SEBI Extends Compliance Deadlines for Merchant Bankers — Timeline Relief on SBU, Net Worth and Liquid Net Worth Requirements (June 11, 2026)
On June 11, 2026, the Securities and Exchange Board of India issued Circular No. HO/49/14/15(2)2026-CFD-POD1/I/13567/2026 granting targeted extensions to several compliance deadlines that merchant bankers were required to meet under the earlier circular dated January 02, 2026. The January circular had operationalised the sweeping amendments to the SEBI (Merchant Bankers) Regulations, 1992 — introducing enhanced capital adequacy norms, Separate Business Unit requirements, underwriting limits, and new governance obligations. The June 11 extension circular now adjusts key implementation dates, giving merchant bankers additional runway to meet some of the most operationally intensive requirements.
📋 Quick Reference — Circular Details
Background — The January 2, 2026 Circular That Started This
To understand the extension, one must first understand what the January 2, 2026 circular required. The SEBI (Merchant Bankers) Regulations, 1992 were substantively amended in 2025 — the most comprehensive overhaul of the merchant banking regulatory framework in decades. These amendments raised capital adequacy standards, restructured how merchant bankers can run their businesses, and significantly tightened governance and disclosure norms.
What the January 2026 Circular Introduced
The January 2, 2026 circular was the operational implementation document — it translated the regulatory amendments into specific, time-bound compliance requirements for every registered merchant banker. Its key provisions covered:
Capital Adequacy — Enhanced Net Worth Requirements
The amended Regulation 7 of the SEBI (Merchant Bankers) Regulations substantially raised the minimum net worth thresholds that merchant bankers must maintain. The January circular prescribed phased compliance in two phases — Phase I and Phase II — to allow existing merchant bankers adequate time to build up capital without immediate disruption. Phase I covered an intermediate threshold; Phase II covered the final, higher threshold.
Liquid Net Worth — Regulation 7A
A new requirement for maintaining a minimum level of liquid net worth — not just overall net worth — was introduced. Liquid net worth requirements ensure that a merchant banker's capital is not entirely locked in illiquid assets; a portion must be in liquid form readily available to meet operational obligations and client commitments. The January circular prescribed timelines for compliance with Regulation 7A.
Separate Business Units — Regulation 13A(2)
Regulation 13A(2) requires merchant bankers to segregate certain activities — particularly those that create conflicts of interest with their primary merchant banking function — into Separate Business Units (SBUs). Clauses 11.2.1 and 11.2.10 of the January circular set out the SBU-related activities, timelines, and compliance modalities.
Other Requirements That Remain Unchanged
The January circular also introduced several other requirements that are NOT extended by the June 11 circular and must continue to be met as per the original schedule. These include NISM certification requirements for key personnel, appointment of independent compliance officers, experience requirements for principal officers, prohibition on outsourcing core merchant banking activities, underwriting exposure limits, and minimum revenue thresholds. Merchant bankers must note that the June 11 extension is selective — it does not provide blanket relief.
💡 Why Extensions Were Needed — The Operational Complexity
The structural requirements in the January 2026 circular — especially SBU formation and capital augmentation — are operationally complex. Creating a Separate Business Unit is not just a paperwork exercise; it requires changes to corporate structure, staff reallocation, system separation, regulatory filings, and board approvals. Similarly, raising net worth to meet enhanced capital thresholds may require fundraising, retention of profits, or restructuring of balance sheets. These take time. Industry representations to SEBI highlighted genuine operational bottlenecks, and the June 11 circular reflects SEBI's pragmatic response.
The Extended Timelines — What Changed and By How Much
The June 11, 2026 circular modifies specific deadline provisions of the January 2, 2026 circular. Below is a comprehensive account of each extension:
Separate Business Unit Transfer — Regulation 13A(2) and Clause 11.2.10
Regulation 13A(2) requires merchant bankers to transfer certain activities into Separate Business Units to prevent conflicts of interest. Clause 11.2.1 of the January MB Circular lays down the transfer of activities to SBUs, while Clause 11.2.10 prescribes additional SBU-related compliance. All of these now share the same revised deadline.
