Sebi proposes merchant banker exemption for small-value private debt issues

Sebi has proposed to exempt certain listed issuers from appointing merchant bankers for small-value debt issuances through private placement, a move aimed at reducing costs and speeding up fund-raising in the corporate bond market.

The proposal applies to debt securities or non-convertible redeemable preference shares issued on a private placement basis with a face value of Rs 10,000, referred to as “small-value debt” under Sebi’s consultation paper.

At present, Sebi’s NCS Master Circular requires issuers to appoint at least one merchant banker for such private placements. Market participants have told the regulator that this requirement has created operational problems and made small-value debt offerings less viable.


Sebi said the mandatory appointment of merchant bankers increases costs, causes delays and hurts price-sensitive debt issuances where market yields can move quickly. It also noted that there are a limited number of merchant bankers active in the debt segment.

Relief for regulated issuers

The exemption will not be available to all issuers. Sebi has proposed strict conditions to limit the relaxation to relatively stronger and better-regulated companies.

To qualify, the issuer must be registered or regulated by a financial sector regulator in India. This includes entities regulated by Sebi, RBI, IRDAI or PFRDA, according to the draft circular.

The issuer must also have been listed on a recognised stock exchange for at least one year. At the time of granting in-principle approval, stock exchanges will have to ensure that there are no pending fines or penalties levied by Sebi or exchanges for non-compliance with listing regulations.

Sebi said listed issuers are already subject to governance rules, continuous disclosure obligations and regulatory scrutiny under the Listing Obligations and Disclosure Requirements regulations. This, it said, may reduce the need for merchant banker oversight in private placements.

The issuer should also have a clean repayment record. It must not have defaulted in the last three financial years and the current financial year on deposits, interest, redemption of non-convertible preference shares or debt securities, dividend payments, term loans or interest. The company will have to submit an auditor’s certificate to the stock exchange confirming this.

Only senior secured debt

Sebi has also proposed safeguards around the instrument itself. The debt security must be unsubordinated or senior, secured by first or pari passu charge on identifiable assets of the issuer, and rated at least AA- or above on the date of private placement.

This means lower-rated or unsecured debt will not get the benefit of the proposed exemption.

The regulator said the condition is meant to restrict the relaxation to relatively low-risk instruments where investors have a stronger claim on assets and cash flows in case of bankruptcy or liquidation.

The proposal is also aimed at deepening the corporate bond market. Sebi said the current requirement can discourage frequent small-value debt issuances because the cost and time involved may erode the economic viability of such offerings.

A large number of listed debt issuers are RBI-regulated NBFCs, which are already subject to additional oversight on capital adequacy, asset classification and debt issuance. Sebi said this added regulatory framework is one reason why the merchant banker requirement may be relaxed for eligible issuers.

Sebi has invited public comments on the draft circular until September 17, 2026. The comments have to be submitted through the regulator’s web-based public comments form.