The Securities and Exchange Board of India (SEBI) has been instrumental in accelerating the approval process for initial public offerings (IPOs), aligning with the vibrant primary market activity in India. According to data from PRIME Database, SEBI took an average of 107 days to grant approval for IPOs in FY24, a significant reduction of 17% from the 129 days taken in FY23. This article explores the reasons behind this expedited approval process, highlights notable IPOs that benefited from faster approvals, and examines the broader implications for the Indian primary market.
Reasons for Faster Approvals
Increased Workforce
One of the primary factors contributing to the quicker approval process is the increase in the number of SEBI employees. With a larger workforce, SEBI can manage the growing volume of IPO applications more efficiently, ensuring that each document is thoroughly reviewed in a shorter timeframe.
Use of Artificial Intelligence (AI) Tools
SEBI has embraced technological advancements, including the use of artificial intelligence (AI) tools, to streamline the IPO approval process. AI helps in the preliminary assessment of documents, identifying potential issues, and ensuring compliance with regulatory standards. This technological integration allows for faster and more accurate processing of IPO applications.
Self-Certifications by Merchant Bankers
Self-certifications by merchant bankers have also played a crucial role in expediting the approval process. By ensuring that all necessary documentation and compliance checks are in place before submission, merchant bankers help reduce the likelihood of rejections and minimize the need for extensive follow-ups from SEBI.
Improved Quality of Documentation
Investment bankers have emphasized that the quality of documents submitted has significantly improved over the years. “Typically, before filing the DRHP, better-quality bankers and lawyers take a lot of care with regard to the rejection criteria that SEBI looks for. So, when the document comes to SEBI, its observations are softer,” said Ramnish Kochgave, president of investment banking at Elara Capital. Enhanced documentation quality leads to fewer queries from SEBI and smoother approval processes.
Notable IPOs with Fast-Track Approvals
Several high-profile IPOs have benefited from SEBI’s expedited approval process, receiving the regulator’s nod in less than two months. These include:
- Ideaforge Technologies
- Aadhar Housing Finance
- Brainbees Solutions
- Bharti Hexacom
- Cello World
- Indian Renewable Energy Development Agency
These cases illustrate the effectiveness of SEBI’s streamlined approach and the potential for even faster approvals in the future.
Impact on the Primary Market
Increase in Primary Market Activity
The primary market in India has witnessed a sharp increase in activity over the last three years. In FY24, SEBI provided final observations on 72 Draft Red Herring Prospectuses (DRHPs), compared to 63 in FY23. This upward trend is expected to continue, with market experts predicting a further increase in FY25.
Boost to Investor Confidence
The faster approval process boosts investor confidence in the primary market. Quicker turnaround times mean that companies can go public sooner, reducing the uncertainty associated with prolonged waiting periods. This efficiency attracts more companies to consider IPOs as a viable fundraising option.
Encouragement for Quality Submissions
By rewarding high-quality submissions with faster approvals, SEBI incentivizes merchant bankers and companies to maintain stringent standards in their documentation. This focus on quality ensures that the market is populated with well-prepared companies, enhancing overall market stability and reliability.
Enhanced Market Liquidity
The increase in IPO activity contributes to enhanced market liquidity. More companies going public means a greater number of investment opportunities for investors, leading to a more dynamic and diversified market environment.
Challenges and Future Prospects
Managing Increased Volume
While the current strategies have been effective, SEBI will need to continuously adapt to manage the increasing volume of IPO applications. Maintaining the balance between speed and thoroughness will be crucial to ensure that the integrity of the approval process is not compromised.
Technological Advancements
Continued investment in technological advancements will be essential for SEBI to keep pace with the evolving market dynamics. The integration of more sophisticated AI tools and automation can further streamline the approval process, making it more efficient and reliable.
Training and Development
Ongoing training and development for SEBI employees will ensure that the workforce remains equipped to handle the complexities of IPO approvals. Keeping up-to-date with the latest regulatory changes and market trends will be crucial for maintaining the effectiveness of the approval process.
SEBI’s efforts to fast-track IPO approvals have significantly impacted the Indian primary market, making it more dynamic and investor-friendly. The combination of an increased workforce, the use of AI tools, self-certifications by merchant bankers, and improved documentation quality has led to a 17% reduction