SME Digital World

Category: SME

SEBI Plans Stricter Rules for SME Public Offers Amid Market Surge

SEBI Plans Stricter Rules for SME Public Offers Amid Market Surge

India’s capital markets are on the brink of a regulatory overhaul as the Securities and Exchange Board of India (SEBI) prepares to tighten regulations governing public offerings by small and medium enterprises (SMEs). This initiative responds to increasing concerns over the misuse of a specialized listing platform introduced in 2012 to facilitate small businesses’ access to capital markets.
According to Reuters reports, SEBI is considering raising the minimum size requirement for such public offerings to between Rs 30 crore and Rs 50 crore ($3.59 million to $5.99 million). Sources from Reuters indicated that the proposed rules are expected to be officially issued later this year following consultations with stakeholders.
Currently, there is no prescribed minimum issue size for SMEs, although companies listing on the platform are required to have a post-issue capital base of Rs 25 crore. “Establishing a minimum offer size will ensure that serious companies access the capital markets, thereby protecting investor interests,” commented one of the sources. This initiative demonstrates regulators’ commitment to fortify investor protection mechanisms amidst increased activity in India’s equity markets.
Data from PRIME Database, a leading capital markets information provider, reveals a rise in public offerings by SMEs during the fiscal year ending March 2024. A total of 205 companies raised Rs 6,000 crore, marking an increase from the previous year’s 125 firms that raised Rs 2,200 crore.
Despite repeated requests for comments, both the markets regulator and exchanges, tasked with implementing regulatory policies, refrained from responding. The move to tighten regulations surrounding SME public offerings reflects a broader trend towards enhancing market integrity and investor confidence. By imposing stringent criteria for accessing capital markets, authorities aim to eliminate frivolous listings while fostering an environment conducive to sustainable growth.
In recent years, India’s SME segment has emerged as a vital engine of economic expansion, contributing to employment generation and fostering innovation. However, concerns regarding corporate governance standards and regulatory oversight have lingered, prompting regulators to recalibrate existing frameworks to align with evolving market dynamics.
Reports suggest that some SME issues were oversubscribed by 500 to 1000 times, raising concerns about the misuse of the listing platform. In response to these concerns, SEBI is considering imposing a minimum issue size for SMEs along with enhanced disclosure requirements. Companies eyeing public listings will be required to provide comprehensive disclosures, including the objectives of the issue, financials of the issuer, and associated risk factors.
“The merchant bankers will be tasked with providing more upfront disclosures, ensuring investors have the necessary information to make informed decisions,” remarked a source privy to the discussions.
SEBI’s proactive stance follows earlier remarks by its chairperson, Madhabi Puri Buch, who highlighted instances of misuse within the SME listing framework. Buch emphasized the regulator’s commitment to investigating complaints of price manipulation within the segment, stressing the need for heightened vigilance to maintain market integrity.
In a crackdown on malpractices, SEBI recently barred three SME companies from accessing capital markets, citing misuse of funds raised through public offerings, including diversion for unauthorized purposes, misrepresentation of facts in offer documents, and alleged manipulation of financial statements.
The regulatory clampdown underscores a broader push towards fortifying investor protection mechanisms and upholding market integrity. By establishing robust disclosure norms and imposing stringent penalties for non-compliance, SEBI aims to foster transparency and accountability within India’s SME space. As stakeholders anticipate the formal issuance of SEBI’s revised guidelines, market participants brace for a paradigm shift in the regulatory landscape, signaling a pivotal moment in India’s capital markets as authorities strive to balance promoting entrepreneurship with safeguarding investor interests.

May 15, 2024
“MSME Delayed Payments: Updated Online Procedure for Filing Applications Against Defaulting Buyers”

MSME Delayed Payments: Updated Online Procedure for Filing Applications Against Defaulting Buyers

