SEBI Proposes Exemptions for Small-Value Debt Issues to Cut Compliance Costs

The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing an exemption from the mandatory appointment of a merchant banker for small-value debt issues. The proposal applies to listed companies raising funds through private placements of debt securities or non-convertible redeemable preference shares with a face value of ₹10,000.

According to the regulatory body, the existing mandate requiring issuers to appoint at least one merchant banker adds financial overhead and creates procedural delays. SEBI noted that such delays can negatively impact price-sensitive debt issuances, particularly in fast-moving market conditions where yields fluctuate rapidly. Additionally, the regulator cited the limited number of active merchant bankers operating within the debt segment as an operational hurdle.

To qualify for the proposed exemption, issuers must meet four specific criteria outlined by the regulator. First, the issuing entity must be registered with or regulated by a recognized financial sector authority in India, such as 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).

Second, the company must have been listed on a recognized stock exchange for a minimum duration of one year. Third, the issuer must not have any pending fines or penalties imposed by SEBI or stock exchanges related to listing compliance.

Finally, the issuer must maintain a clean financial track record. This requires that the company has not defaulted during the preceding three financial years and the current financial year on several fronts. These include the repayment of deposits or associated interest, the redemption of debt securities or non-convertible preference shares along with interest, the declaration and payment of shareholder dividends, and the repayment of term loans or related interest. Furthermore, issuers must submit an auditor’s certificate to the stock exchange verifying this compliance.

SEBI has invited public feedback on the proposed framework, with the deadline for submissions set for September 17.

"SEBI's proposal to exempt qualified listed entities from mandatory merchant banker appointments for small-value debt issues is a pragmatic step toward easing regulatory friction. By addressing the bottlenecks of compliance costs and procedural delays, this move can improve execution speed in fast-moving debt markets. However, the strict eligibility criteria—such as a clean repayment track record and regulatory oversight—ensure that investor protection remains a priority while smaller-value issuances become more efficient." — Dr. Shishir Gupta, Founder & CEO, StartupLanes