News agency Reuters reported, citing two individuals with direct knowledge of the situation, that Sebi is looking into at least six domestic investment bankers who have worked on offerings by small firms amid growing worries over the SME IPO boom in the market. According to the newspaper, the market watchdog started looking into the fees that banks have been charging earlier this year.
The Securities and Exchange Board of India (SEBI) also discovered that six minor investment bankers had taken fees from firms up to fifteen per cent of the money they obtained via initial public offerings (IPOs). In India, charging one to three per cent of the issue size is a typical procedure.
Nevertheless, the study was unable to identify the bankers that were the subject of the inquiry. Sebi has not yet issued a statement on the subject. The enquiries come after Sebi’s attempts to alert investors to the risks associated with funding some small enterprises and its proposals to impose stricter regulations on SME-related matters.
SME firms are listed on the NSE or BSE’s SME sections and have an annual turnover of between Rs 5 crore and Rs 250 crore. The corresponding exchanges also grant their approvals. They have fewer disclosure obligations. According to one of the insiders, the investigation also suggested that bankers have been inflating fees to make sure that there is a significant oversupply of the product.
More than 60 investment banks actively support SME initial public offerings in India. 205 small businesses raised Rs 6,000 crore in the most recent fiscal year, which concluded in March 2024. For the fiscal year 2022–2023, 125 firms raised Rs 2,200 crore last year. Over two-thirds of the offers made by 105 SME players between April and August of 2024 were oversubscribed, resulting in a total of Rs 3,500 crore raised.
In July, the regulator restricted share gains for a tiny firm’s first day of trading at 90 per cent as part of its clampdown. The sources added that Sebi had instructed exchanges and auditors to increase their vigilance throughout the approval procedure. Additionally, Sebi is developing 12–15 action items that would modify the IPO process for smaller companies. Ashwani Bhatia, a Sebi Whole Time Member, has revealed in a different development that certain SME promoters pay merchant bankers and chartered accountants up to 25% of the issue amount of the first public offer.