In response to delayed payments from buyers, MSMEs in India often encounter significant challenges. According to the government’s delayed payment monitoring portal, MSME Samadhaan, since October 2017, approximately 1.89 lakh applications involving Rs 43,160 crore have been filed by MSMEs. However, only 36,074 cases totaling Rs 6,235 crore have been resolved by facilitation councils.
For those seeking to file an application online against a buyer who has not settled dues within 45 days of invoice generation, follow these step-by-step instructions:
1. Visit the delayed payment filing and monitoring portal by the MSME ministry at samadhaan.msme.gov.in.
2. Click on the ‘Case Filing for Entrepreneur/MSE Units’ tab.
3. Choose the type of MSME registration — Udyog Aadhaar Number or Udyam Registration Number.
4. Enter the registration number, mobile number (as per the registration certificate), and verification code.
5. Click on ‘Validate Udyog Aadhaar’ or ‘Validate Udyam Registration’ based on your registration type.
6. Enter the OTP sent to the registered mobile number or email address for verification.
7. Access the ‘Application List’ page and click on ‘Application Entry’ located at the top right corner.
8. Input the date of the pending invoice under ‘The date of invoice in dispute’ and click ‘Submit.’
9. Your details will be pre-filled under ‘Petitioner Details’; provide any additional required information.
10. Select the business location from where the dispute has arisen.
11. Opt to send the application to the facilitation council of the state where your corporate office is located (‘Yes’).
12. Enter your office PAN and NIC code of the product sold.
13. Confirm the declaration at the end of the form.
14. Provide buyer or respondent details, including the GST number, and acknowledge the consent statement.
15. Specify the amount owed by the buyer.
16. Enter work order and invoice specifics and upload necessary documents.
17. Validate the information submitted, enter the verification code, and click ‘Final Submit.’
Both you and the buyer will receive notifications upon successful submission of the complaint.

May 14, 2024
Driving Factors: Technology’s Role in Shaping India’s Electric Two-Wheeler Adoption

Driving Factors: Technology’s Role in Shaping India’s Electric Two-Wheeler Adoption

Technological factors have the potential to either impede or accelerate the adoption of electric two-wheelers in India’s evolving electric vehicle (EV) ecosystem, which has witnessed significant growth in recent years supported by government and private sector initiatives. The interim budget also outlined various measures aimed at expediting the expansion of the domestic EV ecosystem, including bolstering charging infrastructure.
As the EV landscape evolves, it becomes evident how policies, market conditions, and technological advancements influence consumer acceptance of these vehicles. Technology emerges as a critical determinant for the adoption of EVs, particularly in the two-wheeler segment, which constitutes one of the largest automobile segments in India.
According to Sushant Kumar, Founder & Managing Director of AMO Mobility, battery technology plays a pivotal role. Advancements in lithium-ion batteries and the emergence of solid-state batteries enhance efficiency, safety, and charging speed, which are crucial for extending vehicle range and enhancing user convenience. Motor technology also significantly impacts performance, with innovations such as brushless DC motors offering improved efficiency and requiring less maintenance.
Furthermore, material science advancements enable the use of lightweight materials that improve range and performance without compromising safety. Kumar notes that these technological strides collectively shape the future of electric two-wheelers, making them more attractive and efficient for consumers.
Anshul Gupta, Managing Director of Okaya EV, emphasizes the importance of finding the right technology as EVs are still in the pilot phase. He highlights the necessity of progressing charging infrastructure, including rapid charging methods and battery swapping techniques, to address concerns about range anxiety and promote widespread adoption.
In the evolving landscape of EV technology, particularly concerning two-wheelers, several technological factors are poised to influence their future development, experts believe.
Prashant Vashishtha, Chairman & Managing Director of Sokudo India, underscores the significance of battery technology advancements, including shifts to more advanced formulations like solid-state or lithium-sulfur batteries promising higher energy densities and faster charging times. Motor technology is expected to advance further, focusing on increasing efficiency and reducing weight, while electronic control systems become more sophisticated to enhance vehicle dynamics and user interfaces.
The integration of IoT and AI technologies plays a vital role in facilitating real-time vehicle diagnostics, enhancing user experience, and increasing vehicle reliability. These technologies contribute to predicting battery life, optimizing energy management, and improving overall vehicle efficiency, according to industry stakeholders.
Gupta also highlights safety as a primary concern for customers due to high voltages and temperatures associated with EVs. LFP batteries are considered safer than NMC batteries due to their higher thermal runaway temperature and longer lifespan, despite requiring more space.
Overall, infrastructure improvements such as fast-charging stations and connectivity features like GPS navigation, coupled with supportive government policies and incentives, contribute to the growing popularity of electric two-wheelers in India’s dynamic mobility landscape.

