Small and Medium Enterprises (SMEs) are vital to India’s economy, driving GDP growth and employment. Despite their importance, accessing capital remains a challenge for many. Recently, SEBI introduced stricter regulations for Initial Public Offerings (IPOs) of SMEs. While these new rules bring challenges for smaller businesses, they also open opportunities for us banks to support SME growth through customized solutions and guidance. Let’s break it down.

The SME IPO space has seen rapid growth in recent years, bringing both opportunities and challenges. While IPO proceeds enable SMEs to scale, concerns about transparency and accountability have also surfaced, prompting SEBI to introduce stricter norms.

1. Build investor trust by ensuring that SMEs demonstrate long-term commitment post-IPO
2. Enhance the transparency of IPO processes and fund utilization
3. Encourage due diligence and accountability from merchant bankers overseeing IPOs

By addressing these concerns, SEBI seeks to create a more robust and sustainable ecosystem for SME fundraising.

• Limits on Promoter Offer-for-Sale (OFS):
  

SEBI has capped the promoter’s OFS to 20% of the issue size. This ensures that promoters retain a higher stake post-IPO, fostering long-term commitment to the business.

• Higher Threshold for IPO Size:
  

SMEs must now have a minimum post-issue capital of INR 10 crore to be eligible for an IPO, up from the previous threshold of INR 3 crore.

• Increased Transparency:
  

SEBI mandates more detailed disclosures in the prospectus, particularly regarding the proposed use of funds. This move ensures accountability and reduces the misuse of investors’ funds.

• Focus on Merchant Bankers:
  

Merchant bankers are now required to underwrite 15% of the issue size. This compels greater due diligence, aligning their interests with that of investors.

These updates prioritize investor protection but also impose stricter compliance requirements on SMEs, making it challenging for smaller businesses to access market-based funding.

As a bank, we recognize the vital role SMEs play in economic growth and the need to step up as their growth partners amid evolving regulations. Here’s how we can help:

• Expanding Access to Credit:
  

We can offer tailored solutions such as SME loans, working capital financing, and collateral-based lending to effectively meet their funding needs and fuel their growth.

• Providing Advisory and Compliance Support:
  

Navigating complex regulatory requirements can be daunting for SMEs. We can position ourselves as trusted advisors by offering guidance on compliance, capital structuring, and financial planning.

• Promoting Savings and Investment Products:
  

To strengthen financial stability, we can provide products like recurring deposits, green deposits, and term deposits. These solutions will help SMEs build reserves and earn attractive returns, contributing to their long-term financial health.

• Strengthening Long-Term Partnerships:
  

By developing SME-focused solutions such as privilege savings accounts or specialized business accounts, we can build trust and foster enduring relationships with SME clients.

The SME sector is the backbone of the Indian economy, and SEBI's stricter IPO regulations aim to make it more robust. As banks, this is a chance to step up, provide support, and turn challenges into opportunities. By tailoring their offerings, whether through flexible loans, strategic advisory, or innovative deposit products, we can turn these regulatory changes into opportunities.

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Disclaimer: The article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of The South Indian Bank Ltd. or its employees. The South Indian Bank Ltd and/or the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial/non-financial decisions based on the contents and information’s in the blog article. Please consult your financial advisor or the respective field expert before making any decisions.