When a company raises money from the public, somebody has to physically receive the application money, hold it, send refunds, and later pay dividends and interest. That somebody is a banker to an issue — a scheduled bank registered with SEBI under the Securities and Exchange Board of India (Bankers to an Issue) Regulations, 1994. The intermediary sits at the cash-handling heart of every public issue, and the Regulations exist to make sure that investor money does not leak, vanish, or get released before the shares are validly listed. This chapter walks through the definition, the registration architecture, the fit-and-proper screen, the conduct obligations, and the default machinery — tracing how the 1994 Regulations were progressively folded into the unified framework of the SEBI (Intermediaries) Regulations, 2008.
Who is a banker to an issue?
The statutory definition is deceptively narrow. Regulation 2(aa) of the SEBI (Bankers to an Issue) Regulations, 1994 defines a banker to an issue as “a scheduled bank carrying on all or any of the following activities, namely—(i) acceptance of application and application monies; (ii) acceptance of allotment or call monies; (iii) refund of application monies; (iv) payment of dividend or interest warrants.” Four cash-handling functions, performed for a company that is raising money from the public, convert an ordinary commercial bank into a regulated capital-market intermediary.
Three features of the definition deserve emphasis. First, the entity must be a scheduled bank — Regulation 2(e) ties this to a bank included in the Second Schedule to the Reserve Bank of India Act, 1934. Second, it is the activity, not the institution, that triggers regulation: a scheduled bank that never touches issue money is not a banker to an issue, while one that performs even a single listed function is. Third, the definition is conjunctive-disjunctive (“all or any”), so a bank can be a pure collecting banker, a pure refund banker, or a paying banker, and still fall squarely within the Regulations.
The phrase issue was itself defined in 2006 (Regulation 2(ca)) as an offer of sale or purchase of securities by a body corporate, or by any person on its behalf, to or from the public or existing security-holders. That definitional anchor matters because it is the public-issue character of the underlying transaction — the very feature litigated in Sahara India Real Estate Corp. Ltd. v. SEBI, (2013) 1 SCC 1 — that brings the cash-handler within SEBI’s reach in the first place.
Why the law treats the collecting bank as a separate intermediary
It might seem odd that a bank already supervised by the Reserve Bank of India should need a second registration with SEBI. The answer lies in the distinct risk that a banker to an issue carries. The money it collects is not a deposit it owns — it is escrowed public money that belongs to thousands of applicants until allotment, and must either crystallise into share capital or flow back as refund. A bank that releases issue proceeds prematurely, or sits on refunds, inflicts harm not on its own balance sheet but on the investing public and on the integrity of the primary market that SEBI is statutorily charged with protecting. The bank is, in substance, a stakeholder of public money for a defined window — and it is precisely that fiduciary window that SEBI regulates.
This is the same logic the Supreme Court articulated when it upheld SEBI’s expansive primary-market jurisdiction in Sahara India Real Estate Corp. Ltd. v. SEBI, (2013) 1 SCC 1, holding that SEBI’s powers are supplementary to other laws and must be read to keep the public-issue process clean. Dual regulation — RBI for banking soundness, SEBI for issue conduct — is therefore deliberate, and the Regulations expressly preserve the RBI’s role, as we shall see in the inspection and disciplinary provisions. The arrangement mirrors the broader design philosophy of the SEBI intermediaries framework, where activity-specific registration overlays sectoral regulation. It also explains why the Regulations are drafted around the flow of money — collection, forwarding, refund, payment — rather than around the bank as an institution: the regulator’s concern is the journey of investor funds through the issue, and the points at which that journey can be abused.
Source of regulatory power: Section 30 of the SEBI Act
The 1994 Regulations were notified on 14 July 1994 in exercise of the rule-making power under Section 30 of the Securities and Exchange Board of India Act, 1992, with the previous approval of the Central Government. They originally sat alongside the SEBI (Bankers to an Issue) Rules, 1994, which were later rescinded with effect from 7 September 2006, leaving the Regulations as the sole instrument. The certificate of registration itself is issued under Section 12(1) of the SEBI Act, which is the master prohibition: no person shall act as an intermediary associated with the securities market except under, and in accordance with, the conditions of a certificate of registration granted by SEBI.
