SEBI Merchant Banker Exemption for Private Placement of Debt: Five Conditions and AA- Rating Rule (October 2026)

Certain high-rated, regulated and listed issuers can now make a private placement of debt securities at a face value of ₹10,000 without appointing a merchant banker. SEBI's circular of 7 October 2026 replaces para 1.3 of Chapter V of the NCS Master Circular and lets an issuer skip the merchant banker only if it meets all five conditions, including a rating of at least AA- and a clean default record.

What Changed in the Merchant Banker Rule?

Before the circular, para 1.3 required the issuer to appoint at least one merchant banker for every private placement under this route, with the same role, responsibilities and obligations as in a public issue. The new para 1.3 keeps that as the default and adds an opt-out for qualifying issuers.

SEBI states the aim: ease of issuing debt securities and wider access of high-rated securities to retail investors, based on market feedback.

What Are the Five Conditions for Skipping a Merchant Banker?

The word "all" matters. Failing even one condition means the issuer must appoint at least one merchant banker.

Who Is Affected by the Circular?

When Does the Merchant Banker Exemption Apply?

The circular is dated 7 October 2026 and comes into force with immediate effect. It contains no transition period. Under para 4, stock exchanges shall specify the operational requirements, such as disclosure formats and submissions, that issuers must follow to show they meet the five conditions. Under para 7, stock exchanges and depositories are advised to amend their bye-laws, rules and regulations and make system changes as applicable or necessary, disseminate the circular on their websites, communicate the status of implementation to SEBI and monitor issuer compliance. The circular does not say how issuers should evidence the conditions before the exchange formats are issued, so an issuer planning to skip a merchant banker should check the relevant exchange's communication first. That last point is a practical suggestion, not a SEBI statement.

Compliance Checklist for Issuers

The circular does not state a penalty for wrongly skipping a merchant banker. In practice, an issuer that cannot show all five conditions risks a challenge at the in-principle approval stage, which is a practical view, not a SEBI statement.

Open Questions to Watch

• Earlier coupon and maturity condition. The earlier para 1.3 required the security to be interest or dividend bearing, paying at regular intervals, with a fixed maturity and no structured obligations. The replacement text in the circular does not repeat it, though para 5 says other Chapter V provisions are unchanged. Check the consolidated NCS Master Circular before assuming that condition has gone.
• "Pending fines or penalties." The text does not say how penalties under appeal or in instalments are treated. Wait for exchange formats.
• Optional exemption. The wording is "may not appoint", so issuers can still choose to appoint a merchant banker.
• Non-convertible redeemable preference shares. The opening words of para 1.3 cover both debt securities and NCRPS, but conditions (iv) senior and secured and (v) AA- rating refer only to "the debt security". The circular does not say how NCRPS issuers can meet them. Wait for exchange formats or SEBI clarification before assuming NCRPS can use the exemption.
• "Listed in any segment." Condition (ii) requires the issuer to be listed in any segment of a recognised stock exchange for at least one year. The text does not say whether this means a listing of equity shares, debt securities or either.

Frequently Asked Questions

Is a merchant banker still mandatory for private placement of debt?

Yes, by default, for private placements under para 1.3 of Chapter V of the NCS Master Circular, which covers debt securities and non-convertible redeemable preference shares at a face value of ₹10,000. An issuer may skip the merchant banker only if it meets all five conditions in the new para 1.3(b).

What rating is needed to skip the merchant banker?

The debt security must be rated at least AA- on the date of private placement. If it has multiple ratings, the lowest rating is used.

Which issuers qualify for the exemption?

An issuer must meet all five conditions. It must be registered or regulated by SEBI, RBI, IRDAI or PFRDA; have been listed for at least one year with no pending SEBI or exchange fines or penalties under LODR; have no default in the last three financial years and the current financial year; issue senior debt secured by a first or pari passu charge (unless it is a CPSE, PSU or Statutory Body); and have the debt security rated at least AA- on the date of private placement.

Can unsecured debt use the exemption?

Generally no, because the debt must be senior and secured by a first or pari passu charge on identifiable assets. CPSEs, PSUs and statutory bodies may issue secured or unsecured debt.

What certificate must the issuer submit?

The issuer must submit a certificate from its Statutory Auditor to the stock exchange confirming no default in the last three financial years and the current financial year.

Who checks listing and penalty status?

The stock exchange confirms that the issuer has been listed for a year and has no pending fines or penalties at the time it grants in-principle approval.

When did the exemption come into force?

The circular came into force with immediate effect on 7 October 2026, with no transition period.

Which part of the NCS Master Circular was amended?

Para 1.3 of Chapter V of the SEBI Master Circular for issue and listing of Non-Convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper dated 15 October 2025 (the NCS Master Circular) was replaced. All other Chapter V provisions remain unchanged.

CorpLawUpdates Analysis

For compliance teams, the immediate issue is evidence. Skipping a merchant banker may save fees, but the issuer must now evidence five conditions, and two of them (the exchange's penalty check and the auditor's default certificate) involve third parties. Listed NBFCs and PSUs rated AA- or above that issue senior secured debt are the most likely beneficiaries. Unlisted issuers, lower-rated issuers and issuers of subordinated debt, or of unsecured debt other than CPSEs, PSUs and Statutory Bodies, see no change. Merchant bankers may see fewer mandates from this segment. These are editorial views, not SEBI statements.