Investment Banks in India: A Complete Guide (2026)

An investment bank is a SEBI-registered financial intermediary — legally classified as a "Merchant Banker" in India — that helps companies and governments raise capital through IPOs, bond issues, and follow-on offerings, and advises on mergers, acquisitions, and corporate restructuring. Unlike a commercial bank, it does not take public deposits or issue everyday loans; it earns fees for underwriting and advisory work.

DEFINITION: Investment Bank (India-specific definition): A financial intermediary registered with the Securities and Exchange Board of India (SEBI) as a Merchant Banker under the SEBI (Merchant Bankers) Regulations, 1992 — significantly overhauled by the SEBI (Merchant Bankers) (Amendment) Regulations, 2025, effective 1 January 2026 — that manages and underwrites public issues, advises on M&A, and helps raise capital from institutional and retail investors.

What Is an Investment Bank?

One of the most lucrative corners of finance is investment banking. In India, the entities that do this work are legally classified as "Merchant Bankers" and must register with SEBI before they can manage a public issue, run a rights offering, or advise on a takeover. Globally recognised names like Goldman Sachs, JPMorgan Chase and Morgan Stanley operate in India alongside domestic leaders such as Kotak, ICICI Securities, Axis Capital and SBI Capital Markets — all of them registered merchant bankers when they do this kind of work here.

An investment bank acts as a middleman between big organisations that need capital (companies, governments, institutions) and the investors willing to supply it. It earns a fee for structuring, pricing and placing that capital — not by lending its own deposit base, which is what separates it from a commercial bank.

Investment Bank vs Commercial Bank

A Brief History: From Wall Street to Dalal Street

Investment banking as an industry took shape in 19th-century America. In January 1861, Philadelphia financier Jay Cooke opened Jay Cooke & Co. and went on to help the Union government finance the Civil War by selling hundreds of millions of dollars in government bonds directly to the public — a role widely credited as the origin of modern American investment banking. As the U.S. economy industrialised, commercial banks alone could not finance large-scale railways, mines and heavy industry, so investment banks stepped in to connect big capital needs with investors, earning a fee as the middleman.

India's own merchant banking industry has a very different, more recent history. It formalised only after SEBI was set up as a statutory regulator in 1992 and issued the SEBI (Merchant Bankers) Regulations the same year. For over three decades that 1992 framework — built for a much smaller, less complex market — governed everyone from Kotak to Goldman Sachs India. It has now been comprehensively rewritten.

Who Regulates Investment Banks in India?

Every entity carrying out investment-banking activity in India — managing an IPO, running a QIP, advising on a buyback or delisting — must be registered with SEBI as a Merchant Banker. Bank-owned arms such as SBI Capital Markets, ICICI Securities, Axis Capital and Kotak Investment Banking sit inside groups that are also subject to RBI oversight at the parent level, but the investment-banking activity itself is governed by SEBI.

REGULATORY UPDATE

SEBI (Merchant Bankers) (Amendment) Regulations, 2025 — effective 1 January 2026 — is the first comprehensive rewrite of the merchant banking framework since 1992. Key changes include: re-categorisation of merchant bankers with higher net-worth and capital requirements; a new Rule 13A specifying permitted activities (managing public issues, QIPs, rights issues, buybacks, delisting, international offerings, AIF placement memoranda, and more); and ring-fencing of merchant banking activity into separate business units to limit cross-business risk. SEBI had proposed even stricter mandatory corporate hive-offs in December 2024 but deferred that specific requirement in March 2025 after industry feedback, adopting the calibrated net-worth-segregation approach instead.

The practical effect for readers: SEBI is signalling that India's merchant banking industry — long criticised for a low barrier to entry and a large number of dormant licence-holders — is being pushed toward fewer, better-capitalised, more accountable players.

Who Are India's Top Investment Banks (2025-26)?

India's investment banking fee pool hit a record roughly ₹10,725 crore (about $1.3 billion) in 2025, and the IPO segment alone paid bankers a record ~₹4,113 crore — up nearly 19% from 2024 — as total IPO fundraising crossed ₹1.75 lakh crore across more than 100 issues.

How Investment Banks Take a Company Public: The IPO Process

When a company wants to go public, it engages one or more merchant bankers to act as book-runner(s). The bank studies the company's financials, business plan and growth prospects before deciding whether to underwrite the issue. Larger, high-profile companies often trigger a competitive "bake-off" among banks pitching for the mandate; many issues instead use joint book-runners — several banks sharing the underwriting and distribution work.

A well-known historical example is Tata Steel's 2011 fundraise, underwritten by a syndicate of seven banks including Kotak Mahindra Capital, Citigroup Global Markets India, Deutsche Equities India, HSBC Securities and Capital Markets, RBS Equities India, Standard Chartered Securities and SBI Capital Markets. More recently, the 2025 IPO boom produced its own marquee deals: LG Electronics India's ₹11,605-crore listing generated the year's single highest banker payout at ₹226 crore, spread across a consortium including Morgan Stanley, Axis Capital, JPMorgan, Bank of America and Citi; Tata Capital's ₹15,512-crore IPO — the largest float of 2025 — paid its lead managers ₹159 crore.

Once engaged, the bank drafts an investment thesis, builds a valuation framework, and prices the offering — typically buying the shares at an agreed price and reselling them to public investors, a process called security underwriting. IPOs in India are also governed by SEBI's Issue of Capital and Disclosure Requirements (ICDR) framework, which sets disclosure, pricing-band and eligibility rules that merchant bankers must comply with when managing an issue.

Security Underwriting: The Three Main Structures

• Firm Commitment Underwriting: The bank buys the entire issue from the company and resells it to investors at a profit — carrying the risk if any shares go unsold. Because of this risk, banks are selective about which issues they underwrite this way, and charge a higher fee.