Transfer of Activities to Separate Business Unit
Merchant bankers now have until December 31, 2026 to complete the structural transfer of specified activities into their Separate Business Units. This gives approximately six additional months beyond the original July 3, 2026 deadline.
Compliance with Clause 11.2.10
Clause 11.2.10 of the January 2026 circular set specific operational compliance requirements linked to the SBU framework. This deadline is also extended to December 31, 2026 — consistent with the Regulation 13A(2) extension since both relate to the same SBU formation process.
📌 What Does "Separate Business Unit" Mean?
An SBU is a structurally distinct operational unit within the merchant banker's organisational framework — with separate accounts, distinct management, independent staff, and ring-fenced resources — for conducting activities that are ancillary to or potentially conflicting with the core merchant banking function. For example, advisory and distribution activities that a merchant banker may conduct alongside its primary role of lead managing public offerings must be housed in a separate unit to prevent advisory conflicts from influencing underwriting decisions. The formation of SBUs requires formal board approval, changes to internal operating procedures, and potentially amendments to registration documents filed with SEBI.
Net Worth Requirements — Regulation 7 (Phase I and Phase II)
The amended Regulation 7 prescribes substantially higher minimum net worth thresholds for merchant bankers, implemented in two phases to cushion the transition for existing registered entities.
Phase I Net Worth — Revised from January 2, 2027 to March 31, 2027
The Phase I enhanced net worth requirement, which was originally required to be met by January 2, 2027, has been pushed back by approximately three months to March 31, 2027. Phase I represents an intermediate capital threshold — higher than what was required before the 2025 amendments but lower than the final Phase II target. This extension allows merchant bankers working to build capital through profit retention, equity infusion, or fresh capital raising to align these efforts with a financial year-end date (March 31), which is more practical from an auditing, accounting, and balance sheet perspective.
Phase II Net Worth — Revised from January 2, 2028 to March 31, 2028
Similarly, the Phase II net worth requirement — the final, higher threshold — is extended from January 2, 2028 to March 31, 2028. Both phases are now aligned with the end of Indian financial years (FY 2026-27 and FY 2027-28 respectively), which simplifies capital planning for merchant bankers as they can structure fundraising and profit retention within clear annual financial planning cycles.
🔎 Why Year-End Alignment Matters for Net Worth Compliance
Net worth is verified from audited balance sheets. A compliance date of January 2 falls mid-financial-year — requiring either a special capital infusion or mid-year audit to demonstrate compliance. Moving the deadlines to March 31 means net worth is verified from the annual audited financial statements, which every merchant banker already produces. This reduces compliance friction, eliminates the need for special mid-year valuations, and makes it easier for SEBI to verify compliance as part of the normal annual regulatory review process.
Liquid Net Worth Requirements — Regulation 7A
The new liquid net worth requirements under Regulation 7A follow the same pattern as the net worth extensions under Regulation 7. The exact new deadlines mirror the Phase I and Phase II net worth timelines, ensuring consistency and operational alignment between the two complementary capital requirements. Merchant bankers must meet both overall net worth (Regulation 7) and liquid net worth (Regulation 7A) thresholds — the liquid requirement ensures that a portion of capital is readily accessible and not entirely committed to illiquid assets.
The revised deadlines for Regulation 7A liquid net worth compliance are therefore also March 31, 2027 (Phase I equivalent) and March 31, 2028 (Phase II equivalent), aligned with the net worth deadlines.
Before and After — Complete Deadline Comparison
Regulatory Timeline — How We Got Here
SEBI Amends the Merchant Bankers Regulations, 1992
SEBI notified amendments to the SEBI (Merchant Bankers) Regulations, 1992 — the first major overhaul in decades. The amendments introduced enhanced capital requirements, SBU structures, governance reforms, and tighter oversight of merchant banking activities.
SEBI Issues Consequential Compliance Circular
SEBI issued the detailed operational circular specifying phased timelines for compliance with each amended provision — including SBU formation (July 3, 2026), Phase I net worth (January 2, 2027), Phase II net worth (January 2, 2028), liquid net worth, NISM certifications, principal officer requirements, and the prohibition on outsourcing core activities.
