The recent issue of capital and disclosure requirement (ICDR) notified by the Securities and Exchange Borad of India (SEBI) will lead to crowding out of smaller investment bankers.

SEBI's recent ICDR guidelines are likely to make underwriting tougher for smaller firms. Sebi has touched upon a host of issues from upfront payment on unexercised warrants to reduced allotment period in public issues. But the new ICDR guidelines will lead to crowding out of smaller investment banks wanting to get into the underwriting business. Under the book building process, lead managers now have to compulsorily underwrite issues. And, syndicate members can be sub-underwriters but not joint underwriters anymore.

By underwriting an issue, bankers guarantee raising of funds required by a company, as they will subscribe to any shares not lapped up by the investors. This new clause is unlike the old disclosure and investment protection (DIP) guidelines where if the book was not built 75%, price remained undiscovered and hence underwriters did not oblige. A classic example is the Emaar Mgf & Wockhardt hospitals IPO which fell through, and the underwriters did not shell out a single rupee. That may not be the case anymore. The new regulations say if the book is not built, the underwriter will have to subscribe to the extent at the fair price. This tweaking of regulations could possibly be a shot in the arm for big boys who possess the capacity to underwrite large issues, unlike smaller players in the market.