The BSE SME is a trading platform created by the Bombay Stock Exchange (BSE) that provides an investor-friendly environment in which small and medium-sized enterprises (SMEs) can be listed as trading companies. Through this platform, SMEs under the unorganised sectors across India can access regulated and organised sector benefits.
BSE SME offers enormous opportunities for the following market parties:
Entrepreneurs: It increases capital for the development and expansion of their SMEs in a cost-effective manner.
Investors: It allows investors to locate and invest in excellent companies in the early stages and on the way out.
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Small and medium-sized enterprises are the backbone of the national economy. SMEs in India employ 106 million people through 63 million companies, 40% of the Indian workforce.
Listing Process on BSE SME – the 5 P’s
Planning
The issuing company consults and appoints commercial bankers as advisors.
Preparation
Commercial banks prepare the documents to be submitted according to the following points:
Perform due diligence on the company, viewing all financial records, including related contracts, regulatory approvals, sponsor information, etc., and
Planning the Initial public offering (IPO) structure, equity issuance and financial needs.
Process
The application procedures include:
Draft Red Herring Prospectus (DHRP) Submission – These documents are prepared by commercial bankers and submitted to the exchange and Securities and Exchange Board of India (SEBI) upon request.
Verification and Site Visit – BSE verifies and processes documents. Exchange managers visit the company location. The organisers are invited to a meeting with the management advisory committee.
Approvals – The BSE issues in-principle approvals based on the committee’s recommendations, provided that the issuer meets all requirements.
Filing of RHP/Prospectus – Commercial Banks shall send these documents to the Registrar of Companies (ROC) stating the date of issue and the start date. After approval by the ROC, they shall provide information on the exchange date and the necessary documents.
Public Offering
The IPO is opened and closed as planned. After listing and trading, the company sends documents to the exchange to complete the sales base according to the checklist.
Pillar Listing
At the end of the allotment, the BSE issues a notification of the import transaction. After entering the BSE SME exchange, the existing exchange participants can participate in the SME platform and trade SME shares. However, trading on SME exchanges is limited by the size of the counterparties.
COVID crisis and the existential plea of Indian SMEs
During the COVID-19 crisis, the BSE-SME exchange halved to Rs. 1.5 crore, which is the net tangible asset requirement for SMEs planning to list on the platform. During the first COVID-19 wave, the Ministry of Finance changed the companies’ ability to be listed on the stock exchange.
Of the compulsory three years of operations, a company was eligible to list if it had combined positive cash accruals (earnings before depreciation and tax) in any one year under the new rules. Previously, they had to show money deposited for three years.
How can small businesses benefit from the BSE SME Exchange?
The damage to the financial cash flow from COVID is unprecedented and has resulted in dramatic changes in the SME sector. At a time when commercial banks were reluctant to lend due to concerns about NPAs, the relaxation in eligibility norms for SME listing enabled leveraged SMEs to explore the capital market and survive an economic downturn.
Using the BSE SME Exchange, SMEs can step into the threshold of the BSE SME Platform and foray into the world of finance for further growth and development. BSE SME helps these SMEs raise their own resources for growth and expansion, thereby helping them to become mature companies. It also enables them to take part in the Main Board of BSE under the applicable rules and regulations.
