Amid rising concerns over the SME IPO buzz in the market, Sebi is investigating at least six domestic investment bankers which have worked on offerings by small businesses, news agency Reuters reported citing two sources with direct knowledge of the matter. The probes by the market watchdog began earlier this year and are focused on the fees that the banks have charged, the report stated.
Securities and Exchange Board of India (Sebi) found that half a dozen small investment bankers have charged companies fees equivalent to 15 per cent of funds raised via their IPO, it added. The standard practice in India is charging around 1-3 per cent of the issue size in the space.
The report, however, could not ascertain the names of bankers under the investigation. Sebi has not made any state in the matter yet. The investigations follow efforts by Sebi to warn investors about the dangers of investing in some small businesses as well as plans for tighter rules for SME issues.
SME companies, which have an annual turnover between Rs 5 crore to Rs 250 crore, list on SME sections of NSE or BSE. Their approvals are also given by the respective exchanges. They have fewer requirements of disclosures. As per one of the sources, the probe also hinted that bankers have been overcharging fees to ensure that the issue is heavily oversubscribed.
India has more than 60 investment banks that actively work for SME IPOs. In the last fiscal year ended in March 2024, 205 small firms raised Rs 6,000 crore. In the year ago, 125 companies raised Rs 2,200 crore for the fiscal year 2022-23. For April-August 2024 period, 105 SME players have raised Rs 3,500 crore with more than two-thirds of the offerings oversubscribed
The regulator in July capped share gains for a small firm's first day of trade at 90 per cent as part of its clampdown. The sources also said that Sebi has asked auditors and exchanges to be more vigilant in the approval process. Sebi is also working on 12-15 action points that would tweak how smaller firms go about their IPOs, one of the sources said.
In a separate development, Sebi Whole Time Member Ashwani Bhatia has mentioned that some SME promoters offer chartered accountants and merchant banker fees as high as 25 per cent of the initial public offer issue size.