May 14, 2024
New MSME payment clause in IT Act

New MSME payment clause in IT Act

The Supreme Court declined to hear a petition filed by traders’ associations challenging the constitutionality of Section 43B(H) of the Income Tax Act, which mandates businesses to clear dues owed to micro, small, and medium enterprises (MSMEs) within 45 days to avail tax benefits.
Instead, a bench headed by Chief Justice DY Chandrachud advised the petitioners – Federation of All India Vyapar Mandal, Federation of Madras Merchants and Manufacturers Association, and Confederation of West Bengal Trade Associations – to seek relief from the high court.
The provision came into effect on April 1. The Federation of All India Vyapar Mandal challenged the constitutionality of Section 43B(H), highlighting its adverse impact on the business community, especially MSMEs like textile, chemical, and engineering units based in Gujarat.
The traders’ body sought a review of the provision due to its negative implications on MSMEs, arguing that it unfairly favors medium-scale industries by granting them more leeway in extending credit, thereby causing MSMEs to lose market share. Traders also alleged that the amendment unfairly penalized small enterprises by restricting their ability to offer credit based on their discretion.
The petition further pointed out that large companies were redirecting their orders away from MSMEs registered under the Micro, Small, and Medium Enterprises Development Act, 2006, opting instead to place them with unregistered entities to evade mandatory provisions and maintain longer payment cycles of 90-120 days.
To address working capital shortages and ensure timely payments within the sector, the Finance Act 2023 introduced an amendment to the Income Tax Act by adding clause (h) to Section 43B. This clause mandates that buyers settle outstanding payments owed to MSMEs within 45 days to qualify for tax deductions. Failure to comply results in disqualification from tax benefits until the dues are settled.
In cases of delayed payments to MSMEs, the buyer is liable to pay tax on the overdue amount, which can only be reversed upon clearing the dues to MSMEs. Additionally, interest on the overdue amount accrues at the bank rate notified by the Reserve Bank of India, applicable from the appointed day or an agreed date.

May 8, 2024
How Lenders Navigate Risk in MSME Lending Without Credit History

How Lenders Navigate Risk in MSME Lending Without Credit History

Lending to small and unorganised businesses presents significant credit risk, primarily due to the absence of credit history for assessment. Traditional methods of credit evaluation, such as predicting behavior based on credit history or analyzing cash flows and profitability through financial statements, often fall short in this scenario.
Shikhar Aggarwal, Chairman of BLS E-Services, underscores the importance of identifying and mitigating risks like credit default and market volatility. This approach not only ensures the stability of loan portfolios and minimizes losses but also promotes responsible lending practices. Aggarwal emphasizes that proactive risk management is crucial for MSMEs to demonstrate financial reliability and business acumen, essential for securing funding, growth, and operational success. Moreover, a robust risk management framework builds trust with financial institutions, improving loan terms and access to larger credit facilities, enabling MSMEs to innovate, expand, and navigate economic challenges effectively.
Ujual George, COO of Aye Finance, explains how his company overcame this challenge by developing a tailored underwriting model based on data science and a comprehensive physical presence. Aye Finance’s extensive workforce of 6,000 across 450+ branches nationwide plays a critical role in managing credit risk effectively through this “phygital” (physical + digital) model.
Aggarwal further elaborates on the multifaceted approach NBFCs use to manage risks during lending. This includes assessing liquidity profiles with seasonally adjusted fund utilization patterns, evaluating company profiles based on ownership, industry segment, location, and maturity level, analyzing repayment behavior and asset classification, determining creditworthiness through outstanding debt and credit scores, assessing collateral for secured credit, and considering external factors like economic conditions, business trends, and potential legislative changes that may impact MSMEs.

May 8, 2024
SEBI Takes Action Against SME for Alleged Financial Manipulation

Sebi Takes Action Against SME for Alleged Financial Manipulation

On Monday, the Securities and Exchange Board of India (Sebi) issued sanctions against 12 entities, including Add-Shop E-Retail, a listed company, and several members of its promoter-management team, for purportedly manipulating financial statements.
According to the Sebi order, the company engaged in fictitious transactions, including fake sales and purchase entries in its accounts. Over the past three financial years, more than 46% of reported sales were found to be fictitious. Furthermore, significant related-party transactions were conducted without audit committee approval.
Add-Shop E-Retail was listed on BSE’s small and medium enterprise (SME) platform in September 2018 and later moved to the main board platform in October 2020. The promoter stake in the company decreased to 27.2% by December 2023, down from 62.99% in April 2020.
This regulatory action coincides with increased scrutiny on SMEs for potential manipulation and heightened monitoring due to concerns about fraudulent activities in the sector.

