New Delhi, Markets regulator Sebi on Wednesday proposed a comprehensive overhaul of the initial public offering (IPO) framework for small and medium enterprises (SMEs), including reducing the minimum application value to Rs 1 lakh, increasing the minimum number of allottees to 500 from the existing 200 and revising the operating profit threshold requirement.
The proposals are aimed at strengthening the SME IPO framework, improving investor protection and aligning key regulatory requirements with those applicable to main-board issues.
Also, the Securities and Exchange Board of India (Sebi) has proposed abolishing the compulsory market-making requirement for SME-listed companies, bringing the framework in line with the main board, where such a mandatory requirement does not apply, according to its consultation paper.
On eligibility for migration to the main-board, Sebi has proposed a market capitalisation-based framework. Under the proposal, voluntary migration would be permitted for SME-listed companies with a market capitalisation of Rs 1,000 crore or more but less than Rs 4,000 crore, subject to applicable eligibility requirements.
Mandatory migration to the mainboard has been proposed for companies whose market capitalisation exceeds Rs 4,000 crore, subject to fulfilment of the relevant eligibility conditions.
Regarding profit, the regulator has proposed increasing the average annual operating profit requirement to Rs 3 crore over three years, replacing the current requirement of Rs 1 crore in at least two of the three years.
Further, introducing a specific alternative route for an issuer which does not satisfy the profitability requirement. This is applicable provided at least 75 per cent of the issue is allocated to qualified institutional buyers (QIBs).
If the prescribed allocation is not achieved, the entire subscription money would have to be refunded.
Sebi noted that the SME Platform has undergone significant evolution since the framework was introduced. The increase in the number of issuers, capital raised, investor participation, market capitalisation and migration of entities listed on SME Platform to the Main Board indicates that the segment now encompasses enterprises with a wider range of size, maturity and market profile.
“Accordingly, the present review seeks to examine the SME regulatory framework holistically, with the objective of creating a regulatory architecture that is proportionate to the nature and scale of issuers accessing SME Platform, facilitates wider access to and participation in the capital market, reduces avoidable regulatory and financial burden, and at the same time preserves appropriate safeguards for investors,” Sebi noted.
As on July 31, 2026, as many as 1,496 entities listed on SME platform since inception (including entities migrated from SME to the mainboard).
Together, these entities raised Rs 40,222 crore. Under the proposed changes, the minimum application size for an SME IPO would be four lots, with each lot having a minimum value of Rs 25,000, taking the minimum application value to Rs 1 lakh.
Subsequent applications would be made in multiples of the applicable lot size. The proposed reduction to Rs 1 lakh from Rs 2 lakh would therefore “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, it added.
The regulator has also proposed increasing the minimum number of allottees in an SME public issue to 500 from 200, while retaining the requirement that retail individual investors receive at least one minimum lot, subject to availability, with the remaining shares allotted proportionately.
Further, Sebi has proposed making the trading lot for securities listed on the SME platform one share, replacing the existing price-band-based lot-size framework. The move is expected to improve accessibility and flexibility for investors trading in SME stocks in the secondary market.
The proposed framework also seeks to align certain aspects of SME IPOs with main board requirements while retaining safeguards specific to smaller enterprises. For book-built issues, Sebi has proposed that the cap of the price band should be at least 105 per cent of the floor price, while retaining the existing upper limit of 120 per cent.
The regulator has further proposed changes to differential pricing provisions by removing the reference to individual investors applying for the minimum application size.
The change is intended to reflect the proposed revised minimum application framework.
Under the proposed SME framework, the amount utilised for general corporate purposes would continue to be capped at 15 per cent of the amount being raised, compared with 25 per cent under the Main Board framework.
The regulator has also proposed retaining SME-specific restrictions on offers for sale (OFS). The OFS portion would not exceed 20 per cent of the total issue size, while shares offered by a selling shareholder would be capped at 50 per cent of their pre-issue shareholding on a fully diluted basis, subject to specified exemptions for qualified institutional buyers.
The Securities and Exchange Board of India (Sebi) has invited public comments and suggestions on the proposals by November 4.
