The Securities and Exchange Board of India (Sebi) has proposed a significant regulatory change aimed at enhancing the oversight of funds raised through initial public offerings (IPOs). In a discussion paper released on Tuesday, Sebi suggested that appointing an agency to monitor the utilization of IPO funds should become mandatory for all public issues, regardless of size. Currently, this requirement applies only to IPOs exceeding ₹500 crore. This initiative is seen as crucial in light of past instances where funds from IPOs were misused, prompting the regulator to take action against companies and investment bankers involved in such practices.

To bolster accountability, Sebi's proposal includes a requirement for the monitoring agency to submit quarterly reports on fund utilization, enhancing transparency compared to the previous half-yearly reporting standard. Additionally, these reports must be disclosed on stock exchanges to keep investors informed. To address potential deviations in fund usage, the proposed system will introduce a two-digit grading scale. This scale will assess how closely the fund utilization aligns with the objectives outlined in the offer document, with a 0 indicating no deviation and a 2 signaling significant misuse of funds.

Sebi's latest measures also include forming a sub-committee within the board of directors of the issuing company to oversee the monitoring process effectively. This committee will predominantly consist of independent directors, ensuring impartiality in oversight. Public comments on these proposals have been invited until March 25, 2023, signifying Sebi's commitment to refining regulations to safeguard investor interests and prevent financial misconduct in the IPO space. These steps aim to ensure that funds raised through public offerings are utilized as intended, thereby strengthening investor confidence in the Indian capital markets.