• Best-Efforts Underwriting: The bank uses its investor network to sell as much of the issue as it can, but is not obligated to buy unsold shares itself — any unsold portion simply reverts to the issuing company.

• All-or-None Underwriting: The bank agrees to sell the entire issue at a set price or return it in full to the issuer — there is no partial outcome.

Average IPO underwriting fees in India climbed to about 1.86% of deal value in 2025 (up from 1.67% in 2024), though smaller SME-segment issues, which carry more relative work per rupee raised, can charge fees as high as 5%.

Investment Banks in Mergers & Acquisitions (M&A)

An acquisition is when one company buys and absorbs another; a merger is when two companies combine into one entity. Walmart's 2018 purchase of a 77% stake in Flipkart for $16 billion — outbidding Amazon for a foothold in the Indian e-commerce market — remains one of India's landmark acquisitions. Investment banks sit on either side of these deals: advising the seller on getting the best valuation and the best buyer, or advising the buyer on identifying targets, structuring the bid, and negotiating final terms.

CASE STUDY: WHEN A DEAL FALLS THROUGH

Not every advised merger closes. The proposed Zee Entertainment–Sony Pictures Networks India tie-up — announced in December 2021 as a deal that would have created a $10 billion media powerhouse, and cleared by the National Company Law Tribunal in 2023 — was terminated by Sony on 22 January 2024 after more than two years of negotiations, when closing conditions were not satisfied and the two sides could not agree an extension. It's a useful reminder that investment bank involvement structures and advises a deal — it does not guarantee it will close.

Bankers typically earn 1-2% of deal value for arranging an M&A transaction and a separately negotiated advisory fee — often 3-10% of capital raised for smaller or more complex deals — though headline percentages vary widely by deal size and complexity.

The CCI Layer: When Does a Deal Need Regulatory Approval?

Large M&A deals in India don't just need an investment bank — they may also need approval from the Competition Commission of India (CCI). Following the Competition (Amendment) Act, 2023, a deal-value threshold came into force in September 2024: any transaction worth more than ₹2,000 crore (roughly $240 million) requires prior CCI approval if the target has "substantial business operations" in India, even if it would not otherwise trigger the older asset/turnover-based thresholds. This was specifically designed to bring large digital-economy and tech deals — which can be valuable but asset-light — under merger-control scrutiny. A separate de minimis exemption keeps genuinely small targets (assets under roughly ₹450 crore or turnover under roughly ₹1,250 crore) out of the process altogether.

Restructuring and Reorganising a Company

When a company is under financial stress — struggling to service debt or facing insolvency — it often turns to an investment bank for restructuring advice. This can mean converting debt into equity so bondholders receive shares instead of repayment, or reorganising business lines and operating models to improve performance. This advisory role isn't limited to distressed companies; healthy businesses also use it to pressure-test their structure ahead of future risk.

Proprietary Trading

Separate from client-facing work, investment banks also engage in proprietary ("prop") trading — using their own capital to trade stocks, bonds, commodities and other securities for their own profit, using strategies like merger arbitrage, index arbitrage and global macro trading. Because prop desks sit inside the same institution that advises clients, they raise the same conflict-of-interest concerns discussed below, which is part of why the practice is closely watched by regulators — the U.S. Volcker Rule was introduced specifically to curb it after the 2008 financial crisis, and Indian regulation similarly requires information barriers between advisory and trading functions within a merchant banker.

Ethics: The "Chinese Wall" and Conflict of Interest

Because an investment bank can sit on both sides of the same information flow — advising a company while also placing its shares with investors — regulators require an internal information barrier, commonly called a "Chinese Wall," between departments. The concept traces back to the U.S. Glass-Steagall Act of 1933, passed after the 1929 crash to separate commercial and investment banking activities and curb exactly this kind of conflict.

In India, the equivalent obligation doesn't come from a single historic law but from SEBI's own framework: the Merchant Bankers Regulations require merchant bankers to manage conflicts between their own interests and their clients', and the 2025 amendment goes further by requiring ring-fenced, separate business units for merchant banking activity — a modern, India-specific version of the same Chinese Wall principle. SEBI's Prohibition of Insider Trading Regulations, 2015 adds a further layer, restricting the use of unpublished price-sensitive information gained through advisory work.

Conclusion

Investment banks — Merchant Bankers, in SEBI's own terminology — sit at the centre of how Indian companies raise capital and restructure themselves: underwriting IPOs, advising on mergers and acquisitions, and guiding businesses through financial distress. That role has only grown more consequential heading into 2026. SEBI's Merchant Bankers Amendment Regulations, effective 1 January 2026, are pushing the industry toward fewer, better-capitalised and more tightly governed players. The CCI's deal-value threshold, in force since September 2024, has widened regulatory scrutiny of large M&A deals, including the asset-light digital transactions that older rules missed. And 2025's record ₹10,725 crore fee pool — with IPO fundraising crossing ₹1.75 lakh crore — shows just how central these institutions have become to India's capital markets.

For a retail investor, the practical takeaway is this: every IPO you apply for, and every large merger that moves the stock you hold, has an investment bank working behind the scenes — structuring the deal, pricing the offer, and, increasingly, doing so under a stricter SEBI rulebook than existed even a year ago. Understanding who these players are, how they're regulated, and where their incentives sit is a genuinely useful piece of financial literacy, not just an industry curiosity.

DISCLAIMER: This blog is NOT any buy or sell recommendation. No investment or trading advice is given. The content is only for educational purposes. Always discuss with your SEBI-registered financial advisor for investment-related decisions.

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