SEBI's Role in IPOs
The Securities and Exchange Board of India (SEBI) is the regulatory authority governing all aspects of IPOs in India. Understanding key regulations helps investors appreciate the protections in place and evaluate compliance.
ICDR Regulations Overview
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 is the primary regulatory framework for IPOs. Key provisions include:
Eligibility Requirements
For Mainboard IPOs
- Minimum 3 years of operations as company
- Net tangible assets of at least ₹3 crores in preceding 3 years
- Average operating profit of ₹15 crores in 3 of preceding 5 years
- Net worth of at least ₹1 crore in each of preceding 3 years
- Issue size of at least ₹10 crores
For SME IPOs
- Post-issue paid-up capital not exceeding ₹25 crores
- Net worth of ₹1 crore (positive)
- Positive operating profit (EBITDA) in 2 of 3 preceding years
- 100% underwriting mandatory
Reservation Requirements
Mandatory Allocation
| Category | Allocation |
|---|---|
| QIB (Qualified Institutional Buyers) | 50% |
| NII (Non-Institutional Investors) | 15% |
| RII (Retail Individual Investors) | 35% |
Within NII Category (Since April 2022)
- Small NII (₹2-10 lakhs): 1/3 of NII portion
- Big NII (Above ₹10 lakhs): 2/3 of NII portion
Optional Reservations
- Employee reservation: Up to 5% of issue size
- Shareholder reservation: For existing shareholders of group companies
Pricing Regulations
Price Band
- Difference between floor and cap price: Maximum 20%
- Price revision allowed during bidding (with 3 days extension)
- Retail must be offered option to bid at "cut-off" price
Minimum Application Value
Lot size must be set so minimum application value is between ₹10,000 and ₹15,000.
Anchor Investor Norms
- Maximum 60% of QIB portion can go to anchors
- Minimum investment: ₹10 crores per anchor
- Bidding: One day before IPO opens
- Lock-in: 30 days (50% for 90 days in some cases)
- Maximum 15 anchors (or 25 for issues above ₹250 crores)
Disclosure Requirements
Prospectus Must Include
- Complete business description
- Risk factors (internal and external)
- Financial statements (3-5 years, audited)
- Objects of the issue with specific amounts
- Management background and compensation
- Related party transactions
- Pending litigation
- Industry overview
- Peer comparison
Material Information
Any information that could materially affect investment decision must be disclosed prominently.
Timeline Regulations
IPO Process Timeline
- SEBI review: Within 30 days of filing (may seek clarifications)
- IPO open period: Minimum 3 working days, maximum 10 days
- Allotment: Within 6 working days of IPO close
- Listing: Within 6 working days of IPO close (now T+3 for many)
Recent Changes (T+3 Listing)
SEBI has mandated faster listing:
- Allotment finalization: T+2
- Credit of shares/refund: T+2
- Listing: T+3
Use of Proceeds
- Objects must be clearly stated with specific amounts
- "General corporate purposes" limited to 25% of issue size
- Monitoring agency required for issues above ₹100 crores
- Quarterly disclosure of fund utilization post-listing
ASBA Mandate
SEBI mandates ASBA for all categories:
- Funds blocked, not debited until allotment
- Interest earned during blocking period
- No misuse of investor funds by intermediaries
Investor Protection Measures
Retail Investor Protections
- 35% reservation guaranteed
- Lottery-based fair allotment when oversubscribed
- Discount option (up to 10% of issue price)
- Cut-off price option
Information Symmetry
- All material information in prospectus
- Research reports restrictions before IPO
- Equal access to information for all investors
Minimum Public Shareholding
- At least 25% public shareholding post-IPO
- 10% for companies with market cap > ₹4000 crores (3-year compliance period)
Post-Listing Obligations
- Quarterly financial results
- Annual reports and AGM
- Disclosure of material events
- Corporate governance compliance
- Related party transaction approvals
Penalty Provisions
SEBI can impose penalties for:
- False or misleading statements in prospectus
- Non-disclosure of material information
- Manipulation of IPO process
- Violation of ICDR regulations
Recent Regulatory Updates
2022-2024 Changes
- Sub-categorization of NII category
- T+3 listing timeline
- Enhanced disclosure for new-age companies
- Stricter norms for profit track record
- Lock-in requirement changes
Conclusion
SEBI regulations create a framework that balances company fundraising needs with investor protection. Understanding these regulations helps you evaluate whether IPO companies are compliant and appreciate the safeguards in place. While regulations cannot eliminate all risks, they ensure transparency and fair dealing in the IPO process.