Stricter monitoring of IPO proceeds by small firms

To check any misuse of funds raised through IPOs, Sebi has made it mandatory for companies raising over Rs 100 crore via share sale to appoint a monitoring agency to keep tab on use of the capital.
Under the present norms, such a monitoring agency - which could be a bank or a public financial institution - is required to be appointed only by the companies raising more than Rs 500 crore through public offers.
In addition, Sebi has allowed major non-banking finance companies (NBFCs) to be eligible for quota reserved for qualified institutional buyers (QIBs) in IPOs, bringing them at par with banks and insurers. It is expected to strengthen the Initial Public Offer (IPO) market and channelise more investments.

The move comes after the board of Securities and Exchange Board of India (Sebi) in April approved proposals in this regard.
In a notification, Sebi has made mandatory appointment of monitoring agency where the issue size (excluding offer for sale component) is over Rs 100 crore, Sebi said
The move followed complaints that some small companies could have diverted their IPO funds for purposes other than those mentioned in the offer document while garnering money from the investors.

Sources said that such complaints are related to IPOs worth less than Rs 500 crore as the rules are already stricter for the companies going public with bigger share sales.

The monitoring agency will have to submit its report to the issuer every quarter from the current requirement of half yearly report.
The regulator had floated a discussion paper way back in February 2014 to make it mandatory for all companies to appoint a monitoring agency post-IPO to monitor use of funds and disclose the same, irrespective of the size of the share sale.
However, most of the inputs that Sebi received at that time were in favour of retaining Rs 500 crore limit to lessen the compliance burden on small companies and to give a boost to the IPO market.

Besides, Sebi has included systemically important NBFCs registered with the RBI having a net worth of more than Rs 500 crore in the category of QIBs.
As NBFCs are well regulated entities, classifying such NBFCs under the definition of QIBs will give issuers access to a larger pool of funds.
Institutions such as banks and insurance companies are categorised as QIBs by Sebi and are eligible for participation in IPOs with specifically earmarked allocation.
Earlier, Finance Minister in his Budget 2017-18 speech had proposed to allow systemically important NBFCs regulated by the RBI and above a certain net worth to be categorised as QIBs as it would strengthen the IPO market and channelise more investments.