Section 12(1) is the constitutional spine of the entire intermediaries edifice. Its breadth was emphasised in Sahara India Real Estate Corp. Ltd. v. SEBI, (2013) 1 SCC 1, where the Court read SEBI’s registration and investor-protection mandate generously and refused to let the form of an instrument defeat the substance of a public issue. The same Section 12(1) hook underlies sibling regimes such as the Stock Brokers Regulations, 1992 and the Merchant Bankers Regulations, 1992; the bankers-to-an-issue regime is one branch of that common statutory tree. Understanding this shared root is examinable in its own right: a question on any single intermediary often turns on the same Section 12(1) registration principle and the same investor-protection rationale that animates the whole Chapter.
Registration: the application under Form A
Chapter II governs registration. Under Regulation 3(1), an application by a scheduled bank for a certificate of registration as banker to an issue must be made to SEBI in Form A, accompanied by a non-refundable application fee specified in Schedule II (Regulation 3(1A)). Form A is detailed: Part I seeks general information — the bank’s registered office, organisation chart, particulars of directors and key management personnel, infrastructural and data-processing facilities, and financial information including paid-up capital, free reserves, deposits and net profit. Part II seeks issue-specific information — the type of activity (collecting, refund or paying banker), the modus operandi for handling applications, a copy of the typical client contract, and a list of centres and corporate clients.
Form A closes with a declaration, signed by two authorised officials, warranting that neither the applicant nor any of its directors or key executives has been involved in or convicted of economic offences in the last three years, or penalised by the RBI for violating the RBI Act, 1934 or the Banking Regulation Act, 1949. Regulation 4 provides that an incomplete application, or one that does not conform to Form A’s instructions, shall be rejected — but only after the applicant is given an opportunity to remove the objections within a specified time. Regulation 5 empowers SEBI to seek further information or clarification, and to require the applicant to appear for personal representation through a duly authorised officer.
Consideration of the application: the eligibility matrix
Regulation 6 sets out what SEBI weighs. It directs the Board to take into account all matters relevant to the activity and, in particular, whether the applicant: (a) has the necessary infrastructure, communication and data-processing facilities and manpower to discharge its activities effectively; (b) is not, nor are any of its directors, involved in litigation connected with the securities market that has an adverse bearing on the business, and has not been convicted of any economic offence; (c) is a scheduled bank; (cc) is a fit and proper person; and (d) that grant of the certificate is in the interest of investors.
This eligibility matrix blends objective gates (scheduled-bank status, infrastructure) with evaluative judgments (litigation track record, investor interest). The “interest of investors” limb in clause (d) gives SEBI a residual discretion to refuse registration even to a technically qualified bank where the public interest demands it — a discretion that runs through the whole intermediaries architecture and parallels the capital and competence thresholds examined under stock-broker capital adequacy.
The fit and proper person test
Clause (cc) of Regulation 6 was inserted in 1998 and is amplified by Regulation 6A, which provides that for determining whether an applicant or a banker to an issue is a fit and proper person, SEBI may take into account the criteria specified in Schedule II of the SEBI (Intermediaries) Regulations, 2008. This is a textbook example of legislative integration: rather than maintain a stand-alone fit-and-proper code, the 1994 Regulations now borrow the common standard housed in the 2008 framework, ensuring a single, uniform test across all intermediaries.
Schedule II of the 2008 Regulations looks to integrity, honesty, financial soundness, reputation, and the absence of convictions, regulatory bars or pending proceedings for economic offences. SEBI has consistently treated the test as forward-looking and protective rather than merely punitive. The enforcement saga of the Karvy group of intermediaries — whose registrations were cancelled after findings of misuse of client funds and securities — illustrates how a failure of the fit-and-proper standard can end an intermediary’s market presence altogether. The same Schedule II screen is applied across siblings, including under the common framework of the Intermediaries Regulations.
