The Securities and Exchange Board of India (SEBI) chairman, Tuhin Kanta Pandey, feels that the scope for further tightening of rules governing SME initial public offerings may be limited for now, as it aims to balance investor protection with encouraging smaller enterprises to continue accessing the capital markets.
In an interview with businessline, the SEBI chief said the regulator has already stepped up scrutiny after instances of misuse and expects merchant bankers to shoulder greater responsibility in ensuring the quality of companies coming to market. Building merchant banking capacity for small IPOs and third-party monitoring for IPO money are some of the measures being undertaken.
Context Matters
He stressed that isolated cases should not be used to paint the entire SME market negatively. “We cannot paint everything with one brush because there have been hugely successful SMEs also. We also cannot create so much of a scare that even those capable are dissuaded,” Pandey said.
“It is very important that we put a certain onerous responsibility on the merchant bankers because they are the ones, if they have not done their due diligence and brought some people just because someone paid a high fee,” he added.
“Merchant bankers of good quality do not opt for this space because there is so much on their plate. So we need capacity building for them from the beginning.”
The comments come at a time when the SME listing route has drawn heightened regulatory attention following irregularities in a few issues and allegations involving intermediaries as well as regulatory officials.
According to reports, in one such recent case, a SEBI official was allegedly found trying to extort money from an SME IPO and abusing his position to gain an advantage, and has been suspended by the regulator.
Instead of imposing sweeping restrictions, SEBI has been focusing on tightening the framework around SME listings. Measures include stronger due diligence requirements, site visits, monitoring mechanisms and the introduction of third-party oversight through the comprehensive LODR review.
Stronger Oversight
“We have increased due diligence, there are site visits and monitoring. We have brought in third-party monitoring, and we are looking into the LODR changes,” the chief said.
Pandey further said strengthening gatekeeping at the intermediary level is crucial as the SME market expands and more small companies tap public markets. India has seen strong primary market activity over the past year, with the country ranking among the top globally in terms of the number of IPOs.
He said that while the framework will continue to evolve, the objective is to improve discipline among intermediaries rather than restrict the SME fundraising route itself.