Investment Bankers Must Ensure IPO Accountability Amid Rising Concerns

SEBI Chief Madhabi Puri Buch Urges Investment Bankers to Step Up IPO Oversight

Mumbai | January 21 — At a time when India’s IPO markets are witnessing unprecedented retail interest and increased regulatory scrutiny, SEBI Chairperson Madhabi Puri Buch sent a clear and candid message to the investment banking community: with great influence comes great responsibility.

Speaking at the 13th Annual Convention of the Association of Investment Bankers of India (AIBI), Buch didn’t mince words. She called on investment bankers to hold themselves to a higher standard—one where professional judgment and active oversight replace blind reliance on checklists, and where capital raised from the public is treated with the seriousness it deserves.

“You Are the First Line of Defence”

Buch placed the onus squarely on the shoulders of lead managers and merchant bankers, reminding them that they are not just facilitators, but gatekeepers of financial integrity in the IPO ecosystem.

“You are the experts. You can smell what’s fishy. Use your judgment, don’t wait for a regulator to come in after the damage is done,” Buch remarked, referring to IPO filings that display warning signs often overlooked during due diligence.

She pointed to telltale signs that should set off alarms: a sudden spike in revenues after years of dormancy, vague fee arrangements, or accommodation entries—financial sleight of hand that artificially inflates volumes. These, she said, are not just technicalities, but potential red flags that signal deeper problems.

The Grey Zone of Fund Utilisation

The SEBI Chairperson turned her focus to an area that’s drawn increasing regulatory concern—how IPO proceeds are ultimately used. While acknowledging that companies are entitled to decide how to deploy the capital they raise, Buch cautioned against the growing trend of misrepresentation and obfuscation.

Among the practices she flagged:

Related-party transactions, especially those layered through overseas subsidiaries, which make tracking fund flows murky at best.
“General corporate purpose” allocations—often running into hundreds of crores—presented without proper breakdown or justification.
Unverifiable software or tech acquisitions, where even basic documentation is missing.

These, Buch warned, can become vehicles for capital diversion, undermining the very trust that public market funding relies on.

No More “Blank Cheques”

One of the more striking takeaways from Buch’s address was her rejection of the “blank cheque” philosophy—where companies believe that once the funds are raised, they are under no obligation to explain further.

“There has to be a line between autonomy and accountability,” she said, urging investment bankers to push back when disclosures are too vague or fund-use justifications don’t pass the smell test.

She called for:

Transparent disclosures that go beyond templated language.
Diligent vetting of prospectus claims, especially regarding fund utilisation.
Proactive flagging of suspicious disclosures, even if it means having difficult conversations with issuers.

A Cultural Shift in IPO Due Diligence

Buch’s speech wasn’t merely a regulatory directive—it was a call for a culture shift in India’s capital markets. One where IPO due diligence isn’t reduced to ticking boxes, but becomes a rigorous, principles-driven exercise.

And while SEBI has traditionally refrained from micromanaging dealmaking, Buch made it clear that self-regulation only works when backed by genuine accountability. If that fails, more prescriptive oversight could follow.

Final Word: A Market Built on Trust

Buch’s message to the industry was as much about preserving investor confidence as it was about restoring integrity in the face of growing complexity in financial structuring. With more retail money flowing into IPOs and valuations soaring, the stakes are simply too high for complacency.