Sebi, the market regulator, removed the requirement for an obligatory security deposit with exchanges prior to a public offering on Thursday in an effort to make doing business easier for issuers.

According to a circular issued by the Securities and Exchange Board of India (Sebi), the measure will take effect immediately.

Prior to this, each firm planning to conduct a public equity share offering must deposit 1% of the issue size with the stock exchanges. The deposit was returned to the corporation following the public issue.

"In order to facilitate ease of doing business to issuer company, the requirement to deposit 1 per cent of the issue size available for subscription to the public with the designated stock exchange by the issuer company under... Sebi (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) has been dispensed with," the regulator stated.

In February, the Securities and Exchange Board of India (Sebi) issued a consultation document suggesting the elimination of the 1% security deposit requirement for public or rights issuance.

The regulator explained the rationale for the move, stating that the requirement of a 1% security deposit was put in place for public/rights issues so that an issuer resolves investor complaints about the transaction, such as refund of application money, allotment of securities, and dispatch of certificates.

However, given the various reforms and current framework for public or rights issues such as application through ASBA (Application Supported by Blocked Amount) UPI mode of payment, mandatory allotment in demat, among others, concerns about post-issue investor complaints regarding refund of application money and non-dispatch of physical certificates do not arise, it added.