SEBI has proposed easing the compliance burden for listed companies raising small-value debt through private placements by allowing eligible issuers to skip the mandatory appointment of a merchant banker. The proposal is aimed at reducing issuance costs and delays, which the regulator said can make smaller debt offerings economically unattractive. The consultation paper was issued on August 27, 2026, and public comments are open until September 17.
Under the proposal, the exemption would apply to certain listed issuers that meet strict eligibility, repayment and credit-quality conditions. The move could make private placements of smaller debt securities more practical for companies that frequently raise relatively modest amounts, while retaining safeguards through stock-exchange scrutiny, auditor certification, listing history and minimum credit-rating requirements.
SEBI Proposes Merchant Banker Exemption For Small Debt Issues
The Securities and Exchange Board of India (SEBI) currently requires issuers to appoint at least one merchant banker for private placements of debt securities or non-convertible redeemable preference shares with a face value of ₹10,000.
SEBI said market participants have highlighted that this requirement can create a disproportionate cost burden for smaller offerings. Limited availability of merchant bankers specializing in debt issues can also delay fundraising, potentially affecting price discovery and increasing the cost of capital.
The proposed exemption is therefore designed to make smaller private debt placements more efficient without removing eligibility and investor-protection requirements.
Proposed Rule At A Glance
| Particular | Proposed Framework |
|---|---|
| Regulator | SEBI |
| Instrument covered | Small-value debt / non-convertible redeemable preference shares |
| Issue method | Private placement |
| Face value | ₹10,000 |
| Merchant banker | Exemption proposed |
| Eligible issuer | Certain listed entities |
| Minimum listing period | At least 1 year |
| Regulatory status | Must be registered or regulated by a financial-sector regulator |
| Default history | No specified defaults in the last 3 financial years and current FY |
| Auditor certification | Required |
| Stock-exchange verification | Required |
| Public comments deadline | September 17, 2026 |
The proposal is not yet a final rule. SEBI is seeking public feedback before deciding whether and in what form to implement the exemption.
Why SEBI Wants To Reduce Merchant Banker Costs
Merchant bankers perform an important role in securities issuance, including due diligence, documentation, regulatory compliance and coordination with market institutions.
However, SEBI’s consultation paper points out that applying the same appointment requirement to small-value debt offerings can make the cost of raising funds disproportionately high.
For a large debt issuance, professional fees may represent a relatively small percentage of the amount raised. For a smaller issue, the same fixed compliance and advisory costs can materially reduce the economic benefit of the fundraising.
Small Debt Issue
↓
Merchant Banker Appointment
↓
Additional Fees + Documentation
↓
Longer Execution Timeline
↓
Higher Effective Cost Of Capital
SEBI’s proposal seeks to remove this particular bottleneck for eligible issuers while maintaining other safeguards.
What Qualifies As Small-Value Debt?
The proposal relates to debt securities or non-convertible redeemable preference shares issued through private placement at a face value of ₹10,000.
The existing requirement is contained in Clause 1.3 of Chapter V of SEBI’s Master Circular for issue and listing of Non-Convertible Securities, Securitised Debt Instruments, Security Receipts, Municipal Debt Securities and Commercial Paper dated October 15, 2025.
The proposal does not mean that every ₹10,000-denomination debt issue by every listed company would automatically qualify for the exemption.
Instead, SEBI has proposed multiple conditions designed to limit the relaxation to issuers with a demonstrated record of financial and regulatory compliance.
Eligibility Conditions Proposed By SEBI
| Condition | Requirement |
|---|---|
| Regulatory status | Issuer must be registered or regulated by a financial-sector regulator |
| Listing history | Listed on a recognized stock exchange for at least 1 year |
| Regulatory penalties | No pending fines or penalties from regulator or stock exchanges |
| Deposit repayment | No defaults in specified periods |
| Debt repayment | No defaults on debt securities or related interest |
| Preference shares | No default on redemption or related obligations |
| Dividend | No default in declaration/payment of dividend |
| Term loans | No default in repayment or interest |
| Auditor certificate | Required |
| Stock-exchange review | Required before approval |
These conditions are intended to ensure that the relaxation is available primarily to established issuers with a track record of meeting financial obligations.
Companies Must Have At Least One Year Of Listing History
One of the most important eligibility requirements is that the issuer must have been listed on a recognized stock exchange for at least one year.
The requirement creates a distinction between established listed companies and newly listed businesses.
A company that has recently completed an IPO, for example, would not immediately qualify under the proposed one-year listing requirement.
The logic is to restrict the exemption to companies that have already operated under public-market disclosure and governance requirements for a meaningful period.
No Recent Defaults Will Be Allowed
SEBI is also proposing a strict repayment track-record requirement.
Eligible companies would need to demonstrate that they have not defaulted during the last three financial years and the current financial year on several categories of financial obligations.
These include deposits and related interest, non-convertible preference shares, debt securities and interest, dividends and term loans.
The company would have to provide an auditor’s certificate confirming the relevant repayment record.
Financial Track Record Required
No Default
→ Deposits & Interest
→ Debt Securities & Interest
→ Preference Share Redemption
→ Dividend Payments
→ Term Loans & Interest
→ Auditor Certification
This requirement creates an additional layer of independent verification before an issuer can access the proposed exemption.
Credit Rating And Security Requirements Add Another Safeguard
The proposed framework also includes conditions around the nature and credit quality of the debt.
According to the consultation paper, the debt security must be senior or unsubordinated and secured by a first or pari passu charge on identifiable assets of the issuer. It must also carry a minimum rating of AA- or above on the date of private placement.
