‘SEBI relaxing merchant banking norms may boost their profitability’

The amendments are a welcome move as they enhance investor protection and ensure that only credible and ‘well governed’ entities are allowed to act as intermediaries, says Sonam Chandwani, Managing Partner at KS Legal & Associates.
| Photo Credit: HEMANSHI KAMANI

Securities and Exchange Board of India (SEBI) said merchant bankers (MB) can now engage in unregulated activities such as advisory and consultancies without needing a separate legal entity. Experts said this move could ensure buoyant profitability for MBs

“In view of the possible risks associated with unregulated activities being carried out by SEBI registered entity, the board in its meeting held in December 2024 had approved that the non-regulated activities be hived off to a separate legal entity. However, post internal review and feedback obtained from market participants, the board has now relaxed the requirement of hiving off,” SEBI said in its board meeting on June 18.

In the December 2024 meet, the SEBI had directed MBs to ‘hive-off’ or establish a separate legal entity to carry out these activities. MBs can now undertake the activities that do not come under any other financial sector regulation without setting it up as a separate entity. Similar relaxations were made for both debenture trustees and custodians.

“In the current market environment, the role of merchant bankers has practically reduced for many of the corporate actions involving listed companies such as delistings, buybacks, rights issues and follow-on public offerings. In the backdrop of above, SEBI relaxing the requirement of hiving off the merchant banking entity and also permitting them to carry out activities not regulated by SEBI is a welcome move, and will be an additional source of revenue / fee-based income for merchant bankers from non-fund based activities,” said Yogesh Chande, a lawyer specialising in Securities Laws and a Partner with Shardul Amarchand Mangaldas.

These amendments are a welcome move as they enhance investor protection and ensure that only credible and ‘well governed’ entities are allowed to act as intermediaries, said Sonam Chandwani, Managing Partner at KS Legal & Associates.