The small and medium enterprise (SME) capital market in India remains under-scaled compared to the country’s potential, Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey said on Wednesday. This is because such entities are still unfamiliar with the market and there is limited access to credible intermediaries such as merchant bankers. “The cost of raising capital through IPOs may also deter many SMEs,” Pandey said at the India SME Finance & Investment Summit on Wednesday.
Overcoming Barriers to SME Listings
The chairperson also noted other key challenges such as the unclear practical guidance on filing documentation and immature internal governance system that can make compliance requirements look burdensome. A greater SME participation in the markets diversifies financial channels, reduces risk concentration in the banking sector, and frees bank capacity for genuine working capital and priority lending, he added.
The regulator is making a comprehensive review of the Listing Obligations and Disclosure Requirements (LODR) Regulations to eliminate redundancy and ambiguity. It is also examining regulatory and disclosure requirements for SMEs for ease of doing business. And it will open its local offices in state capitals in a phased manner to facilitate easier access to information on listing and post-listing processes to SMEs. Sebi and stock exchanges are also working to bring an SME portal that will simplify regulatory processes for issuers and enhance transparency.
In the past, misuse of relaxations under the SME framework had acted as a barrier for companies from accessing capital from the market. Sebi had observed diversion of issue proceeds to related parties and involvements in unfair trade practices to create a positive sentiment about the public offering.
The Western part of the country remained the dominant region in terms of SME IPOs in the current financial year, followed by the Northern region while the remaining two regions saw significantly lower contributions. “This reinforces the need for deeper outreach beyond traditional centres to widen participation of quality SMEs,” Pandey said.