BluSmart Crisis Set to Trigger SEBI Scrutiny of Unlisted Bond Market

Sebi Likely to Tighten Scrutiny on Unlisted Bonds After BluSmart Crisis

The Securities and Exchange Board of India (Sebi) is expected to increase its scrutiny of the unlisted bond distribution market, following the financial troubles at all-electric cab startup BluSmart Mobility, according to industry insiders.

Over the past year, BluSmart reportedly raised more than ₹100 crore by selling unlisted, unsecured corporate bonds to high-net-worth individuals (HNIs) and some retail investors. These transactions were largely facilitated by fintech platforms such as Yubi, Centricity, and Klub.

Sebi has consistently maintained a cautious stance toward allowing retail investors exposure to high-risk unlisted products. In November 2024, the regulator directed platforms like AltGraaf, Tap Invest, and Stable Investments to cease offering unlisted bonds and non-convertible debentures (NCDs) to retail investors.

Industry executives now expect Sebi to dig deeper into the sale practices of unlisted bonds, with potential outcomes ranging from the introduction of stricter guidelines to imposing heavy penalties on non-compliant platforms.

“This BluSmart episode will have a significant impact on the bond distribution ecosystem,” said the founder of an online bond distribution platform. “Given Sebi’s opposition to the wide distribution of unlisted bonds, stricter regulatory actions are likely.”

Sebi had earlier introduced the Online Bond Platform Provider (OBPP) regulations in November 2022, to govern startups selling fixed-income securities like corporate bonds to retail investors. Platforms like Wint Wealth, Aspero, Jiraaf, and Grip Invest are among the regulated OBPPs in India. These platforms typically offer listed bonds with interest rates ranging from 9% to 13%, depending on the issuer’s profile and the bond size. The regulated OBPP space is estimated to manage around ₹500 crore in monthly volumes.

Importantly, OBPP-registered platforms are barred from selling unlisted securities. However, many online entities continue to sell unlisted bonds and stocks outside the regulated framework. For instance, Yubi offers unlisted bonds through its platform, while separately running Aspero to comply with OBPP norms.

“Scrutiny is inevitable,” said another founder of a bond distribution startup. “The regulator will likely demand detailed information on sales practices, including whether unlisted bonds are being distributed offline. Those adhering to the rules should remain unaffected; this cleansing will only strengthen the market.”

Wealthtech platforms are riding two powerful trends: rising disposable incomes among Indian investors, and booming IPO markets with attractive returns. These trends have significantly increased investor appetite for unlisted securities, including corporate bonds and pre-IPO shares. However, the growing enthusiasm has also heightened the risk of mis-selling.

The BluSmart case further complicated matters. Reports reveal that the electric vehicles operated by BluSmart were actually purchased by Gensol Engineering and hypothecated to public sector lenders such as Power Finance Corporation (PFC) and the Indian Renewable Energy Development Authority (IREDA). Investors who purchased BluSmart’s NCDs allege that some platforms failed to conduct adequate due diligence.

“Some platforms sold these bonds without securing hypothecation on the vehicles. The only collateral was projected future cash flows. Now that BluSmart’s business operations have been disrupted, investors are questioning how cash flows—and thus repayments—will be sustained,” said an affected investor.

This controversy comes at a time when Sebi is already working on plans to further limit retail participation in securitised debt instruments (SDIs). As per the board meeting minutes from December 18, 2024, Sebi is considering a minimum investment threshold of ₹1 crore for SDIs and capping subscriptions to 200 investors in private placements.

“Such measures would already curb retail involvement significantly. But with cases like BluSmart’s, we may see even tighter restrictions soon,” said a founder of an online bond platform.

Source: The Economic Times, April 25, 2025