Sebi chairperson flags misuse of SME framework

Synopsis

Sebi chairperson Tuhin Kanta Pandey highlighted concerns regarding the misuse of SME regulatory relaxations. Instances of fund diversion to related parties and shell companies were observed. Some SMEs also engaged in unfair trade practices to manipulate market sentiment. Sebi is reviewing regulations to strengthen the SME framework and enhance investor protection.

Mumbai: Securities and Exchange Board of India (Sebi) chairperson Tuhin Kanta Pandey on Wednesday flagged concerns over the misuse of regulatory relaxations available to small and medium enterprises (SMEs), citing instances of fund diversion and market manipulation on the SME platform.

"Sebi had observed instances where listed SMEs were diverting issue proceeds to related parties or to shell companies controlled by promoters," said Pandey. "Some SMEs were also indulging in unfair trade practices to create a positive sentiment and induce investors into purchasing their securities."

In FY25, 241 SME IPOs raised ₹9,800 crore, while in FY26 (till January 31, 2026), 232 SME IPOs garnered ₹10,500 crore.

"Sometime back, another barrier to access capital from markets emerged due to egregious instances of some SMEs misusing the relaxations available under the SME framework. Such instances adversely affected investor sentiment in SME IPO," he said, speaking at the India SME Finance & Investment Summit.

Pandey said the SME framework had been strengthened to ensure that only companies with sound track records could access public markets.

Sebi is conducting a comprehensive review of the LODR (Listing Obligation and Disclosure Requirement) Regulations to remove redundancy and ambiguity, he said. Regulatory and disclosure requirements applicable to SMEs are also being examined to improve ease of doing business while retaining necessary investor safeguards.

Stock exchanges have also strengthened their SME listing process by using AI to process offer documents, according to Pandey.

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