issued to a non-resident investor cannot be priced below the fair market value certified by a Chartered Accountant or SEBI Category I Merchant Banker. Under SEBI ICDR Regulations, companies filing for a preferential issue need a valuation report that meets specific regulatory standards.
This means that for the majority of transactions where a merchant banker is involved, an independent valuation is also required. The merchant banker and the IBBI-registered valuer must work in parallel, not in sequence.
Illustrative example: A Bengaluru-based SaaS company is raising Rs. 40 crore through a preferential allotment to a Singapore-based venture fund. The merchant banker manages the SEBI filing process and investor coordination. My Valuation, as an IBBI-registered valuer, conducts the independent fair market value assessment of the equity shares under FEMA and the Companies Act, using the Discounted Cash Flow method and Option Pricing Model to account for the startup’s complex CCPS capital structure. The merchant banker receives the certified valuation report and incorporates it into the regulatory filing.
This parallel-track model is standard practice in India’s capital markets. Founders and CFOs who understand this can plan their timelines and professional engagements better, avoiding costly delays.
Conclusion
Merchant banking in India is no longer just about IPO management and capital raising, though these remain core services. The SEBI (Merchant Bankers) (Amendment) Regulations, 2025, effective January 1, 2026, mark a new chapter: higher standards, stricter governance, and a clearer definition of what merchant bankers can and cannot do. For founders, CFOs, and business owners, understanding this framework is essential before engaging professional services for any SEBI-regulated transaction.
My Valuation is one of India’s leading IBBI-registered valuation firms, providing audit-ready, independent valuation reports for companies engaged in SEBI-regulated transactions including preferential allotments, IPOs, FEMA-compliant share issuances, and complex securities valuations. Whether your merchant banker needs a Rule 11UA-compliant FMV certificate, a Companies Act valuation, or a SEBI ICDR-compliant securities valuation, our team has the credentials and turnaround to deliver. Contact My Valuation today and get your valuation ready before your next regulatory filing.
Frequently Asked Questions (FAQs)
1.What is merchant banking in India?
Merchant banking in India refers to a category of financial services regulated by SEBI under the SEBI (Merchant Bankers) Regulations, 1992. These services include issue management, capital raising, underwriting, M&A advisory, portfolio management, and loan syndication. Merchant bankers serve businesses and institutional clients on a fee basis, without accepting public deposits.
2. How many merchant bankers are registered with SEBI in India?
As of September 2024, there are 225 merchant bankers registered with SEBI in India. Registration is mandatory under the SEBI (Merchant Bankers) Regulations, 1992, and requires meeting minimum net worth criteria, adhering to conduct guidelines, and renewing the certificate every three years.
3. What changed with the SEBI Merchant Bankers Amendment Regulations, 2025?
The SEBI (Merchant Bankers) (Amendment) Regulations, 2025, effective January 1, 2026, introduced the first major overhaul of Indian merchant banking regulation since 1992. Key changes include higher liquid net worth requirements, a new Rule 13A defining permitted activities, mandatory Separate Business Units for non-core activities like valuation and consulting, prohibition on managing issues where key personnel hold significant shareholding in the issuer, and ring-fencing of net worth with eight-year account preservation requirements.
4. What is the difference between a merchant banker and an investment banker?
Merchant bankers primarily serve growing companies, SMEs, and high-net-worth individuals with services like IPO management, preferential allotments, and M&A advisory at a mid-market scale. Investment bankers typically serve large, publicly listed corporations and governments on mega-deals involving international capital markets. In India, both are regulated by SEBI for capital market activities, but merchant bankers operate under the specific SEBI (Merchant Bankers) Regulations.
5. Is a valuation report mandatory when working with a merchant banker in India?
Yes, many transactions where a merchant banker is engaged also require an independent valuation report from an IBBI-registered valuer. Under Section 62(1)(c) of the Companies Act, 2013, preferential allotments require an independent valuation. Under FEMA, any share issuance to a non-resident investor requires an FMV certificate. Under SEBI ICDR Regulations 2018, certain securities transactions require valuation before the offer document can be filed.
6. Can a merchant banker also provide valuation services in India?
Under the SEBI (Merchant Bankers) (Amendment) Regulations, 2025, valuation and consulting activities must now be conducted through a Separate Business Unit (SBU) within the merchant banking entity, rather than as a core function. However, this is distinct from the statutory valuation mandate under the Companies Act, 2013, which requires an IBBI-registered valuer for valuations of securities or financial assets. A merchant banker cannot substitute for an IBBI-registered valuer in these statutory contexts.
7. How does a company choose a merchant banker in India?
A company should evaluate a merchant banker based on their SEBI registration status, the sectors and transaction types they specialize in, their track record of IPOs or deals in similar industries, their investor network and distribution capability, and their ability to coordinate with regulators, legal counsel, and independent valuers. For mid-market companies, a merchant banker with strong SME IPO experience and regulatory compliance depth is typically more appropriate than a large global firm.
