In the SEBI consultation paper issued last month, many new rules have been proposed for merchant bankers. According to the new rules, if the merchant bankers do not earn income within a fixed limit from core merchant banking activities, then there is also a provision to cancel their license.

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There are about 225 merchant bankers registered with the Securities and Exchange Board of India (SEBI), but a large portion of them may face exit if the new rules are approved and implemented. SEBI is in the process of reviewing the merchant banker rules, which were formulated more than 30 years ago in 1992. The consultation paper released last month proposes several new rules for merchant bankers, including rules related to cancellation of their license if a certain amount of income is not earned from core merchant banking activities. According to industry players, this could prove to be the death knell for many entities that are currently registered as merchant bankers but are hardly involved in core investment banking activities. It is certain that this is not going to have any significant impact on the industry, as most of the firms will usually be those that are inactive. But there are still SEBI licenses. Referring to Category 1 merchant bankers, it has been said that if the merchant banker fails to earn at least Rs 25 crore in the last three financial years, his license will be cancelled. To be eligible to register as a Category 1 merchant banker, an entity will need a minimum net worth of Rs 50 crore - which is ten times more than the current limit of Rs 5 crore. For Category 2 merchant bankers, who will require a net worth of Rs 10 crore, there should be an income of at least Rs 5 crore in the last three financial years. Experts say that due to the proposed rules, many people will be left out. Because they have got this license as inheritance.