SEBI proposes merchant banker exemption for small-value private debt issues by eligible listed issuers

NEW DELHI: The Securities and Exchange Board of India (SEBI) has proposed exempting certain listed issuers from the mandatory appointment of a merchant banker for small-value debt raised through private placement, citing operational challenges and the need to facilitate market development.

Under the proposal, the exemption would apply to debt securities or non-convertible redeemable preference shares issued through private placement at a face value of Rs 10,000, subject to specified eligibility conditions. The existing SEBI framework requires issuers undertaking such small-value debt offerings to appoint at least one merchant banker.

SEBI said feedback from market participants had highlighted the burden associated with merchant banker appointments. The consultation paper notes that such appointments can impose a “Disproportionate burden of the appointment cost”, while a limited number of merchant bankers in the debt segment and delays in execution can also affect these offerings.

The regulator has proposed that an issuer seeking the exemption must be registered with or regulated by a financial-sector regulator in India and must have been listed on a recognised stock exchange for at least one year. At the time of granting in-principle approval, the exchange would also have to ensure that there are no pending SEBI or stock-exchange fines or penalties for applicable LODR non-compliance.

The issuer must also have no defaults during the last three financial years and the current financial year on specified repayment and payment obligations, including debt securities, deposits, dividends and term loans, and would be required to submit an auditor’s certificate to the stock exchange.

In addition, the debt security would have to be unsubordinated or senior, secured by a first or pari passu charge on identifiable assets of the issuer, and rated at least AA- on the date of private placement. SEBI said the conditions are intended to restrict the exemption to relatively lower-risk instruments.

The consultation paper said the proposal is based on the view that “sufficient information about the issuer is already available in public domain”, while listed issuers are subject to regulatory oversight. SEBI has invited public comments on the draft circular by September 17, 2026. The consultation paper was issued on August 27, 2026.

The draft circular says the proposed provisions, if finalised, would be “applicable with immediate effect”, while all other provisions of Chapter V of the NCS Master Circular would remain unchanged. (ANI)