Zerodha Gets SEBI Category-I Merchant Banking Licence to Enter Investment Banking

The Securities and Exchange Board of India (SEBI) has approved a Category-I merchant banking licence for Zerodha Corporate Advisors, the subsidiary of Bengaluru-based brokerage Zerodha. The approval, dated 1 September 2026, allows the firm to manage main-board public issues such as IPOs and to take up underwriting once formal registration is completed. The move marks Zerodha’s entry into investment banking at a time when SEBI has raised the entry bar to ₹50 crore net worth to make IPO managers stronger and more accountable.

What Happened: SEBI Clears Zerodha Corporate Advisors

Zerodha Corporate Advisors Private Limited had applied to SEBI for a Category-I merchant banking licence on 27 April 2026. SEBI reflected the approval on its website with the date 1 September 2026. Formal registration is still in process, so the company can start full operations as a registered merchant banker only after that final step is completed.

The company has said it will start operations over the next couple of months. Mohit Mehra, Whole Time Director of Zerodha Corporate Advisors, has stated that the initial focus will be on equity capital markets. This means managing initial public offerings (IPOs), where a private company sells its shares to the public for the first time, along with follow-on public offers (FPOs) and rights issues, where an already listed company raises more money from investors.

It is important not to confuse this approval with a Zerodha IPO. No shares of Zerodha are being offered to the public, and there is no price band or subscription window. The licence allows Zerodha to manage fund raising for other companies as an intermediary, not to raise funds for itself.

The approval comes at a busy time for the primary market. SEBI data shows 249 registered merchant bankers, with about 10 applications pending, including those from firms such as Haitong Securities India and Societe Generale Securities India. Zerodha’s entry therefore adds a well known retail broking brand to a space dominated by established names such as Kotak Mahindra Capital, JM Financial, Axis Capital and ICICI Securities.

What Is Merchant Banking and What Does a Category-I Licence Allow?

Merchant banking means specialised financial services that help companies raise money from the capital market. The capital market is the part of the financial system where long term securities such as shares and bonds are bought and sold, as distinct from the money market where short term loans and treasury bills are traded. Under the SEBI (Merchant Bankers) Regulations, 1992, a merchant banker is any entity engaged in the business of issue management by arranging the sale, purchase or subscription of securities, or by acting as manager, consultant or adviser for such issues.

A merchant banker is not a regular commercial bank. It does not accept public deposits or give routine loans. It earns mainly through fees and commissions for managing transactions and giving corporate advice. In a public issue, the merchant banker acts as the Book Running Lead Manager (BRLM). The BRLM prepares the Draft Red Herring Prospectus (DRHP), which is the detailed offer document filed with SEBI, carries out due diligence to check that all disclosures are true and complete, helps discover the share price through the book building process, markets the issue to institutional and retail investors, and coordinates with stock exchanges, registrars, lawyers and auditors till listing.

Underwriting is a central part of this work. Underwriting means a promise by the merchant banker to buy the shares that remain unsubscribed if public demand falls short. For example, if a company offers shares worth ₹500 crore and investors apply for only ₹450 crore, the underwriter must bring in the balance as per the underwriting agreement. This gives the issuing company certainty of funds, but it also puts the underwriter’s own capital at risk, which is why SEBI links underwriting capacity to liquid capital.

A Category-I licence is the broadest merchant banking permission. It allows a firm to act as lead manager for main-board public issues, which are IPOs and FPOs listed on the main platforms of the National Stock Exchange (NSE) and BSE. It also permits underwriting, corporate advisory on capital structure and valuation, and services linked to mergers, takeovers, buybacks and open offers. In short, a Category-I merchant banker can handle the full life cycle of a large public issue, from planning and documentation to pricing, marketing and post issue support.

SEBI Merchant Banking Rules: Net Worth and Underwriting Limit Explained

SEBI tightened the rules for merchant bankers through amendments to the 1992 regulations, laid out in its circular dated 2 January 2026 and effective from 3 January 2026. The core idea is simple. Firms that manage large public issues and promise underwriting support must have enough of their own money to absorb stress. Since Zerodha Corporate Advisors applied after 3 January 2026, it must meet the higher capital standard upfront as a fresh applicant.

Earlier, a Category-I merchant banker needed a minimum net worth of only ₹5 crore. Net worth means the total owned funds of the firm after subtracting liabilities. Under the new framework, this requirement rises to ₹50 crore for Category-I. Existing firms get a phased path, with ₹25 crore by 2027 and ₹50 crore by 2028, but new entrants like Zerodha must show the full strength at entry.

SEBI has also introduced the concept of liquid net worth. This is the part of net worth held in cash or near cash assets such as bank deposits, government securities and select liquid investments that can be used quickly. A Category-I firm must keep at least 25 percent of its net worth in this liquid form, which works out to ₹12.5 crore when net worth is ₹50 crore. This ensures that capital is not locked in illiquid assets when an underwriting promise has to be honoured.