Grant of certificate and perpetual validity
Under Regulation 7, once SEBI is satisfied that the applicant is eligible, it sends an intimation within one month of such satisfaction and grants a certificate in Form B. A significant structural shift occurred through the SEBI (Change in Conditions of Registration of Certain Intermediaries) (Amendment) Regulations, 2016: Regulation 7(2) now provides that the certificate “shall be valid unless it is suspended or cancelled by the Board.”
This replaced the older regime of fixed-term registration. Earlier, certificates were valid for limited periods (three years, then five years under the 2011 amendments), with renewal applications and renewal fees. The 2011 amendments had even introduced a two-tier model of “initial” and “permanent” registration via the now-omitted Regulation 7A. The 2016 amendment swept all of this away in favour of perpetual registration subject to continuing fee payment — reducing compliance friction while preserving SEBI’s power to suspend or cancel. Form B reflects the change: paragraph III of the certificate now reads that registration “shall be valid unless it is suspended or cancelled by the Board.”
Fees: the cost of registration
Schedule II, framed under Regulation 11, prescribes the fee structure. A banker to an issue pays a registration fee of twenty lakh rupees at the time of grant of the certificate (Schedule II, paragraph 1, as amended in 2014). To keep registration in force, it pays nine lakh rupees every three years from the sixth year from the date of grant (paragraph 2). The non-refundable application fee accompanying the Form A application is fifty thousand rupees (paragraph 3A).
Regulation 11 carries teeth: under Regulation 11(2), if a banker to an issue fails to pay fees as required, SEBI may suspend the registration certificate, whereupon the bank must cease all banker-to-an-issue activity for the duration of the suspension. Since the 2017 Payment of Fees amendment, fees may be paid by direct credit through NEFT/RTGS/IMPS or any RBI-permitted mode, or by demand draft favouring SEBI. The fee architecture mirrors that of cognate intermediaries; the principle of fee-linked continuation also features in the merchant banker regime.
Conditions attached to registration
Regulation 8A spells out the continuing conditions to which every registration is subject. The banker to an issue: (a) must obtain SEBI’s prior approval before any change in control, to continue acting as such after the change; (b) must enter into a legally binding agreement with the body corporate it serves, allocating duties and responsibilities for the issue; (c) must pay the prescribed fees; (d) must redress investor grievances within one month of receiving a complaint and keep SEBI informed of the number, nature and disposal of complaints; (e) must abide by the regulations applicable to its activity; and (f) must immediately intimate SEBI of any changes to the information furnished at the time of registration.
The “change in control” condition (clause (a)) is reinforced by Regulation 8A(2), which clarifies that prior approval does not displace the separate obligation, where applicable, to obtain fresh registration under Section 12 of the Act. “Change in control” is defined in Regulation 2(ae) by reference to the SEBI Takeover Regulations for listed bodies corporate, and otherwise as a change in a controlling interest of at least fifty-one per cent of voting rights. The grievance-redressal condition in clause (d) is the everyday compliance pressure point, dovetailing with the code-of-conduct duties discussed below.
Books, records and furnishing information
Chapter III imposes the operational obligations. Regulation 12 requires every banker to an issue to maintain records of: the number of applications received, names of investors, dates of receipt and amounts received; the time within which applications were forwarded to the body corporate or the registrar to an issue; dates and amounts of refund monies paid; and dates, names and amounts of dividend or interest warrants paid. These records and documents must be preserved for a minimum of three years (Regulation 12(3)), and SEBI must be told where they are kept (Regulation 12(2)).
Regulation 13 requires the banker to furnish SEBI, when called upon, with information on the number of issues handled, application and application-money details, forwarding dates, refund dates and amounts, and dividend or interest warrant payments. Regulation 14 mandates a written agreement with every body corporate served, which must specify the number of collection centres, the time within which application statements will be sent to the registrar or the company, and the requirement that the designated controlling branch send a daily statement to the registrar showing the number of applications and the amount of application money received. This granular reporting is what makes the audit trail of public money traceable.
