Sebi Tightens Hold, To Widen Scope Of Merchant Bankers Checklist

The Securities and Exchange Board of India (Sebi), in a tightening of screws on merchant bankers, has decided to broaden the scope of the crucial checklist it has for granting renewals of registration. This would mean their past activities would be scrutinised very closely while granting future renewals. This major move follows a review meeting after the CRB scandal.

Highly placed Sebi officials told Business Standard that the regulator would also have a crucial meeting with the Association of Merchant Bankers of India (Ambi) which is likely to be held during the course of this week. After the series of tough measures on the mutual funds industry, Sebi has now begun to focus its attention on merchant bankers.

 

The checklist would be broadened to include more points of compliance which would be noted while renewals are granted, the sources said. The Sebi committee of executive directors is currently debating the issues to be included in the checklist.

Payment of fees, earlier adverse comments from Sebi and such issues are covered in the checklist but the regulator now wants to maintain an even tougher vigil on their activities since the CRB episode has also exposed the hollowness of the merchant banking sector.

The other crucial issue being debated by Sebi is the capital base for Category I merchant bankers. The base currently stands at Rs 5 crore but the regulator feels that it should be hiked.

While reports have put the possibility of the increased figure being around Rs 15 crore, Sebi officials yesterday pointed out that this figure would be too steep and would drastically reduce the number of merchant bankers in the business.

The final base figure may, therefore, be somewhere between Rs 5-15 crore.

If Rs 15 crore is stipulated, there may be only five or six who will be able to rustle up the money, officials in the regulatory body said.

Currently, Sebi does, at times, advise merchant bankers who have got adverse comments in their inspection reports to refrain from taking on new business. Officials, however, said a ban of the type imposed for mutual funds' new schemes would not be in order since mutual funds were in the fund-raising business while merchant bankers were in a service industry.

Sebi is also drafting fresh merchant banking regulations which would also aim at preventing them from carrying on funds-based activities under the same umbrella.

The meeting with Ambi would address these and several other regulatory concerns Sebi has on the merchant banking sector, the officials said.