Sebi proposes market cap-based SME listing norms, lower application size

Sebi proposes halving the minimum SME IPO application value to Rs 1 lakh, raising the operating profit threshold and easing offer-for-sale restrictions for institutional investors

The Securities and Exchange Board of India (Sebi) on Wednesday proposed replacing paid-up capital-based eligibility criteria for small and medium enterprise (SME) initial public offerings (IPOs) with market capitalisation thresholds, lowering the minimum application size to ₹1 lakh, and easing restrictions on offers for sale (OFS) by institutional investors.

 

The regulator has also proposed raising the minimum average operating profit requirement to ₹3 crore a year, while allowing established businesses that do not meet the profitability criterion to access the market subject to at least 75 per cent allocation to qualified institutional buyers (QIBs).

 

In a consultation paper issued on Wednesday, Sebi proposed a broader overhaul of the SME IPO framework, including changes to promoter lock-in requirements, trading lots, underwriting and compulsory market making.

 

 

The proposals seek to reduce the cost and compliance burden of raising capital, widen investor participation and align selected requirements with those applicable to mainboard IPOs, while retaining safeguards for investors.

 

Under the proposed eligibility framework, companies with post-issue market capitalisation of up to ₹1,000 crore would be required to list on the SME platform.

 

Those with market capitalisation above ₹1,000 crore and up to ₹4,000 crore could opt for the SME platform, but would have to prepare their restated consolidated financial statements in accordance with Indian Accounting Standards (Ind AS) if they had not already adopted them.

 

Sebi has also proposed replacing the existing requirement of operating profit of at least ₹1 crore in two of the preceding three financial years with average operating profit of at least ₹3 crore a year over the three preceding financial years, based on restated consolidated financial statements.

 

However, companies that do not meet this profitability threshold could still undertake an IPO through the book-building route, provided at least 75 per cent of the net offer is allotted to QIBs.

 

If the prescribed allocation is not achieved, the entire subscription money would have to be refunded. Other eligibility requirements relating to track record, business continuity and promoter stability would continue to apply.

 

The regulator has proposed halving the minimum application value from ₹2 lakh to ₹1 lakh.

 

Each lot would have a minimum value of ₹25,000, requiring investors to apply for at least four lots. Separately, the trading lot for SME-listed securities would be reduced to one share, allowing investors greater flexibility in secondary-market transactions.

 

On OFS, Sebi has proposed a dedicated regulatory framework, including a one-year holding requirement for shares offered for sale, subject to specified exemptions.

 

QIB selling shareholders could be exempted from the existing limits restricting the OFS component to 20 per cent of the total issue size and the sale to 50 per cent of their pre-issue shareholding.

 

However, these exemptions would not apply to issues using the alternative IPO route for companies that fail to meet the profitability criterion.

 

The regulator has also proposed rationalising promoter lock-in requirements. The three-year lock-in for minimum promoters’ contribution would no longer be linked to the start of commercial production.

 

Promoters’ holdings beyond the minimum contribution would be locked in for one year, replacing the existing staggered arrangement. The lock-in for pre-issue capital held by non-promoters would be reduced from one year to six months, while promoter-group holdings would be subject to a one-year lock-in.

 

Sebi has further proposed removing the ₹10 crore absolute cap on the use of IPO proceeds for general corporate purposes, while retaining the limit of 15 per cent of the issue size. It has also recommended changes to the underwriting and compulsory market-making framework as part of efforts to rationalise fundraising costs and SME-specific requirements.

 

The SME platform has raised ₹40,222 crore since inception, with 365 companies migrating to the mainboard, according to Sebi data as of July 31, 2026.

 

Sebi has sought comments from the public and stakeholders on the proposals by November 4.