The RBI interface and code of conduct
Two provisions knit the banker to an issue back to its banking-regulator roots. Regulation 15 requires the banker to inform SEBI forthwith of any disciplinary action taken by the RBI against it in relation to issue payment work; and provides that if such RBI action prohibits the bank from carrying on the activity, the SEBI certificate shall be deemed suspended or cancelled as the case may be. RBI discipline thus automatically cascades into SEBI consequences, without any separate SEBI order being necessary — a rare instance of one regulator’s action operating directly on another regulator’s licence.
Regulation 16 binds every banker to an issue to the Code of Conduct in Schedule III, substituted in 2003 and now running to over thirty clauses. The Code requires the banker to protect investor interests, observe high standards of integrity and fairness, exercise due diligence, and avoid collusion with other intermediaries or the issuer to the investor’s detriment. Clause 7 is the operational backbone: a banker must not allow blank application forms bearing brokers’ stamps on its premises; must not accept applications after office hours, after issue closure, or on bank holidays; must not accept instruments from anyone other than the designated registrar after issue closure; must not part with issue proceeds until the stock exchange grants listing permission; and must submit final collection figures within seven working days of issue closure. The Code also forbids insider trading (clause 24), participation in price rigging or creation of a false market (clause 33), and mandates internal controls, confidentiality and conflict-of-interest disclosure — obligations that echo the conduct standards examined under the stock-brokers code of conduct.
The compliance officer
Regulation 16A, inserted in 2001, requires every banker to an issue to appoint a compliance officer responsible for monitoring compliance with the Act, rules, regulations, notifications, guidelines and instructions issued by SEBI or the Central Government, and for redressing investor grievances. Crucially, Regulation 16A(2) obliges the compliance officer to immediately and independently report to SEBI any non-compliance observed — an early statutory expression of the independent-gatekeeper model now standard across intermediaries.
Schedule III reinforces the role: clause 26 requires the banker to give its compliance officer adequate freedom and powers to discharge duties effectively, while clause 27 requires the banker to develop its own internal code of conduct for employees. The compliance officer is therefore both an internal watchdog and a direct line to the regulator, designed to surface breaches before they ripen into investor harm.
Inspection: SEBI acting through the RBI
Chapter IV designs a distinctive inspection mechanism. Unlike most intermediaries, where SEBI inspects directly, Regulation 17 provides that SEBI may request the Reserve Bank of India to inspect the books, records and documents of a banker to an issue. The “inspecting authority” is, accordingly, defined in Regulation 2(c) as persons appointed by the RBI. This routing reflects the banking character of the entity and avoids duplicative, conflicting supervision.
Regulation 18 lists the purposes: ensuring proper maintenance of books; verifying compliance with the Act, rules and regulations; investigating investor or corporate complaints; and any matter SEBI requires. Regulation 19 directs the RBI to take steps to inspect as soon as possible upon SEBI’s request. Regulation 20 imposes wide cooperation duties on directors, partners, officers and employees — to produce books and documents, give the inspecting authority reasonable access to premises, allow examination of records and computer data, and submit to recorded statements. Regulation 21 requires the RBI to furnish SEBI a copy of the inspection report with supporting documents. Regulation 22 then empowers SEBI or its Chairman to take such action on the report as it deems fit, including action under Chapter V of the SEBI (Intermediaries) Regulations, 2008.
Action in case of default
Chapter V (Regulations 23 to 31) once contained a self-standing disciplinary code. That has been almost entirely subsumed into the unified enforcement framework. Regulation 23 now provides that a banker to an issue who contravenes any provision of the Act, rules or regulations shall be liable to one or more actions, including action under Chapter V of the SEBI (Intermediaries) Regulations, 2008. Regulations 24 to 31 were omitted in 2002 when the enquiry-and-penalty procedure was centralised.
