SEBI is closely watching some merchant bankers involved in SME IPOs after finding signs of rule violations and misuse of funds. The regulator is now taking strong action against those who are not following proper procedures.
In recent months, SEBI has already taken action against a few merchant banking firms. The charges include helping companies divert IPO money and not doing enough checks before taking up IPO assignments. According to sources, SEBI is planning to issue more orders soon as it found several unhealthy practices in the SME segment.
On Wednesday, SEBI passed an interim order against Inventure Merchant Banking Services, the firm that handled the IPO of Vaarya Creations. The regulator has stopped the merchant banker from taking any new IPO assignments until further notice.
SEBI took action against First Overseas Capital in another case as well. It was found after an investigation that this merchant banker didn’t conduct proper due diligence for three SME IPOs. It has also been prohibited from taking new IPO assignments for now.
These follow at a moment when SME IPOs are gaining tremendous popularity. Total proceeds from 240 SME IPOs last year stood at Rs 8,761 crore, an all-time high. In the first four months alone for 2025, 59 SME IPOs have raised Rs 2,455 crore, demonstrating the trend’s continuity.
SEBI’s chairman Tuhin Kanta Pandey, speaking last week, mentioned that merchant bankers are instrumental when it comes to SME IPOs. As SEBI adopts a lighter set of guidelines for SMEs to facilitate listing, it hopes merchant bankers will play their part responsibly. Some instances, however, have highlighted that the fund-raising cost has risen too high.
Vaarya Creations IPO order disclosed that 71 percent of its IPO proceeds was utilized solely for merchant-banking and issue expenditures — which raises a host of issues regarding utilization and transparency.
With SEBI’s ongoing investigations, we can expect more stringent measures to be taken to make the SME IPO market fair and clean for investors.
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Source: Moneycontrol.
News Desk