The third change is a cap on risk. The total underwriting obligations of a merchant banker cannot exceed 20 times its liquid net worth. To understand this, if a firm holds ₹12.5 crore in liquid net worth, its combined underwriting promises at any point cannot cross ₹250 crore. A Chartered Accountant certificate on this ratio is required with periodic reports. SEBI has also added a minimum revenue test to keep licences active, with ₹25 crore over three years from permitted merchant banking work for Category-I, to be assessed from April 2029, along with requirements for an independent compliance officer and in-house handling of core activities.

Category-I vs Category-II Merchant Bankers

SEBI now operates a two category system. Category-III and Category-IV, which existed in the early years of the 1992 framework, were removed long ago, and the present reform sharpens the line between full service managers and limited role firms.

This table shows why the Zerodha licence matters. Only a Category-I firm can lead manage a main-board IPO, which is the largest and most visible part of the primary market. A Category-II firm can still guide smaller deals such as SME IPOs on the NSE Emerge and BSE SME platforms, along with open offers and buybacks, but it cannot anchor a main-board listing.

Merchant Banking vs Investment Banking: What Is the Difference?

In India, merchant banking is a legal term defined by SEBI. It refers to SEBI registered work such as issue management, underwriting and corporate advisory linked to securities. Investment banking is the broader global term for the same kind of business, and it often covers a wider set of deals such as large mergers and acquisitions, private equity placements and global fund raising. In practice, when Zerodha is described as entering investment banking, it means it will do SEBI regulated merchant banking work, starting with IPOs and equity fund raising.

The distinction matters for readers because every public issue in India must have at least one SEBI registered merchant banker as lead manager. A foreign investment bank cannot manage an Indian IPO unless it holds this SEBI registration or works through a registered Indian entity. Zerodha’s licence therefore gives it the same regulatory passport that established investment banks hold for the Indian primary market.

Why Zerodha Is Expanding Beyond Broking

Zerodha was founded in August 2010 in Bengaluru by brothers Nithin Kamath and Nikhil Kamath. It pioneered discount broking in India with a flat fee of ₹20 per trade and technology first platforms such as Kite for trading, Coin for direct mutual fund investment, Console for portfolio reporting and Varsity for investor education. Built without outside venture funding, it grew to become one of India’s largest brokers, with about 7.5 million active clients on the NSE, and is often ranked as the country’s largest or second largest broker by active retail clients and by net worth.

In recent years the group has moved beyond pure broking into asset management through Zerodha Asset Management, lending through Zerodha Capital, start up funding through Rainmatter, and overseas access through a broker dealer registration in GIFT City in Gujarat. GIFT City is India’s International Financial Services Centre, regulated by the International Financial Services Centres Authority (IFSCA), and it allows Indian firms to offer products such as US stock investing through a regulated domestic route.

This diversification follows pressure on core broking income. Tighter rules on the use of client funds and stricter norms for derivatives trading have reduced industry volumes and float income. The company’s profit after tax moderated from ₹5,495 crore in FY24 on revenue of ₹9,973 crore to ₹4,283 crore in FY26 on revenue of ₹7,464 crore, with core broking income falling while income from the margin trading facility (MTF) and interest grew to about a tenth of revenue. Merchant banking fees from IPOs and advisory offer a new and less volume dependent income stream, and Zerodha’s large retail distribution base could help it market public issues to ordinary investors.

The regulator behind this licence is the Securities and Exchange Board of India (SEBI). SEBI was set up on 12 April 1988 as a non statutory body and became a statutory regulator on 30 January 1992 under the SEBI Act, 1992. It works under the Ministry of Finance, is headquartered at the Bandra Kurla Complex in Mumbai, and protects investors while regulating brokers, exchanges, mutual funds and merchant bankers. India’s primary market strength makes this role central, as the country emerged as the world’s second largest equity issuance hub in 2025 with over $21 billion raised, which explains SEBI’s push for better capitalised and professionally run intermediaries.

What This Means for Companies and Investors

For companies planning to list, Zerodha’s entry could widen choice and bring a low cost and technology led approach to issue management. Its experience with retail investors may help smaller issuers reach beyond institutional buyers, though winning mandates will still depend on track record in due diligence, pricing discipline and compliance. For investors, the IPO application process on platforms like Kite remains unchanged, and allotment rules continue to be set by SEBI and the exchanges.

The larger signal is about market quality. Higher net worth, compulsory liquid capital and a hard cap on underwriting mean that only firms with real financial strength can anchor main-board issues. Over time, this is expected to improve the quality of offer documents, reduce the risk of failed underwriting promises and strengthen trust in India’s capital market as more first time companies tap public funds for expansion.

Key Takeaways

• Zerodha Corporate Advisors received SEBI approval for a Category-I merchant banking licence on 1 September 2026 after applying on 27 April 2026.
• Category-I merchant bankers can act as lead managers for main-board IPOs and undertake underwriting and issue related services.
• The minimum net worth for Category-I has been raised from ₹5 crore to ₹50 crore, with ₹12.5 crore to be held as liquid net worth.
• Total underwriting obligations are capped at 20 times liquid net worth under the revised SEBI (Merchant Bankers) Regulations, 1992.
• SEBI, established on 12 April 1988 and made statutory on 30 January 1992, is headquartered in Mumbai and regulates India’s securities market.