The effect is that suspension and cancellation of a banker’s certificate, and other directions, now flow through the common adjudicatory machinery of the 2008 Regulations — with designated authorities, show-cause notices, opportunity of hearing, and appeal to the Securities Appellate Tribunal under Section 15T of the SEBI Act, and onward to the Supreme Court. The Karvy enforcement episode, where SEBI cancelled registrations and the dispute travelled to SAT, exemplifies how default proceedings against an intermediary unfold in practice. The substantive contours of this default regime are treated in the common framework chapter.
Modern evolution: ASBA, payments banks and the 2024 expansion
The role of the banker to an issue has been transformed by market modernisation. With the migration to the Application Supported by Blocked Amount (ASBA) mechanism, a banker to an issue that offers the ASBA facility — blocking application money in the investor’s own account rather than collecting and refunding it — is termed a Self-Certified Syndicate Bank (SCSB). Only a bank registered as a banker to an issue can act as an SCSB. In August 2021 SEBI permitted non-scheduled Payments Banks that have prior RBI approval to register as bankers to an issue, widening the field beyond traditional scheduled banks.
Most significantly, the SEBI (Bankers to an Issue) (Amendment) Regulations, 2024 (notified 20 November 2024) expanded the definition in Regulation 2(aa) to add new activities: providing escrow services for issue management, buyback, delisting or open offer; and opening a separate bank account for depositing IPO/FPO proceeds — together with a residual power for SEBI to specify further activities. The 2024 amendment also reinforced Regulation 3(1) with an express bar that no person shall act as a banker to an issue without a SEBI certificate. The intermediary thus continues to evolve from a simple collecting-and-refund banker into a full-service custodian of public-issue money.
Frequently asked questions
Who can register as a banker to an issue?
Under Regulation 2(aa) and Regulation 6(c) of the SEBI (Bankers to an Issue) Regulations, 1994, the applicant must be a scheduled bank (a bank in the Second Schedule to the RBI Act, 1934). Since an August 2021 SEBI circular, non-scheduled Payments Banks with prior RBI approval may also register, subject to the conditions in the Regulations.
What are the core functions of a banker to an issue?
Regulation 2(aa) lists four: acceptance of application and application monies; acceptance of allotment or call monies; refund of application monies; and payment of dividend or interest warrants. The SEBI (Bankers to an Issue) (Amendment) Regulations, 2024 added escrow services for issue management, buyback, delisting or open offer, and opening separate accounts for IPO/FPO proceeds.
How long is the registration valid?
Since the 2016 amendment, registration is perpetual: Regulation 7(2) provides that the certificate is valid unless suspended or cancelled by SEBI. The earlier regime of three-year and then five-year fixed-term registration with renewal, and the initial/permanent two-tier model under the now-omitted Regulation 7A, was abolished. Continuing fees under Schedule II must, however, be paid.
Can a banker to an issue release IPO proceeds before listing?
No. Clause 7(d) of the Code of Conduct in Schedule III expressly prohibits a banker to an issue from parting with the issue proceeds until the stock exchange grants listing permission to the body corporate. It must also submit final collection figures to the registrar, lead manager and company within seven working days of issue closure.
How does the fit and proper test apply to a banker to an issue?
Regulation 6(cc) requires the applicant to be a fit and proper person, and Regulation 6A directs SEBI to apply the criteria in Schedule II of the SEBI (Intermediaries) Regulations, 2008. The standard looks to integrity, financial soundness, reputation and the absence of disqualifying convictions or proceedings. Failure of this test, as the Karvy enforcement matters illustrate, can lead to cancellation of registration.
Who inspects a banker to an issue?
Uniquely, SEBI does not inspect directly. Under Regulation 17, SEBI requests the Reserve Bank of India to inspect the banker's books and records, and the RBI furnishes SEBI an inspection report under Regulation 21. SEBI may then act on it under Regulation 22, including action under Chapter V of the SEBI (Intermediaries) Regulations, 2008. This routing reflects the banking character of the entity.