BSE Managing Director and CEO Sundararaman Ramamurthy

The BSE has sought further tightening in the rules and processes related to SME IPOs and has made suggestions related to the role of merchant bankers, disclosure gaps and funds utilisation, all of which are under consideration by the Securities and Exchange Board of India (SEBI), a top exchange official said.

BSE Managing Director and CEO Sundararaman Ramamurthy said the SME fundraising framework has evolved steadily since the platform’s launch in 2012, but recent trends and enforcement actions underline the need for sharper guardrails.

“Based on experience and recommendations, many changes have been ushered in suo moto by the exchange as well as by the regulator. Now, for further strengthening, certain issues are under active consideration,” he told businessline.

One proposal would require issuers to disclose private arrangements with merchant bankers on issue expenses and funding to bring more transparency. The exchange has also mooted restrictions on SME investments by AIFs that are related to merchant bankers, to reduce conflicts of interest.

Merchant bankers’ control

A bigger change could come in the handling of IPO proceeds. At present, merchant bankers control access to escrow accounts where funds are parked. SEBI has found multiple instances of misuse, including in cases against Synoptics Technology, Varyaa Creations, and their bankers, and is currently probing nearly 20 SMEs for similar diversions, according to people familiar with the matter.

Another proposal relates to replacing the current deviation certificate with a more detailed utilisation certificate, and mandating appointment of a monitoring agency for all SME issuances to ensure better control in utilisation of proceeds. Tighter eligibility norms for merchant banker registration are also on the table.

Ramamurthy said that these reforms are in step with the segment’s growth. Since inception, the BSE SME platform has enabled over 615 companies to raise about ₹11,300 crore, with more than ₹8,100 crore mobilised in just the last five years. “SMEs are an important complement to India’s growth story. As their participation deepens, the fundraising framework must also evolve,” he said.

Strict enforcement actions

So far, around 186 companies have migrated to the main board, while 55 have been suspended or delisted. The enforcement and regulations are getting stricter to promote healthy SME growth and ensure only good companies come in.

Ramamurthy said that SMEs, unlike large corporates, often lack experience in compliance and governance, which makes handholding by exchanges, regulators, and merchant bankers essential. BSE, he said, has tied up with state agencies and industry bodies to educate promoters on governance and disclosure practices.

He further said that SME IPOs are not meant for small retail investors.

“This segment is designed for investors who can assess risks and anchor-type investors who will stay invested for longer.”

The proposals, if accepted, would mark another round of tightening of rules in the SME IPO space. The regulator has already tightened listing, eligibility, compliance, disclosures, and mainboard migration norms in the past year.

Published on September 14, 2025