By Jayshree P Upadhyay
MUMBAI, – India’s markets regulator plans to tighten oversight of how companies use equity capital raised from public markets, according to a copy of draft proposals reviewed by Reuters.
The proposals are aimed at bolstering investor confidence and accountability of issuers at a time when fundraising momentum has cooled due to a selloff in Indian equity markets following the Iran war.
A panel of the Securities and Exchange Board of India (SEBI) will send the draft proposals to the regulator, which will seek market feedback before changing the rules. The proposed rules have not been previously reported.
An email query sent to SEBI on Wednesday was not answered.
The proposals would give greater powers to monitoring agencies – typically credit rating firms – to hold firms accountable for how funds are used.
Proposed changes include direct reporting by rating agencies to stock exchanges, the introduction of penalties when companies do not cooperate, and a lower threshold of funds raised to trigger mandatory monitoring.
SEBI’s proposed framework mirrors the UK model, where the regulator mandates strict oversight of IPO proceeds by an investment bank or an advisory firm.
Currently, credit rating firms in India must monitor end-use of funds raised through public offers but often face a lack of information from companies and do not have to make those reports public.
Under the proposed changes, credit rating firms would submit reports on fund use directly to exchanges and would be required to flag companies that are not cooperating.
“Monitoring agency reports are intended to enhance transparency, accountability and safeguarding investor interests. Therefore, timely and adequate submission of report to exchanges is paramount to ensuring investor protection,” according to the draft proposals.
The regulator’s panel is also proposing penalties of 50,000 rupees ($522) per violation for issuers that obstruct monitoring.
The regulator also wants to lower the threshold for mandatory monitoring from 1 billion rupees to 500 million rupees, expanding scrutiny across IPOs, rights issues, preferential allotments and qualified institutional placements.
While the pipeline of IPOs approved and waiting for regulatory approvals is at a record high at 2.5 trillion rupees across 190 companies, only 15 companies have gone to the market since the start of the calendar year, due to economic uncertainty stemming from the Middle East conflict.
“When companies come back to market to raise funds, tightened governance around capital deployment would help bolster investor sentiment,” a source with direct knowledge of the proposed rule changes said.
($1 = 95.7850 Indian rupees)
(Reporting by Jayshree P Upadhyay; Editing by Sonali Paul)
