Monitoring Agency (IPO)

The problem it solves

When a company raises money in an IPO, it tells investors exactly what it will do with the cash — the "objects of the issue," such as repaying debt, building a factory or funding working capital. But what stops management from quietly spending the money elsewhere once it is in the bank? A monitoring agency is the answer: an independent watchdog appointed to track, quarter by quarter, whether the proceeds are actually used as promised.

The SEBI rule in India

Under SEBI's ICDR regulations, a monitoring agency must be appointed for any public issue where the issue size exceeds ₹100 crore (excluding the offer-for-sale portion sold by existing shareholders, since that money goes to them, not the company). SEBI permits its registered credit rating agencies to act as the monitoring agency, alongside scheduled commercial banks and public financial institutions.

The regime has been tightened in recent years. Monitoring now continues until 100% of the proceeds are utilised (raised from 95%), and crucially it now covers funds earmarked for "general corporate purposes" — previously a convenient catch-all. The agency must report utilisation to the issuer's audit committee on a quarterly basis (up from annual), and that report is disclosed publicly.

SME issues

A separate, lower threshold applies to SME IPOs, where a monitoring agency is required for issues above ₹50 crore, with auditor certification and quarterly disclosure below that for working-capital-heavy uses.

Why it protects you

For a retail investor, the monitoring agency is one of the few mechanisms ensuring the prospectus is not just marketing. If a company said it would use ₹400 crore to cut debt, the quarterly monitoring report shows whether that is actually happening. Reading these disclosures — available on exchange filings — is a simple way to check that a company you backed at IPO is keeping its word. A pattern of unexplained deviations from the stated objects is a genuine red flag about governance.