India's markets regulator on Thursday barred Axis Capital from acting as a merchant banker for new debt issues for allegedly violating rules, according to an order on the regulator's website.

According to the Securities and Exchange Board of India ( SEBI ), Axis Capital provided a repayment guarantee to holders of a particular bond when the bonds came up for redemption, which is not a permitted activity under existing regulations.

A spokesperson for Axis Capital declined to comment. Axis Bank did not immediately respond to Reuters' request for comments.

While the ban will remain in effect till further orders, SEBI has granted the investment bank 21 days to present its defence.

Axis Capital's guarantee was to "redeem the non-convertible debentures in the event of default on maturity," said SEBI , and so it could not be "termed as permitted underwriting activity".

The market regulator has also sent the findings of its preliminary investigation to India's central bank, saying that the guarantee Axis Capital provided to its bondholders exposed its parent Axis Bank to default risk.

According to SEBI , Axis Capital was taking credit risk exposure, rather than market risk, thereby entering the 'realm of banking'.