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SEBI has undertaken a comprehensive review of the SEBI (Merchant Bankers) Regulations, 1992, which lays down the regulatory framework for the registration of Merchant Bankers (MBs), their eligibility, activities they can undertake and revision in net worth including liquid net worth criteria. The Board approved the amendment to SEBI (Merchant Bankers) Regulations, 1992. SEBI noted that Merchant Bankers, other than Banks, Public Financial Institution and their subsidiaries, shall undertake only permitted activities. MBs may carry out other regulated activities as a separate business unit after obtaining registration/confirmation from the respective regulatory authority. Permitted activities which come under the purview of SEBI have been specified. Activities other than permitted activities by MB shall be hived off to a separate legal entity with a separate brand name, within a period of two years.
MBs which have to hive off activities and the hived off entity, shall abide by such code of conduct as may be specified by SEBI from time to time. The separate entity may be allowed to carry out activities other than the permitted activities by sharing the resources with the MB on an arm’s length basis without casting any legal liability in respect of the same, on the MB. MBs shall not undertake fresh valuation activities as part of its MB Registration. However, existing valuation assignments taken up by MBs may be completed. If an MB wishes to take up valuation activities, it shall obtain registration from the concerned regulator or authority, within a period of nine months.
There will be two categories of MBs based on net worth and activities -Category 1 - Net worth not less than Rs. 50 crores and allowed to undertake all permitted activities. Category 2 -Net worth not less than Rs. 10 crores and allowed to undertake all permitted activities except managing equity issues on the Main Board. MBs shall maintain a liquid net worth of at least 25% of the minimum net worth requirement, at all times. The underwriting limit for MBs has been prescribed as 20 times of liquid net worth.
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