Strategic Business Unit

A SEBI-registered merchant banker does more than manage issues. It may also do fee-based work in the financial services sector that SEBI does not regulate at all.

That creates a problem for clients. If one firm does both, a client may assume SEBI stands behind everything it does. SEBI does not.

SEBI's answer is a wall. Non-SEBI-regulated work must sit in a Strategic Business Unit, or SBU, inside the merchant banker. The SBU is segregated and ring-fenced from the regulated business.

The activity must still be incidental or complementary to merchant banking. An SBU is not a licence to run an unrelated business under a SEBI registration.

What the wall separates is specific. Separate complaints handling. Separate records. Separate staff. Separate advertising and web pages. And a plain statement on the website that no SEBI investor protection mechanism covers the SBU's work.

The deadline is fixed. The segregation must be done on or before December 31, 2026.

What is permitted (Chapter 3). Merchant bankers may undertake fee-based, non-fund-based activities in the financial service sector, provided they are incidental or complementary to merchant banking and are conducted through Strategic Business Units (SBUs) with proper segregation and ring-fencing. The segregation shall be done on or before December 31, 2026.

The nine conditions.

The half-yearly undertaking. For activities not regulated by SEBI, the merchant banker submits an undertaking as part of the half-yearly report confirming compliance with the requirements of regulation 13A and the prescribed conditions, duly reviewed and approved by its board of directors.

The RBI case, which runs the other way. A person holding a certificate of registration under the Merchant Bankers Regulations who is also regulated by the Reserve Bank of India shall undertake the specified merchant banking activities through a separate business unit, and that unit must comply with the same terms and conditions. Note the inversion: here it is the merchant banking work that is fenced off, not the unregulated work.

Illustrative figures. Mahanadi Advisors Ltd is a SEBI-registered merchant banker. Its revenue splits like this:

The Rs 59 crore of unregulated advisory is fee-based, non-fund-based, and plainly complementary to merchant banking. So it may continue — but only inside an SBU, and the segregation must be complete on or before December 31, 2026.

What Mahanadi has to build:

1. A separate complaints desk inside the SBU, with its own escalation ladder. A client of the M&A advisory business cannot be routed to the SCORES-linked desk that handles IPO investors.
2. A separate set of books for the Rs 59 crore.
3. Distinct staff. Its 14 M&A advisory professionals cannot double as the issue management team. They may cross the Chinese wall on a specific deal only under a board-approved procedure — and the firm's 2 Key Managerial Personnel sit outside the Chinese wall altogether.
4. A website disclosure, already overdue if missed. Mahanadi was carrying on these activities before the effective date, so the list of unregulated activities and the warning that no SEBI investor protection mechanism applies had to be on its website on or before February 02, 2026.
5. New paperwork on every mandate. Every engagement letter for the Rs 59 crore business carries the upfront written disclosure, and each client signs an acknowledgement.
6. A compliance report to SEBI on the existing mandates, and a half-yearly undertaking on regulation 13A compliance, approved by the board.

What it may keep sharing is the expensive part. The Rs 12 crore a year it spends on IT infrastructure serves both sides, and condition (d) expressly permits that under board-approved procedures. The wall goes around records, staff, complaints and marketing — not around the server room.

Chapter 3 (Registration, Code of Conduct & General Obligations of Merchant Bankers in India) is 15% of the paper, and the SBU framework sits at the front of it, immediately after the list of SEBI-regulated merchant banking activities.

The dates are the most likely questions: December 31, 2026 for the segregation, and February 02, 2026 — thirty days from the effective date — for the website disclosure by merchant bankers already doing such work. After that, expect the Chinese wall carve-out (not applicable to Key Managerial Personnel), what may be shared (other resources including IT infrastructure, with board approval) against what may not (grievance redressal, records, staff, advertising and webpages), and the regulation 13A undertaking in the half-yearly report.

• Two dates, two purposes. December 31, 2026 is the segregation deadline; February 02, 2026 is the website disclosure deadline for merchant bankers already carrying on such activities as on the effective date.
• The Chinese wall does not apply to Key Managerial Personnel. Everybody else needs a board-approved procedure to cross it.
• IT infrastructure and other resources may be shared. Only records, staff, grievance redressal, advertising and webpages must be separate. Candidates over-apply the wall.
• The activity must be incidental or complementary to merchant banking, and fee-based and non-fund-based. An SBU does not widen the licence.
• No SEBI investor protection mechanism covers SBU activities, and that has to be said on the website and on every engagement letter — with an acknowledgement taken back from the stakeholder.
• Where another Financial Sector Regulator applies, name it and follow its framework. Unregulated and differently-regulated are not the same thing.
• The RBI case runs the other way. A merchant banker that is also RBI-regulated puts its merchant banking activities into a separate business unit — there the SEBI-regulated work is the fenced side.
• An SBU is a unit inside the merchant banker, not a subsidiary. The requirement is segregation and ring-fencing, not incorporation.