Industry Represents Operational Challenges
Merchant banker associations and individual registered entities represented to SEBI that certain requirements — particularly SBU formation and capital augmentation — required additional time due to structural complexity, board approvals needed, capital market conditions, and the year-end alignment issue for net worth verification.
SEBI Grants Targeted Extensions — This Circular
SEBI issued Circular No. HO/49/14/15(2)2026-CFD-POD1/I/13567/2026 extending the most operationally intensive deadlines while keeping all other January 2026 requirements intact. SBU deadlines extended by ~6 months; net worth and liquid net worth deadlines aligned with financial year-end dates.
New Deadline — SBU Transfer and Clause 11.2.10
All merchant bankers must have transferred specified activities to Separate Business Units and complied with Clause 11.2.10 by this date. No further extensions are anticipated — merchant bankers should treat December 31, 2026 as a hard deadline.
Phase I Net Worth and Liquid Net Worth
Enhanced Phase I net worth (Regulation 7) and Phase I liquid net worth (Regulation 7A) thresholds must be met by the end of FY 2026-27, and existing merchant bankers must also intimate SEBI of their categorisation as Category I or Category II by this date along with the required Chartered Accountant-certified net worth certificate. These obligations are verified from annual audited balance sheets, so capital planning and documentation should be aligned well in advance.
Phase II Net Worth and Liquid Net Worth
Final Phase II net worth and liquid net worth thresholds must be met by the end of FY 2027-28. This represents the fully phased-in enhanced capital standard for the Indian merchant banking industry.
What Is NOT Extended — Provisions That Must Be Met as Originally Scheduled
The June 11 circular is explicit: "All other provisions of the January 2, 2026 circular will remain unchanged and must continue to be complied with by merchant bankers." Merchant bankers must not assume that all January 2026 deadlines have been relaxed. The following remain on their original schedule:
NISM Certification Requirements
Key investment banking personnel must hold valid NISM certifications as specified in the January circular. No extension has been granted — the original timelines apply. Merchant bankers whose team members have not yet certified must ensure compliance immediately.
Appointment of Independent Compliance Officers
The requirement for merchant bankers to appoint an independent compliance officer — distinct from operational staff and reporting directly to the Board/senior management — was already effective per the January schedule. No extension has been granted. Non-compliance is a significant governance risk.
Principal Officer Experience Requirements
The amended regulations and January circular prescribed minimum experience requirements for principal officers of merchant bankers. These qualification standards remain in effect as originally scheduled.
Prohibition on Outsourcing Core Activities
Merchant bankers are prohibited from outsourcing core merchant banking activities to third parties. This is a structural regulatory requirement that has been in effect since the January circular and no extension has been provided.
Underwriting Exposure Limits
Limits on the aggregate underwriting exposure a merchant banker can take on — relative to its net worth — remain in effect as per the original schedule. No extension granted.
Minimum Revenue Thresholds and Disclosure Requirements
Enhanced disclosure norms and minimum revenue thresholds specified in the January circular remain as scheduled. Merchant bankers must ensure their periodic disclosures to SEBI and clients meet the enhanced standards already in effect.
⚠ Warning — Do Not Treat This as Blanket Relief
The June 11 circular extends only specific, named provisions. Every other obligation in the January 2, 2026 circular is fully in force on its original schedule. Merchant bankers who have delayed compliance on any non-extended provision must take immediate corrective action. SEBI has been active in enforcement action against merchant bankers — non-compliance with the January circular's requirements that are not extended carries the full risk of regulatory action, show-cause notices, suspension, or cancellation of registration.
Impact and Immediate Action Points for Merchant Bankers
For Compliance and Legal Teams
The immediate task for every registered merchant banker's compliance team is to review the updated deadline matrix from the June 11 circular against your firm's current compliance status. Map each provision of the January 2026 circular to its deadline — original or revised — and establish internal milestones that work backwards from each deadline to allow adequate preparation time.
