Mint Explainer: Sebi’s latest reforms for SME IPOs, merchant bankers, and mutual funds
Subscribe to enjoy similar stories. On 18 December, the Securities and Exchange Board of India (Sebi) approved several key amendments to improve business operations, investor protection, and the efficiency of market participants.
The changes impact various sectors, particularly small and medium enterprises (SMEs), merchant bankers, and mutual funds. Mint explains: One of the major reforms approved by Sebi focuses on small and medium enterprises and their ability to access public capital markets through initial public offerings (IPOs).
In its 208th board meeting, Sebi strengthened the SME IPO framework by introducing stricter requirements for financial viability and new regulations for risk-verification, related-party transactions, and lock-in periods, while also establishing the Past Risk and Return Verification Agency (PaRRVA) to validate risk-return metrics for financial service providers. The amendments impose stricter requirements to ensure that only financially sound and operationally viable SMEs can raise capital through IPOs.
Under the new framework, an SME can launch an IPO only if it had a minimum operating profit of ₹1 crore in at least two out of its three most-recent financial years while filing its draft red herring prospectus (DRHP). This is to ensure that only businesses with a proven track record can access public funding, thus reducing risks for investors.
Sebi also proposed increasing the minimum application size for such IPOs from ₹1 lakh to ₹2-4 lakh to limit participation to more well-informed investors with a higher risk appetite, but its board did not approve this. Also read | Sebi’s nod to retail algo trading levels the playing field with institutions That apart, Sebi has imposed new restrictions
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