SEBI Merchant Banker Exemption for Small-Value Debt Issues 2026
Introduction
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 issues through private placement. The consultation paper, issued on August 27, 2026, aims to reduce compliance costs associated with smaller debt issuances . For investors using a demat and trading account, the proposal is relevant as it could influence how eligible companies raise funds through the debt market . The proposal covers debt securities and non-convertible redeemable preference shares issued through private placement at a face value of ?10,000. However, the exemption is subject to specific conditions and is not yet in force.
What Has SEBI Proposed?
Under the existing framework, issuers undertaking small-value debt private placements must appoint at least one merchant banker, with responsibilities similar to those applicable to a public issue of the same instrument . SEBI has proposed removing this requirement for eligible issuers. According to the regulator, the cost of appointing a merchant banker can be significant compared with the size of smaller debt issues. The requirement may also increase execution time and discourage issuers from frequently accessing this funding route . The proposed relaxation is intended to lower this burden while retaining safeguards for investors.
Which Issuers Could Qualify?
The exemption would apply only when all four proposed conditions are met . The issuer must first be registered with or regulated by SEBI, RBI, IRDAI or PFRDA. It must also have been listed on a recognised stock exchange for at least one year, with no pending fines or penalties imposed by SEBI or the stock exchanges for LODR non-compliance . The issuer must not have defaulted during the preceding three financial years or the current financial year on specified obligations, including deposits, debt securities or non-convertible preference shares, dividends and term loans. An auditor's certificate confirming compliance would also be required . In addition, the debt security must be senior or unsubordinated, secured by a first or pari passu charge on identifiable assets and rated AA- or above on the date of private placement.
Current Rule vs Proposed Rule
|
Particular |
Current position |
Proposed position |
|
Merchant banker |
Mandatory |
Exemption for eligible issuers |
|
Listing tenure |
Existing requirements apply |
At least 1 year |
|
Default history |
Existing requirements apply |
No specified defaults for 3 FYs + current FY |
|
Security and rating |
— |
Senior, secured and AA- or above |
|
Auditor certificate |
— |
Required for specified default condition |
What Could The Proposal Mean For Investors?
The proposal mainly seeks to reduce compliance costs for issuers and does not remove the need for investors to assess individual debt securities . Investors should consider factors such as the issuer's financial position, credit rating, repayment record, security and terms before investing. A stock broker can facilitate access to various market products, but investors should independently evaluate the risks associated with each investment.
Is The Exemption Already In Force?
No. The proposal is currently a consultation paper and has not become a notified SEBI requirement. Public comments have been invited until September 17, 2026 . The final framework could change after the consultation process. Issuers and investors should therefore wait for SEBI's final notification before relying on the proposed exemption.
Conclusion
SEBI's proposed exemption could reduce the cost and compliance burden for eligible issuers raising small-value debt through private placement. However, the proposed relief is limited to issuers and securities meeting all four conditions, including regulatory oversight, listing history, a clean payment record and an AA- or higher-rated secured instrument . As the proposal is still under consultation, market participants should track SEBI's final decision before considering the exemption applicable. Investors comparing platforms and intermediary services can also evaluate factors such as charges, features and market access when choosing the best stock broker in India.
Frequently Asked Questions
What is small-value debt under SEBI's proposal?
Small-value debt refers to debt securities or non-convertible redeemable preference shares issued through private placement at a face value of ?10,000.
What conditions must an issuer meet for the proposed exemption?
The issuer must satisfy all four conditions covering regulatory oversight, at least one year of listing, a specified non-default record, and a senior, secured debt security rated AA- or above.
Is the merchant banker exemption currently applicable?
No. SEBI's proposal is still under consultation, with public comments invited until September 17, 2026.
What happens if an issuer does not meet the conditions?
The existing requirement to appoint a merchant banker would continue to apply to the relevant small-value debt private placement.
What credit rating is required for the proposed exemption?
The debt security must have a credit rating of AA- or above on the date of private placement. It must also be senior or unsubordinated and secured by a first or pari passu charge on identifiable assets.
Disclaimer : This blog is dedicated exclusively for educational purposes. Please note that the securities and investments mentioned here are provided for informative purposes only and should not be construed as recommendations. Kindly ensure thorough research prior to making any investment decisions. Participation in the securities market carries inherent risks, and it's important to carefully review all associated documents before committing to investments. Please be aware that the attainment of investment objectives is not guaranteed. It's important to note that the past performance of securities and instruments does not reliably predict future performance.