For the SBU formation (now due December 31, 2026), if a merchant banker has not yet initiated the structural work — corporate governance approvals, board resolutions, operational separation, staff allocation, and system segregation — the December 31 deadline is closer than it appears. Six months for a structural reorganisation of business units is tight. Start immediately.
For Finance and Treasury Teams
The alignment of net worth and liquid net worth deadlines with March 31, 2027 and March 31, 2028 respectively is a significant planning relief. Finance teams should now model capital requirements as part of the regular annual operating plan and capital planning cycle. The Phase I threshold (March 31, 2027) falls at the end of FY 2026-27 — meaning the FY 2026-27 annual operating plan should explicitly include capital augmentation targets if the current net worth is below the Phase I threshold. Retained earnings, fresh equity, and capital restructuring should all be evaluated.
For Senior Management and Boards
Board-level attention is required for both the SBU compliance and the capital adequacy planning. Separate Business Unit formation requires formal board approval under most corporate governance frameworks. The board must pass resolutions approving the SBU structure, the transfer of activities, and any amendments to the company's operating structure. This board action should be placed on the agenda for the next scheduled meeting — or an emergency meeting if the company is behind schedule on SBU preparation.
✅ Recommended Action Checklist for Merchant Bankers
- Map current compliance status against every provision of the January 2026 circular
- Identify which of the extended provisions (SBU, net worth, liquid net worth) you are yet to comply with
- For SBU formation: initiate board resolution, identify activities to be transferred, set up internal structure — target completion by September 30, 2026 to avoid a last-minute rush at December 31
- For net worth: compute current net worth gap vs Phase I threshold; model retention/equity infusion needed by March 31, 2027
- For all non-extended provisions: verify current compliance status and address any gaps immediately
- Update your Compliance Calendar and escalate any at-risk provisions to senior management
- Ensure all NISM certifications for key personnel are current and valid
- Verify independent compliance officer appointment is in place and documented
Legal Framework and Regulatory Authority
The June 11, 2026 circular is issued under Section 11(1) of the Securities and Exchange Board of India Act, 1992 — the plenary power that enables SEBI to take measures as it considers necessary in the interest of investors and orderly development of the securities market. This is combined with Regulation 45 of the SEBI (Merchant Bankers) Regulations, 1992, which empowers SEBI to issue guidelines and directives to merchant bankers for implementation of the Regulations.
The combination of these two authorities gives SEBI the power both to prescribe compliance requirements and to modify their timelines when legitimate operational considerations justify such modification — as is the case with the June 11 extension circular.
📖 About the SEBI (Merchant Bankers) Regulations, 1992
The SEBI (Merchant Bankers) Regulations, 1992 govern all entities carrying out merchant banking activities in India — primarily lead managing public issues (IPOs, FPOs, rights issues), managing open offers (under SEBI Takeover Code), and providing issue-related services. Every entity that acts as a lead manager to a public issue must be registered as a Category I Merchant Banker with SEBI. The regulations cover registration, capital adequacy, conduct of business, obligations, disclosures, and prohibitions. The 2025 amendments to these regulations — implemented through the January 2026 circular and partially extended by the June 11 circular — represent the most significant revision to the merchant banking framework since the regulations were first notified.
Frequently Asked Questions
Conclusion
SEBI's June 11, 2026 circular is a targeted, calibrated intervention — not a wholesale rollback of the January 2026 compliance framework. By granting an additional six months for SBU formation and aligning net worth deadlines with financial year-end dates, SEBI has addressed the most operationally burdensome aspects of the merchant banker reform agenda while keeping the full framework substantively intact.
For registered merchant bankers, the message is clear: use this extension purposefully. The SBU formation work must begin immediately — December 31, 2026 is not far away for a structural reorganisation. The capital planning for net worth compliance should be integrated into the FY 2026-27 annual plan. And all non-extended provisions must continue to be met without exception. The SEBI (Merchant Bankers) Regulations, as amended, represent the new permanent baseline for the industry — and the phased timelines, with their extensions, are designed to ensure that every registered entity can reach that baseline without undue disruption.
