India’s merchant bankers are engaging with the securities regulator to request wider funding permissions aimed at improving their ability to support corporate debt issuances.
The proposal reflects ongoing efforts to deepen the domestic bond market, which remains constrained by liquidity limitations and structural challenges.
Greater financial flexibility, industry participants argue, could help intermediaries manage underwriting risks more effectively and support long-term capital formation.
Merchant bankers play a central role in arranging and underwriting corporate bond issuances in India. At present, regulatory rules restrict the amount they can underwrite based largely on their net worth.
They are also prevented from borrowing funds against bonds to support underwriting activity. Industry participants believe these limitations reduce their ability to absorb unsold portions of debt offerings when investor demand is weaker than expected.
During discussions with the regulator, merchant bankers have proposed several changes intended to broaden funding access.
These include permission to borrow from banks, non-banking financial companies and capital markets to finance underwriting commitments.
They have also sought approval to raise funds using bonds as collateral, a mechanism they say would allow more efficient balance-sheet management.
Such flexibility would place them closer to primary dealers operating in the sovereign bond market, who already have wider risk-management tools available.
Underwriting corporate debt involves taking temporary exposure to securities that may not immediately find buyers. Without access to external funding, merchant bankers must rely heavily on internal capital, which restricts participation in larger transactions.
Expanded funding channels could enable intermediaries to support more issuances and stabilise offerings that face uneven demand.
Supporters argue that this may encourage a broader range of companies to access bond financing rather than relying primarily on bank loans.
India’s corporate bond market, valued at roughly ₹58 trillion, continues to face several structural hurdles. Trading liquidity remains limited, transaction costs are relatively high, and issuance activity is dominated by highly rated borrowers.
These factors restrict participation by mid-tier companies and reduce overall market depth.
Market participants believe that improved underwriting capacity and better risk distribution could help address some of these inefficiencies over time, as per the Moneycontrol’s news report.
Alongside funding flexibility, intermediaries have also proposed the creation of an anonymous trading platform for corporate bonds. Such a system, they argue, could enhance price discovery by allowing participants to transact without revealing identities during negotiations.
Bankers have further suggested that debt-focused merchant bankers be regulated separately from equity oriented counterparts, reflecting differences in operational risk and market structure, the report added.
The regulator has not publicly commented on the proposals, and discussions remain ongoing. Any policy shift would need to balance market development objectives with prudential safeguards designed to manage leverage and systemic risk within financial intermediaries.
The requests from merchant bankers highlight the broader challenge of expanding India’s corporate bond ecosystem to meet growing financing needs, particularly for infrastructure and long-term investment.
While regulatory changes could improve operational flexibility, their effectiveness will depend on careful implementation alongside measures that address liquidity, participation and market transparency.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation or investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Published on: Feb 26, 2026, 10:22 AM IST
Neha Dubey
Neha Dubey is a Content Analyst with 3 years of experience in financial journalism, having written for a leading newswire agency and multiple newspapers. At Angel One, she creates daily content on finance and the economy. Neha holds a degree in Economics and a Master’s in Journalism.
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