May 7, 2024
Extended Season of Down Rounds for Indian Startups

Extended Season of Down Rounds for Indian Startups

The trend of down rounds in the startup ecosystem is persisting and expanding. Nearly 20% of the major venture capital deals in 2023 and up to April this year involved significant reductions in valuations. This marks the highest proportion since 2015, according to data from Pitchbook.
Before 2023, the highest incidence of down rounds occurred in 2017, when 17% of VC deals were executed with valuation cuts following the exuberance in funding observed during 2015-16. Analysts anticipate this trend to continue throughout the year, spelling challenging times for startups ranging from large unicorns to growth and early-stage ventures.
Deepak Gupta, General Partner at WEH Ventures, explains, “Down rounds may continue for some time as the inflated valuations from 2020-21 have yet to align with company performance, and growth stage deals remain subdued compared to historical levels.” Gupta suggests that many founders who postponed fundraising in 2023 will now need to seek funding, potentially leading to down rounds.
Of the 20 venture capital deals this year, primarily focused on growth and late-stage rounds, four have occurred at reduced valuations. In 2022, out of the 84 deals in growth and late-stage funding, 17 were down rounds.
Recent funding rounds illustrate this trend. PharmEasy, an online pharmacy retailer, secured $216 million in a deal led by Ranjan Pai’s Manipal Education and Medical Group, valuing the company at $710 million — significantly lower than its $5.6 billion valuation in 2021. Similarly, Udaan raised $340 million in December 2023 at a valuation of approximately $1.8 billion, down from its peak of $3.2 billion in 2021.
Indian startups witnessed a funding slowdown in the first quarter of this year, raising $1.9 billion compared to $2.2 billion in Q4 2023. This downturn followed consecutive growth quarters in 2023, with total funding amounting to $8.4 billion for the year, significantly lower than the $25 billion raised in 2022 and the lowest in the past five years, as per Tracxn data.

May 6, 2024
Banks Extended Rs 24.6 Lakh Crore Credit to MSMEs in March: RBI Report

Banks Extended Rs 24.6 Lakh Crore Credit to MSMEs in March: RBI Report

According to the latest data from the Reserve Bank of India (RBI) on sectoral deployment, banks provided a gross credit of Rs 24.67 lakh crore to micro, small, and medium enterprises (MSMEs) under priority sector lending in March this year. This credit deployment witnessed a notable growth of 19.2 percent from Rs 20.69 lakh crore deployed in March 2023.
The total bank credit to MSMEs under priority sector lending in March represented 15 percent of India’s non-food credit, amounting to Rs 164.11 lakh crore during the month.
Breaking it down segment-wise, credit deployment to micro and small enterprises (MSEs) surged by 20.1 percent to Rs 19.76 lakh crore in March 2024 from Rs 16.45 lakh crore in the corresponding period of the previous year. Similarly, credit to medium-sized businesses grew by 15.8 percent to Rs 4.90 lakh crore from Rs 4.23 lakh crore during the same period.
Despite the upward trajectory in bank credit to MSMEs, non-banking financial companies (NBFCs) remain at the forefront of credit support to MSMEs. According to a banking sector performance report in December last year, NBFC loans to MSMEs exceeded three times the loans extended by banks.
Comparing the year-on-year growth in MSME credit by banks and NBFCs, as of March 2022 and March 2023, NBFCs demonstrated a robust growth rate of 21.2 percent and 42.4 percent, respectively, surpassing the growth rates of banks at 12.7 percent and 12.4 percent during the same periods.
As of March 2023, services MSMEs held a dominant 66.6 percent share in NBFC credit to MSMEs compared to 33.4 percent for MSMEs in industries.
However, one of the persistent challenges for MSMEs remains the lack of access to credit. A report by Lighthouse Canton, a global wealth and asset management company, highlighted that the development of digital public infrastructure (DPI) for digital products and services in a country has the potential to address nearly half of the credit gap faced by MSMEs in low and middle-income nations. Furthermore, the adoption of DPI could facilitate credit access for an additional 16-19 million MSMEs in these countries.

