In a significant development for India's booming IPO market, SEBI (Securities and Exchange Board of India) has launched an investigation into six domestic investment banks over inflated fees and suspicious bidding practices in small business IPOs.
According to a Reuters report, these probes began earlier this year, focusing on fees that reached as high as 15% of the funds raised through IPOs—a sharp contrast to the usual 1-3% range typically charged in India.
The investigation covers banks involved in IPOs for smaller companies with annual turnovers between ₹50 million and ₹2.5 billion. These businesses list on separate platforms of the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE), which are subject to fewer regulatory disclosures.
SEBI’s early findings suggest that the unusually high fees might be linked to efforts to artificially boost IPO subscriptions.
Sources indicate that certain banks and investors are engaging in coordinated activities where they place large, non-genuine bids to create the impression of high demand. These bids, often made by high net-worth individuals and regular retail investors, are later canceled, but the inflated subscription figures attract more genuine interest from other investors.
SEBI is now stepping in to curb these manipulative practices that threaten the integrity of India’s rapidly expanding small business IPO market. With over 60 investment banks involved in small IPOs, this investigation could lead to stricter regulations and a shake-up in the way small businesses access capital through the market.
As SEBI intensifies its crackdown, this probe could have far-reaching consequences on how India’s small businesses raise funds and on the transparency of its IPO market.