These requirements are significant because they narrow the exemption to relatively stronger and better-protected debt instruments.
Proposed Debt-Security Conditions
| Requirement | Proposed Standard |
|---|---|
| Seniority | Senior / unsubordinated |
| Security | Secured |
| Charge | First or pari passu charge |
| Collateral | Identifiable assets of issuer |
| Minimum credit rating | AA- or above |
| Issue structure | Private placement |
| Face value | ₹10,000 |
SEBI’s rationale is that these conditions should limit the exemption to instruments where investors have stronger claims over identifiable assets and comparatively lower probability of default.
Stock Exchanges Will Check The Issuer
The proposed exemption does not eliminate regulatory oversight.
Stock exchanges would be responsible for verifying key eligibility conditions when granting in-principle approval.
They would need to check that the issuer has no pending fines or penalties imposed by SEBI or the exchanges and would also verify relevant compliance requirements.
This creates a three-part compliance structure:
Issuer
→ Provides disclosures and auditor certificate
Auditor
→ Certifies repayment track record
Stock Exchange
→ Verifies eligibility and grants approval
The structure allows SEBI to reduce the role of merchant bankers in these smaller issues without completely removing institutional checks.
How The Proposal Could Help Listed Companies
The biggest potential benefit is lower fundraising friction.
Companies that regularly raise smaller amounts through private placements could save merchant-banking fees and potentially complete transactions faster.
This could be particularly useful for companies that have predictable financing requirements but do not need the extensive intermediary involvement associated with larger debt offerings.
Potential Benefits
| Benefit | Potential Impact |
|---|---|
| Lower advisory costs | Reduces fundraising expense |
| Faster execution | Shortens issuance timelines |
| Easier repeat issuance | Helps frequent fundraisers |
| Lower cost of capital | Improves economics of smaller issues |
| Better access to debt markets | Broadens financing options |
| Less intermediary dependence | Simplifies execution |
| Improved market efficiency | Potentially supports private debt-market activity |
SEBI said delays in appointing merchant bankers can be particularly problematic in debt markets because yields and prices can change quickly. Faster execution could therefore help issuers complete fundraising closer to their intended pricing.
Impact On India’s Corporate Debt Market
The proposal is also part of a broader effort to deepen India’s corporate debt market.
Banks remain an important source of corporate financing, but companies increasingly use bonds and private placements to diversify their funding sources.
Reducing the cost of smaller debt issues could encourage more listed companies to use the market for incremental financing rather than relying exclusively on bank loans.
More Efficient Small Debt Issues
→ More Companies Consider Private Placements
→ Broader Corporate Borrower Base
→ Greater Debt-Market Activity
→ More Financing Options
The impact is likely to be gradual because the eligibility conditions are deliberately restrictive.
The Proposal Does Not Remove Investor Protection
A key feature of the consultation paper is that SEBI is not proposing a blanket relaxation of debt-market safeguards.
The merchant banker requirement would be removed for qualifying issues, but companies would still need to meet conditions related to listing history, financial track record, credit ratings, security and stock-exchange review.
This is important because merchant bankers often serve as an additional layer of due diligence and regulatory coordination.
SEBI’s approach effectively seeks to replace part of that intermediary requirement with a combination of issuer responsibility, auditor certification and exchange-level scrutiny.
What Could Change For Merchant Bankers?
The proposal could reduce the number of mandatory assignments available to merchant bankers in the small-value private-placement segment.
However, the impact may be limited because larger and more complex debt transactions would continue to require professional intermediaries.
Merchant bankers may also continue to provide services voluntarily where issuers want assistance with documentation, structuring, investor outreach or compliance.
The proposed rule therefore appears more likely to reshape the economics of smaller debt transactions than eliminate the role of merchant bankers from India’s debt market.
Public Comments Open Until September 17
SEBI has invited market participants and the public to submit comments on the proposal until September 17, 2026. The consultation paper is therefore still at the proposal stage.
The final framework could change depending on the feedback received.
Potential areas of discussion could include the eligibility threshold, credit-rating requirement, repayment-history conditions, security requirements and the extent of stock-exchange verification.
Regulatory Timeline
| Date | Development |
|---|---|
| October 15, 2025 | Existing NCS Master Circular issued |
| August 27, 2026 | SEBI consultation paper released |
| August 27, 2026 | Proposed merchant banker exemption announced |
| September 17, 2026 | Deadline for public comments |
| After consultation | SEBI to consider feedback and final framework |
The Bigger Picture
SEBI’s proposal is aimed at solving a specific problem in India’s corporate debt market: the disproportionate cost and delay associated with using merchant bankers for smaller private debt placements. By allowing eligible listed issuers to bypass the mandatory appointment requirement, the regulator could make smaller fundraises more economical and potentially encourage greater use of private debt markets.
At the same time, the proposal is deliberately selective. A minimum one-year listing history, absence of specified defaults, auditor certification, stock-exchange verification, secured debt and an AA- or higher rating are designed to ensure that the relaxation is not extended indiscriminately. The measure therefore represents a targeted compliance reduction rather than a broad deregulation of corporate debt issuance.
Looking Ahead
The next important step will be the public consultation process, with comments accepted until September 17. Feedback from listed companies, investors, merchant bankers, stock exchanges and other market participants could influence the final eligibility criteria and safeguards before SEBI issues a definitive framework.
If implemented, the exemption could make small-value private debt placements faster and cheaper for financially sound listed companies. The broader test will be whether the change actually increases corporate debt-market participation without weakening investor protection or reducing the quality of disclosures and due diligence surrounding smaller debt issues
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