The Securities & Exchange Board of India (Sebi) is preparing to make it obligatory for companies with an issue size of even less than 500 crore to appoint a monitoring agency like an insurance firm or a scheduled commercial bank to keep track of the use of funds, two people with direct knowledge of the matter said.

Currently, only companies with an issue of more than 500 crore are binding to appoint a monitoring agency.

The reason behind the capital market regulator's reported planning is to bring issues of a size smaller than 500 crore under the agency's monitoring net.

In the past, many companies used the funds they collected from investors in other purposes than what they had stated in their fund-raising programs. Sebi has also found many incidents in which companies used IPO money for purposes other than the stated objectives.

Speaking on the issue, Sebi Chairman UK Sinha recently said, "We cannot expect people to invest in the market when they are losing money at a sharp rate and we'll be taking certain significant measures in this behalf very shortly."

An internal analysis by the capital market regulator showed that 72 out of the total 117 IPOs issued between 2008 and 2011 were trading below their respective issue price following six months of their listing. Of these, the market value of shares of fifty-five companies had shed more than 20 per cent.

A detailed monitoring report by a public financial body, an insurance firm or a scheduled commercial bank would help in spotting any financial irregularities.