Sebi Enhances Oversight on SME IPOs and Merchant Banking Activities

In a recent move, the Securities and Exchange Board of India (Sebi) has introduced stricter regulations for small and medium enterprises (SMEs) seeking to list on public markets. Additionally, the regulator has tightened rules for merchant bankers and specified time frames for mutual fund managers to deploy funds raised through new fund offers (NFOs).

Sebi has mandated that an SME can only proceed with an IPO if it has recorded an operating profit of at least Rs 1 crore from operations for any two of the previous three financial years at the time of filing the prospectus. Furthermore, in the case of an offer for sale (OFS) in an IPO, the OFS size cannot exceed 20% of the total issue size, and selling shareholders cannot sell more than 50% of their holding through that offer.

The regulator has also introduced phased release of lock-in for promoters' holdings exceeding the minimum promoter contribution (MPC). Sebi has allowed 50% of such holdings to be released after one year from listing, with the remaining 50% to be released after two years.

These new regulations aim to foster transparency and protect investor interests, ensuring fair practices in the SME IPO and merchant banking sectors. Sebi's recent actions reflect its commitment to enhancing market integrity and supporting the growth of India's SME sector in a sustainable manner.