On the 18th of December 2024, the 208th meeting of the Securities and Exchange Board of India (SEBI) Board convened in Mumbai to deliberate on significant measures aimed at improving the business environment in the capital markets. The meeting’s agenda featured a variety of reforms impacting primary markets, small and medium enterprises (SMEs), and mutual funds, among others. These approved measures are expected to bolster investor protection, encourage transparency, and facilitate smoother operations within these sectors.
Business Responsibility and Sustainability Reporting (BRSR)
One of the key topics discussed was the Business Responsibility and Sustainability Report (BRSR), which mandates Environmental, Social, and Governance (ESG) disclosures. In recognition of the need for a more manageable implementation period, SEBI approved a one-year deferral on ESG disclosures for the value chain, moving the requirement from the fiscal year 2024-25 to 2025-26. Additionally, the board shifted the “assessment or assurance” requirements to FY 2026-27, allowing firms to adapt more thoroughly to these significant changes.
Moreover, instead of enforcing a “comply-and-explain” mandate, the board has made these disclosures voluntary, emphasizing the importance of a phased implementation to encourage businesses to transition smoothly. By narrowing the scope of the value chain disclosures to only significant partners, it reduces the reporting burden while promoting meaningful engagement on ESG issues.
SME Framework Revisions
SEBI also focused on the regulatory landscape surrounding Small and Medium Enterprises (SMEs). Aimed at reinforcing the public issue framework under SEBI (ICDR) Regulations, 2018, the board approved amendments designed to enhance the listing and fundraising capabilities of SMEs.
Some critical amendments include:
- Profitability Criteria: SMEs seeking to raise funds via Initial Public Offerings (IPOs) must now demonstrate operational profit of at least ₹1 crore in two of the past three financial years, ensuring that only financially viable companies access public funding.
- Offer for Sale Restrictions: Limits on the Offer for Sale (OFS) mechanism were introduced, restricting selling shareholders to 20% of the total issue size while capping individual sales at 50% of their holdings.
- Lock-in Period Adjustments: The lock-in provisions for promoters’ excess holdings were modified, enabling a phased release which enhances liquidity while protecting investor interests.
- Public Comment Period: The introduction of a 21-day public comment period for the Draft Red Herring Prospectus (DRHP) allows stakeholders to provide insights and feedback, fostering greater transparency.
These steps reflect SEBI’s commitment to nurturing the SME sector and improving access to capital, which is crucial for fostering innovation and growth in the economy.
Mutual Funds and Investor Protection
In terms of mutual funds, several measures were approved to promote the alignment of interests for employees of Asset Management Companies (AMCs) with unitholders. SEBI introduced amendments to specify deployment timelines for funds raised during New Fund Offers (NFOs), aiming to enhance market efficiency and investor confidence.
Additionally, SEBI proposed the recognition of a Past Risk and Return Verification Agency (PaRRVA), tasked with ensuring safer investment choices for the public by providing historic data for investment products.
Conclusion
The resolutions made during SEBI’s recent board meeting indicate a strategic shift towards fostering a transparent and efficient capital market environment. By prioritizing ease of doing business, enhancing corporate governance norms for SMEs, and improving investor protections, SEBI is undertaking vital reforms to stimulate economic growth. These initiatives not only reassure existing investors but also attract new participants into the market, underpinning the overall health of India’s capital markets for years to come.
