SEBI Relaxes Merchant Banker Requirement for Private Placement of Debt: Conditions and Compliance
Introduction
On 7 October 2026, the Securities and Exchange Board of India (SEBI) issued a circular titled “Exemption from the requirement of mandatory merchant banker appointment for debt issued through private placement by certain listed issuers”. It permits eligible issuers to raise funds through certain privately placed debt securities without appointing a merchant banker. SEBI states that the change is intended to ease the issuance of debt securities and to expand retail investor’s access to highly rated securities. The circular took effect immediately. The exemption is conditional. It does not apply to all private placements or to all listed companies, and an issuer that fails any one condition must continue to appoint a merchant banker.
Background
Para 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 15 October 2025 (NCS Master Circular) required an issuer of debt securities or non-convertible redeemable preference shares on private placement at a face value of ₹10,000 to appoint at least one merchant banker. The merchant banker’s role, responsibilities and obligations were the same as in a public issue. SEBI released a consultation paper on 27 August 2026 proposing an exemption for such issuances, citing feedback from market participants. The October 2026 circular gives effect to that proposal.
What Has Changed
The circular replaces para 1.3 of Chapter V of the NCS Master Circular. The general requirement to appoint at least one merchant banker remains. An issuer may, however, proceed without one if it satisfies all of the conditions below. The exemption applies to private placements of debt securities and non-convertible redeemable preference shares at a face value of ₹10,000. The conditions are cumulative. They address the issuer’s regulatory status, listing and compliance record, repayment history, the security for the debt and its credit rating.
Conditions for the Exemption
- Registration with or regulation by a financial sector regulator
The issuer must be registered with or regulated by one of the following: 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). Listing alone does not establish eligibility.
2. Listing history and compliance record
The issuer must have been listed in any segment of a recognised stock exchange for at least one year. No fines or penalties levied by SEBI or the stock exchanges for non-compliance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations) may be pending against it. The stock exchange confirms compliance with this condition when granting in-principle approval for the issue.
3. No specified defaults
The issuer must not have defaulted, in the preceding three financial years or the current financial year, in the redemption, repayment or payment of interest or dividend on any of the following:
- debt securities
- non-convertible redeemable preference shares
- securitised debt instruments
- commercial paper
- deposits
- Loans A certificate from the issuer’s statutory auditor confirming compliance with this condition must be submitted to the stock exchange.
4. Nature and security of the debt
The debt security must be unsubordinated or senior and secured by a first or pari passu charge over identifiable assets of the issuer. Central Public Sector Enterprises (CPSEs), Public Sector Undertakings (PSUs) and statutory bodies are an exception: their debt securities may be secured or unsecured.
5. Minimum credit rating
The debt security must carry a credit rating of AA- or above on the date of private placement. Where more than one rating has been obtained, the lowest rating determines eligibility. For example, if one agency rates the issue AA and another rates it AA-, the rating considered is AA-. If the lowest rating is below AA-, the condition is not met.
Role of Stock Exchanges
The circular directs stock exchanges to prescribe the operational requirements for the exemption, including the disclosure formats and submissions by which issuers demonstrate compliance. Exchanges must also amend their rules and regulations where necessary, make the required system changes, disseminate the circular and monitor compliance. Meeting the substantive conditions is therefore only part of the process. Issuers must also follow the exchange’s operational requirements.
Provisions That Continue to Apply
All other provisions of Chapter V of the NCS Master Circular remain unchanged. The relaxation is limited to the requirement to appoint a merchant banker and is not a general waiver of the requirements for issuing and listing debt securities by private placement. Issuers must continue to comply with the NCS Master Circular, the SEBI (Issue and Listing of Non-Convertible Securities) Regulations, 2021 and the applicable stock exchange framework.
Compliance Checklist
- Before proceeding without a merchant banker, an issuer should confirm the following:
- Confirm that the issue is at a face value of ₹10,000.
- Verify that the issuer is registered with or regulated by SEBI, RBI, IRDAI or PFRDA.
- Ensure that the issuer has been listed on a recognised stock exchange for at least one year.
- Confirm that no fines or penalties levied by SEBI or the stock exchanges for non-compliance with the LODR Regulations are pending.
- Review the specified repayment obligations for the preceding three financial years and the current financial year to confirm that no disqualifying defaults have occurred.
- Obtain the statutory auditor’s certificate confirming the absence of specified defaults and submit it to the stock exchange.
- Ensure that the debt is senior or unsubordinated and secured by a first or pari passu charge over identifiable assets, unless the issuer is a CPSE, PSU or statutory body.
- Confirm that the debt has a credit rating of AA- or above on the date of private placement. Where multiple ratings exist, consider the lowest rating.
- Complete the prescribed disclosure formats and submissions and obtain the required in-principle approval from the stock exchange.
- Ensure compliance with all other applicable requirements governing private placement and listing, as the circular does not exempt issuers from the remaining provisions of the NCS Master Circular.
Conclusion
The circular reduces cost and procedure for issuers that are regulated, seasoned, free of specified defaults and able to offer senior, secured and highly rated debt. Because every condition must be met and evidenced to the stock exchange, issuers should assess eligibility, and the continuing application of the rest of Chapter V, before deciding not to appoint a merchant banker.
