SEBI Waives Mandatory Merchant Banker Rule for Private Placements of AA- and Higher Rated Debt — October 8, 2026

In a major compliance ease for corporate bond issuers, capital markets regulator Securities and Exchange Board of India (SEBI) has eliminated the mandatory requirement to appoint a merchant banker for private placements of debt securities, subject to strict quality and track-record criteria. The decision, announced through a regulatory circular amending Chapter V of SEBI's Master Circular for Non-Convertible Securities (NCS), came into immediate effect.

The relaxation specifically targets privately placed debt securities and non-convertible redeemable preference shares (NCRPS) issued at a face value of ₹10,000. Previously, entities floating these small-ticket privately placed instruments had to engage at least one merchant banker, who was subjected to extensive due-diligence responsibilities akin to those in a public issue.

Core Eligibility Conditions for Exemption

To skip appointing a merchant banker, corporate issuers must satisfy a cumulative set of conditions designed to protect investor safety while eliminating redundant paperwork:

Regulatory and Listing Requirements:

• The issuer must be registered with or regulated by an Indian financial sector watchdog, such as SEBI, the Reserve Bank of India (RBI), the Insurance Regulatory and Development Authority of India (IRDAI), or the Pension Fund Regulatory and Development Authority (PFRDA).
• The company must have been listed on any segment of a recognised stock exchange for at least one full year.
• There must be no outstanding fines or penalties imposed by SEBI or stock exchanges for non-compliance with the SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations, which exchanges must verify before granting in-principle issue approval.

Credit Quality and Financial Prudence:

• The issuer must have maintained an unblemished repayment track record, with zero defaults on redemption, principal repayments, or interest/dividend payments across debt instruments, preference shares, commercial paper, bank loans, or deposits during the last three financial years and the current financial year. This must be certified by a statutory auditor.
• The debt instrument must carry a credit rating of "AA-" or higher from a registered credit rating agency on the placement date. If multiple agencies rate the issuance, the lowest assigned rating will determine eligibility.
• The securities must be senior/unsubordinated and secured by a first or pari passu charge on identifiable assets of the company. Central Public Sector Enterprises (CPSEs), state-run public sector undertakings (PSUs), and statutory bodies are exempt from the mandatory asset charge requirement and may issue either secured or unsecured instruments.

Catalyst for Corporate Debt and Retail Participation

The move builds on SEBI's ongoing agenda to democratise India's corporate bond ecosystem. The regulator previously reduced the minimum face value of privately placed debt securities from ₹1 lakh to ₹10,000 to encourage retail individual investors and high-net-worth individuals to participate via Online Bond Platform Providers (OBPPs).

However, subjecting every small-ticket private placement to full-blown merchant banker due diligence imposed disproportionate compliance costs and delays on frequent, top-rated borrowers such as banks, non-banking financial companies (NBFCs), and large corporate conglomerates. By removing the mandate for financially vetted, highly rated issuers, SEBI significantly brings down cost of issuance while maintaining stringent safeguards around asset security and creditworthiness.

Stock exchanges have been directed to modify their internal systems, specify operational frameworks, and monitor issuer compliance before granting approval for unmanaged private debt listings.

Tags: SEBI Corporate Bond Market Debt Securities RBI Merchant Bankers Stock Exchanges