May 3, 2024
CRISIL SME Tracker: Positive Shifts for Chemicals MSMEs

CRISIL SME Tracker: Positive Shifts for Chemicals MSMEs

The outlook for the domestic chemicals industry is improving as demand rebounds and inventories stabilize.
In the previous fiscal year, factors such as oversupply from China, weak demand in developed markets, and inventory adjustments led to subdued revenue growth.For the current fiscal year, Crisil Research expects the industry to rebound by 7-9% from a lower base.
While certain segments like dyes and pigments, discretionary industries, and agrochemicals continue to face challenges, these are seen as temporary obstacles, and the medium- to long-term outlook remains optimistic.
This positive outlook is particularly beneficial for the 292,856 micro, small, and medium enterprises (MSMEs) that constitute 30% of the domestic chemical industry (according to Ministry of Chemicals & Petrochemicals data), with significant clusters in Thane, Mumbai, and Ahmedabad. Nearly half of these enterprises are engaged in organic manufacturing, while others focus on dyes and pigments, soaps and detergents, with agrochemicals making up 8%.
Among industry segments, specialty chemicals, representing 19-21% of the domestic industry, are expected to see margins rebound by 200-300 basis points this fiscal year after facing erosion last year due to high-priced inventories and lower product realizations.
Within specialty chemicals, agrochemicals are projected to achieve 10-12% revenue growth this fiscal year after experiencing degrowth last year due to low prices and weak demand caused by El Niño and subsequent deficient rainfall. Agrochemicals margins are expected to normalize from the second quarter due to destocking of high-cost inventories.
Colourants, another significant segment of specialty chemicals, are forecasted to achieve 4-6% revenue growth this fiscal year, driven by expectations of interest rate cuts in Europe and the US boosting discretionary spending. This follows a decline of 1-3% last year due to recessionary pressures and inflation affecting market sentiment.
Overall, domestic producers may still face margin pressures as prices of key bulk materials could remain depressed due to ample supplies and the commissioning of newer capacities.

May 2, 2024
How Micro, Small, and Medium Enterprises (MSMEs) Can Harness Comprehensive Retail Solutions

How Micro, Small, and Medium Enterprises (MSMEs) Can Harness Comprehensive Retail Solutions

Establishing a robust distribution and retail network is vital for business growth, demanding access to modern technology, reliable partners, and skilled employees. However, many MSMEs lack the resources and capabilities to develop and manage such networks, especially across vast geographies like India. Fortunately, specialized retail and distribution solution providers offer a lifeline to these businesses.
According to Sundeep Holani, Co-founder and co-CEO of Channelplay, companies specializing in retail and distribution solutions can deliver turnkey offerings that leverage existing networks and capabilities, enabling MSMEs to expand their reach reliably and with lower risk.
These comprehensive end-to-end sales solutions provide small businesses with a distinct competitive advantage by optimizing the entire value chain—from procurement and inventory management to order fulfillment and final delivery. This optimization enhances operational efficiency, reduces costs, and elevates the overall customer experience.
Aman J Jain, CEO & Co-founder of Doodhvale, highlights the significant advantage of real-time analytics and data-driven demand forecasting embedded within these solutions. This capability minimizes waste, reduces operational expenses, and ensures timely processing, addressing common challenges faced by small businesses. Furthermore, such solutions offer invaluable insights into consumer behavior, purchasing trends, and market dynamics, empowering MSMEs to make informed decisions and customize offerings to outmaneuver larger competitors.
Industry stakeholders emphasize that modern retail solutions enable MSMEs to deliver seamless omnichannel experiences akin to established brands, enhancing efficiency and competitiveness. Raghunandan Saraf, CEO and Founder of Saraf Furniture underscores the efficiency gained by integrating inventory management, order fulfillment, and customer relationship management systems, allowing businesses to respond dynamically and anticipate market trends.
Moreover, by outsourcing non-core activities like logistics and payment processing to trusted partners, MSMEs can focus on essential functions, fostering sustainable growth and market differentiation.
Ankit Agrawal, Director of Mysore Deep Perfumery House (MDPH), highlights the amplified advantages when MSMEs adopt end-to-end retail solutions encompassing merchandise planning, finance, warehousing, and point-of-sale operations. This integrated approach keeps MSMEs updated on critical aspects such as sales, distribution, and product popularity, empowering them to adapt swiftly to market dynamics and gain a competitive edge in the retail landscape.

April 30, 2024