Sebi likely to issue norms for SME stock exchange soon

Written by fe Bureaus | New Delhi | Updated: Oct 31 2009, 05:21am hrs
Securities and Exchange Board of India (Sebi) is likely to issue norms on separate stock exchange for small and medium enterprises next month to give them more options to raise funds. At present, around 90% of the 2.61 crore micro, small and medium enterprises depend on either banks or informal sources to finance their business.

Setting up of a separate stock exchange for SMEs is not so simple. One has to marry the two requirements. One is to reduce the cost of compliance and the second is to safeguard the investors from any undue risk. Sebi is trying to sort out how to do that. We are expecting some announcement in November, Dinesh Rai, secretary in the ministry of micro, small and medium enterprises (MSMEs), said at FE Round Table on Indias Growth Story and the SMEs on Wednesday.

Rais comments came in response to the industrys demands of establishing such a platform expeditiously. India has made efforts to cater to SMEs by setting up two platforms for raising funds. In 1989, OTC Exchange of India was set up, while the Bombay Stock Exchange launched INDO NEXT Platform in 2005. But after these attempts failed to cater to SMEs, the government, Sebi and the industry went into a huddle again.

Market regulator Sebi is now considering relaxation in norms that are in force for other stock exchanges by doing away with the requirement to vet the offer documents and making it compulsory to carry out the issue process electronically so as to reduce costs.

In order to make it a safer platform for investors, Sebi had last year proposed to allow allocation of shares to retail participants only through mutual funds. It had also asked for comments on whether to fix a minimum investment size at the time of the initial public offer to allow only informed and well-researched investors into the market. This time, BSE, National Stock Exchange and MCX Stock Exchange have shown interest in setting up an exchange for SMEs.

Rai also said the government would announce new measures for SMEs soon. Prime Minister Manmohan Singh has set up a high level committee to address the industrys concerns. There are seven sub-groups under the committee on credit, infrastructure, marketing, labour, taxes, special states like Jammu & Kashmir and sick units. Ministries of MSME, corporate affairs and finance are also working together. We expect some new initiatives soon, he said.

During the conference, participants complained of difficulties in raising funds. Finance is a big issue for SMEs. It is a vicious circle, which prevents these units from going about their regular activities. Credit rating scheme is a failure as only 1.5 lakh units got themselves rated last year, said Rajeev Karwal, chief executive officer and founder director of Milagrow, a a knowledge solutions provider to SMEs.

Federation of Indian Small and Medium Enterprises secretary general Anil Bhardwaj suggested reforms in the financial sector by allowing more competition in the banking sector. With competition, banking sector would see what the auto sector has witnessed. They would run after SMEs to give loans, he told FE after the conference. As per latest data from Reserve Bank of India, loans to micro and small enterprises grew 27% in the 12 months ended August 28, 2009 against 21% a year ago. This growth was lower than the 34% increase three months ago.

On the industrys demand for charging single tax across the country, Rai said, We are in touch with the finance ministry. They are saying lets wait for Goods and Services Tax to come in and we would see what more can be done. On the issue of infrastructure development, the MSME secretary said the government is developing relevant schemes. We have asked states to develop infrastructure based on clusters that have some MSMEs in one region. But land is a contentious issue, he added.