MC EXCLUSIVE SEBI mulls further tightening of fund utilisation norms amid IPO boom

SEBI mulls further tightening of fund utilization norms amid the IPO boom

• SEBI plans stricter rules for monitoring agencies to track IPO fund usage
• Agencies may submit reports to stock exchanges within 45 days
• SEBI suggests fines for non-cooperation, mandatory monitoring for all IPOs

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Market regulator Securities and Exchange Board of India (SEBI) is considering a comprehensive tightening of the regulatory framework governing monitoring agencies to ensure timely, adequate and transparent reporting on the utilisation of issue proceeds raised through Initial Public Offers, rights issues and other equity fund-raising mechanisms, said sources aware of the discussion. SEBI is considering to amend the Issue of Capital and Disclosure Requirements (ICDR) Regulations.

As per the sources, SEBI has discussed the issue with the key panel of primary markets to review the norms. SEBI has proposed that credit rating agencies, which act as fund tracking agency will directly submit the utilization report to stock exchanges besides the audit committee of the company. SEBI has a view that, delays in submission of monitoring agency reports and instances of inadequate disclosures have necessitated a review of the existing framework to strengthen investor protection.

As per one source aware of the discussion, “SEBI is of the view that timely and adequate submission of report of monitoring agency to stock exchanges is important to ensure investor protection. Hence, there is a need to review and strengthen the framework for timely and adequate submission of report of monitoring agency on utilisation of issue proceeds to exchanges”. The person further added that, “Under the proposal, monitoring agencies will be required to submit their reports within 45 days from the end of the reporting quarter”.

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Another person aware of the policy review said, “The regulator is concerned with the incidents of recent past, where, in many issues, the misuse of IPO proceeds was found by SEBI especially in SME issues. Hence the tightening of fund monitoring is under consideration”. In many SME issues, SEBI investigation revealed that significant amount of fund was siphoned or diverted from companies. In few instances’ funds were taken immediately away from the company, on the day of listing. To address these concerns, SEBI has proposed empowering monitoring agencies to directly submit their monitoring reports to stock exchanges under the Listing Obligations and Disclosure Requirements (LODR) Regulations.

Companies to face penalty, if non-cooperation found

As per the persons cited above, SEBI is also considering a formal mechanism to deal with non-cooperation by listed entities during the monitoring process. Under the proposal, monitoring agencies will flag instances of non-cooperation by issuers. Non-cooperation may include failure to provide information in a timely manner, sharing of incomplete or unsupported data. Delays in submissions to the monitoring agency would also be treated as non-cooperation. Failure to pay monitoring agency fees would similarly fall under non-cooperation. In such cases, monitoring agencies would be required to submit their reports directly to the stock exchanges. These reports would be accompanied by a “Statement of Non-Cooperation”.

In such cases of ‘Non-Co-operation’, SEBI is mulling that, stock exchanges may be permitted to impose a fine of Rs. 50,000 per instance of non-cooperation reported by a monitoring agency in a quarter against the listed entity.

Monitoring Agency for all size of IPOs

In another important move, SEBI is also deliberating whether to remove the threshold of fresh issue size prescribed under the ICDR Regulations for appointment of monitoring agencies. Currently, for all main board IPOs exceeding Rs 100 crore and SME issues beyond Rs 50 crore, mandatorily require appointment of monitoring agency to track the utilisation of funds.

If implemented, appointment of a monitoring agency would become mandatory for all issuances, including main-board and SME IPOs, rights issues, further public offers, preferential issues and qualified institutions placements.

Gross Proceeds may be monitored

SEBI is also deliberating to expand the scope of monitoring to cover 100 percent utilisation of gross issue proceeds, excluding proceeds from offer for sale (OFS). This will include monitoring of pre-IPO proceeds used for stated objects of the issue, funds placed with scheduled commercial banks to ensure they are not used for purposes other than those disclosed, issue-related expenses borne by the company, and end-use of funds by investee entities such as subsidiaries, group companies, joint ventures or special purpose vehicles. SEBI has in some cases found that funds were diverted from IPO proceeds in the name of issue related expenses.

No midway agreement termination

The regulator has further proposed that agreements with monitoring agencies should not be terminated midway before 100 percent utilisation of issue proceeds, ensuring continuous oversight until the funds are fully deployed for the stated objects of the issue.

SEBI is also considering harmonisation of provisions between the ICDR and LODR Regulations and modifications to the format of monitoring agency reports prescribed under ICDR Regulations. One merchant banker on the conditions of anonymity said, “The regulatory view is companies should not face issues in fund raising for business needs but at the same time, it should be used for the intended purposes and not diverted”.

An email seeking comments to SEBI did not elicit any response.

As per SEBI data companies raised around Rs 1.70 Lakh crore during the current financial year up to December 2025, dominated prominently by main board issues raising Rs 1,60,200 crore. On SME platforms companies raised Rs 9,727 crore. Many other big issues are lined up for the remaining part of the year.

Past market cycles show that during periods of strong bullish sentiment, several companies have raised funds from the capital markets but subsequently deployed the proceeds in businesses or activities unrelated to the objectives stated in the offer documents. Such diversion of funds has, in many cases, eroded shareholder value and resulted in significant losses for investors.

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