SEBI Proposes Merchant Banker Exemption for Small-Value Private Debt Issues by Eligible Listed Issuers

The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing the exemption of certain listed issuers from the mandatory appointment of a merchant banker. The proposed exemption applies specifically to small-value debt raised through private placement, a move the regulator attributes to operational challenges and the need to facilitate market development.

Under the current SEBI framework, issuers undertaking small-value debt offerings are required to appoint at least one merchant banker. However, feedback gathered by the regulator from market participants highlighted that these appointments can impose a disproportionate burden of appointment cost. Additionally, market feedback noted that a limited number of merchant bankers in the debt segment alongside delays in execution can negatively impact such offerings.

The proposed exemption would cover debt securities or non-convertible redeemable preference shares issued through private placement at a face value of ₹10,000, provided the issuer meets specific eligibility conditions. According to the consultation paper, the issuer must be registered with or regulated by a financial-sector regulator in India and must maintain a listing on a recognised stock exchange for a minimum of one year.

Furthermore, at the time of granting in-principle approval, the stock exchange must ensure that there are no pending SEBI or stock-exchange fines or penalties for applicable LODR non-compliance. Eligible issuers must also have no defaults during the last three financial years and the current financial year on specified repayment and payment obligations, which include debt securities, deposits, dividends, and term loans. Issuers will be required to submit an auditor's certificate to the stock exchange to verify this compliance.

To restrict the exemption to relatively lower-risk instruments, SEBI has included strict structural conditions. The debt security must be unsubordinated or senior, secured by a first or pari passu charge on identifiable assets of the issuer, and hold a credit rating of at least AA- on the date of private placement. SEBI noted that the proposal is supported by the view that sufficient information about the issuer is already in the public domain, and listed issuers remain subject to ongoing regulatory oversight.

The consultation paper was issued on August 27, 2026, and SEBI has invited public comments on the draft circular until September 17, 2026. The draft indicates that if the provisions are finalised, they will be applicable with immediate effect, while all other provisions of Chapter V of the NCS Master Circular will remain unchanged.

"SEBI's proposal to exempt eligible listed issuers from mandatory merchant banker appointments for small-value private debt addresses genuine operational bottlenecks and cost burdens faced by market participants. By maintaining strict guardrails—such as mandatory AA- credit ratings, senior secured structures, and a clean three-year default record—the regulator ensures that risk management is not compromised while improving execution efficiency for lower-risk debt instruments." — Dr. Shishir Gupta, Founder & CEO, StartupLanes