The Securities and Exchange Board of India (Sebi) has proposed replacing paid-up capital-based eligibility criteria with market capitalisation thresholds for SME IPOs. According to the consultation paper dated October 14, 2026, companies with post-issue market capitalisation of up to ₹1,000 crore would be required to list on the SME platform, while those with market capitalisation above ₹1,000 crore and up to ₹4,000 crore could also opt for the SME platform, subject to additional financial reporting requirements. The existing framework allows issuers with post-issue paid-up capital of up to ₹10 crore to access the SME platform, while those with paid-up capital above ₹10 crore and up to ₹25 crore may also issue securities under the framework. Issuers crossing ₹4,000 crore at the specified offer-document stage would have to refile under the mainboard framework. As per Sebi's consultation, the regulator argues that paid-up share capital does not reliably show a company's economic size, with firms having similar nominal capital having very different valuations. Companies in the higher band that have not adopted Indian Accounting Standards (Ind AS) would be required to prepare their restated consolidated financial statements under these standards. The move marks a significant shift from the existing framework, where companies with post-issue paid-up capital of up to ₹25 crore are eligible to list on SME exchanges.
Sebi has proposed raising the minimum operating profitability requirement for SME IPOs from the current ₹1 crore to average operating profit of at least ₹3 crore annually over the preceding three financial years, based on restated consolidated financial statements. Issuers that do not meet the profitability requirement could use an alternative eligibility route through the book-building process, subject to at least 75% of the net offer being allotted to qualified institutional buyers (QIBs). If the required allocation is not achieved, the entire subscription money would have to be refunded. This route would not exempt issuers from other SME-specific requirements relating to business track record, conversion or reorganisation, and promoter stability. The paired proposals seek to distinguish business maturity from current profitability: the ordinary route would demand stronger earnings, while the alternative would rely on substantial institutional participation for otherwise eligible growth firms. The proposal effectively puts greater responsibility on institutional investors to assess companies that do not meet the prescribed profitability standards.
The regulator has proposed significant simplification of SME IPO application requirements, halving the minimum application amount to ₹1 lakh from ₹2 lakh with a minimum lot value of ₹25,000 and requirement to apply for at least four lots. As per Sebi's discussion paper, the existing requirement of two lots per application with a minimum application value above ₹2 lakh may limit participation and may not appropriately balance accessibility with the objective of ensuring meaningful applications. The regulator has also introduced a one-share trading lot for SME listed securities, giving investors greater flexibility to trade smaller quantities. Sebi has also proposed removing compulsory market making and the associated inventory requirements for SME-listed shares, with the trading lot in the secondary market reduced to one share. The paper proposes permitting one-share trades after listing, letting investors buy or sell holdings that currently fall below a prescribed trading lot. The proposed reduction to ₹1 lakh from ₹2 lakh would "seek to balance investor protection with meaningful access to SME IPOs...as the reduction would operate within a substantially strengthened regulatory framework." It would also facilitate greater fragmentation of the investor base and capital among a wider number of investors, thereby supporting broader participation in SME IPOs.
Under the proposed changes, the three-year lock-in for minimum promoters' contribution would run from the date of IPO allotment, removing its link to the commencement of commercial production. The lock-in for promoter holdings exceeding the minimum contribution would be standardised at one year, while that for non-promoter pre-issue capital would fall from one year to six months. Specified promoter-group holdings would face a separate one-year lock-in. Sebi has also proposed removing compulsory market making and the associated inventory requirements for SME-listed shares, with the trading lot in the secondary market reduced to one share, giving investors greater flexibility to trade smaller quantities. The paper proposes permitting one-share trades after listing, letting investors buy or sell holdings that currently fall below a prescribed trading lot. The proposed framework also seeks to align certain aspects of SME IPOs with main board requirements while retaining safeguards specific to smaller enterprises.
The proposed changes cover comprehensive aspects of SME IPO regulations, including underwriting, market making, lock-in periods and migration to the main board. According to the consultation paper, the proposals also address changes in an issuer's estimated post-issue market capitalisation during the IPO process. Sebi has proposed removing the requirement for 100% underwriting of SME IPOs and the additional obligation on lead managers to underwrite 15% of the issue themselves. Instead, the mainboard framework would apply, under which the unsubscribed portion must be fully underwritten. For migration, companies with market capitalisation of ₹1,000 crore or more but below ₹4,000 crore could move voluntarily to the mainboard, subject to eligibility criteria, while migration would be mandatory at ₹4,000 crore or more. The proposed framework would come with a three-month transition period, along with stage-specific grandfathering provisions. Since their inception, SME platforms have listed 1,496 companies, which have collectively raised ₹40,222 crore, with 365 companies having migrated to the main board as of July 31, 2026. The market capitalisation of SME platform-listed entities, including companies that migrated to the main board, stood at ₹4.71 lakh crore. The regulator has invited public comments on the proposed changes to the Sebi (Issue of Capital and Disclosure Requirements) Regulations, 2018, until November 4, 2026.
