The Securities and Exchange Board of India (SEBI) has proposed raising the minimum net worth requirement for custodians to ₹1,000 crore, up from ₹500 crore, as the volume of client assets managed by custodians has expanded significantly.

Outlined in a consultation paper issued on Wednesday (November 13), the proposal aims to strengthen custodians’ compliance obligations and align them with regulatory frameworks applied to large stock brokers.

Custodians serve a critical role in safeguarding assets for institutional clients, including foreign portfolio investors (FPIs) and mutual funds. SEBI highlighted that the assets held in custody had grown to ₹278.5 trillion as of September 30, from ₹2.7 trillion in 2002, making their role in the securities market increasingly vital.

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With FPIs accounting for nearly 15% of trading turnover on the National Stock Exchange (NSE) and 13% on the Bombay Stock Exchange (BSE), SEBI’s proposal aims to mitigate risks linked to any potential custodian service disruptions.

Under the new guidelines, custodians will need to implement a business continuity plan and disaster recovery framework, ensuring operational resilience during market disruptions.

SEBI has also proposed that custodians require prior SEBI approval for any change in control, and that they adopt a policy for managing escalation procedures during operational issues, particularly trading halts.

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These proposed regulations would apply to the 17 SEBI-registered custodians operating in India, aiming to reinforce client confidence and market stability as custodians become more integral to India’s expanding institutional investment landscape.

SEBI has invited public comments on these proposals until the end of November.

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(With agency inputs)