The Securities and Exchange Board of India (SEBI) has proposed changes to the rules governing initial public offerings (IPOs) by small and medium enterprises (SMEs).

The proposals cover listing eligibility, minimum application amounts, allotment norms, offer-for-sale (OFS) limits and post-listing trading.

One of the key changes is a proposed reduction in the minimum SME IPO application amount from ₹2 lakh to ₹1 lakh. SEBI has also proposed raising the minimum operating profit requirement, changing the criteria for listing on SME platforms and removing the mandatory market-making requirement.

The proposals aim to reduce the cost of raising capital for smaller businesses while strengthening investor protection.

Key Proposed Changes to SME IPO Rules

1. Minimum SME IPO Application Amount to Be Reduced to ₹1 Lakh

SEBI has proposed reducing the minimum application amount for SME IPOs from ₹2 lakh to ₹1 lakh. Under the proposed framework, investors would need to apply for a minimum of four lots, with each lot valued at least ₹25,000.

The regulator has also proposed increasing the minimum number of allottees in an SME IPO from 200 to 500. This could help distribute share allotments among a wider investor base.

2. Higher Profit Requirement for SME IPOs

SEBI has proposed raising the operating profit requirement for companies planning an SME IPO. Currently, companies must report an operating profit of at least ₹1 crore in at least two of the previous three financial years. Under the proposed rules, they would need to record an average annual operating profit of at least ₹3 crore over the same period.

Companies that do not meet this requirement may still launch an IPO through an alternative route, provided at least 75% of the net offer is allocated to qualified institutional buyers (QIBs).

3. Market Capitalisation-Based Listing Criteria

SEBI has proposed replacing paid-up capital, which is the amount a company collects from shareholders for issuing shares, including face value and share premium, with post-issue market capitalisation, which reflects the combined value of all its shares after the IPO is completed.

Under the proposed rules, companies with a post-issue market capitalisation of up to ₹1,000 crore would be required to list on the SME platform. Those valued above ₹1,000 crore and up to ₹4,000 crore could opt for either the SME platform or the main board, subject to eligibility requirements. Companies exceeding the ₹4,000 crore threshold would have to list under the main-board framework.

4. Mandatory Market Making May Be Removed

SEBI has proposed removing mandatory market making for SME-listed stocks, along with related inventory requirements. It has also proposed the removal of the compulsory 100% underwriting requirement for SME IPOs, including the lead manager's obligation to underwrite 15% of the issue.

Under the proposed framework, the main-board underwriting rules and a 90% minimum subscription requirement would apply.

5. SME Stock Trading Lot May Be Reduced to One Share

SEBI has proposed allowing SME-listed shares to be traded in single-share lots instead of the existing price-based lot sizes. If implemented, the change would let investors buy or sell smaller quantities of SME stocks in the secondary market.

6. Changes to Promoter Lock-In, OFS and IPO Proceeds

SEBI has proposed changes to shareholding lock-in rules and the use of IPO proceeds. The minimum promoters' contribution would remain locked in for three years from allotment, while excess promoter holdings would have a one-year lock-in. The lock-in period for pre-IPO shares held by non-promoters would be reduced from one year to six months.

For offer-for-sale (OFS) transactions, the proposal includes a separate framework with a one-year holding requirement and specified exemptions.

SEBI has also proposed removing the ₹10 crore cap on the use of IPO proceeds for general corporate purposes, while retaining the limit of 15% of the total issue size.

7. Changes to Main Board Migration Rules

SEBI has proposed ending reverse migration, which allows companies to move from the main board to an SME platform. Under the proposed rules, eligible companies with a market capitalisation of ₹1,000 crore to below ₹4,000 crore could voluntarily migrate to the main board, while those exceeding ₹4,000 crore would be required to do so, subject to applicable conditions.

What Happens Next?

SEBI has invited public comments on the proposed changes until November 4, 2026. If approved, the revised rules will have a three-month transition period before taking effect. Until then, the existing SME IPO regulations will remain in force.

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