Sebi flags misuse of SME platform, plans simpler rules to deepen mkt access

Underscoring the growing importance of small and medium enterprises (SME) platforms as “powerful engines” for capital formation, the Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey on Wednesday flagged “egregious instances” of SMEs misusing regulatory relaxations, including diversion of funds and market manipulation.

“These instances adversely affected investor confidence,” Pandey said, noting that Sebi had strengthened the SME framework to ensure that only entities with sound track records are allowed to access public markets.

Speaking at the India SME Finance & Investment Summit, Pandey said the regulator is undertaking a comprehensive review of the Listing Obligations and Disclosure Requirements (LODR) Regulations to eliminate redundancy and ambiguity. Regulatory and disclosure norms applicable to SMEs are also being examined to improve ease of doing business, while retaining appropriate investor safeguards.

Pandey said domestic capital markets will have to play a much larger role in financing SMEs, even as the regulator tightens oversight following instances of misuse to protect investors.

“SMEs will need a financing stack — bank credit for working capital, equity for growth and market-based debt for scale,” he said, adding that governance standards, disclosures and credibility would determine how effectively SMEs are able to tap capital markets.

As part of efforts to simplify compliance and improve transparency, Sebi is planning to launch a dedicated SME portal in collaboration with stock exchanges. The proposed platform will serve as a one-stop digital gateway for issuer information and provide clearly mapped guidance on compliance requirements.

The initiative is aimed at enhancing ease of doing business for SMEs while maintaining robust investor protection.

Pandey also highlighted that India will require sustained investment across infrastructure, energy transition, housing, services and urban development over the next two decades, which cannot be financed through the banking system alone.

Fundraising through the SME segment has remained strong, with 241 SME IPOs raising ₹9,800 crore in FY25 and 232 IPOs raising ₹10,500 crore in FY26 up to January 31.

Stock exchanges, he said, have stepped up due diligence through deeper engagement with merchant bankers and promoters, site visits to issuers and related entities, and the use of technology, including artificial intelligence, to scrutinise offer documents and shorten approval timelines.