Business · NBC 60
The Securities and Exchange Board of India (SEBI) has proposed a ₹3 crore average annual operating profit requirement for SME IPOs, alongside changes to offer-for-sale (OFS) limits, share lock-ins, minimum application sizes and trading rules. In a consultation paper dated October 14, 2026, the regulator has proposed amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. The changes aim to rationalise the SME IPO framework, align selected provisions with mainboard rules and retain safeguards for investors.
Public comments have been invited until November 4. Higher profit threshold, market cap-based eligibility SEBI has proposed replacing the existing requirement of at least ₹1 crore in operating profit in two of the preceding three financial years with average annual operating profit of at least ₹3 crore over the preceding three years, based on restated consolidated financial statements. Issuers that do not meet the profitability criterion could still access the market through an alternative route, subject to other eligibility conditions.
They would have to use the book-building process and allot at least 75% of the net offer to qualified institutional buyers (QIBs). If the allocation is not achieved, the entire subscription money would have to be refunded. The regulator has also proposed replacing paid-up capital-based eligibility with market capitalisation thresholds.
Issuers with post-issue market capitalisation of up to ₹1,000 crore would access only the SME platform, while those above ₹1,000 crore and up to ₹4,000 crore could opt for it, subject to Ind AS-compliant restated consolidated financial statements. Issuers crossing ₹4,000 crore at the specified offer-document stage would have to refile under the mainboard framework. OFS limits, application size and allotment SEBI has proposed a dedicated OFS framework, including a one-year holding period for shares offered for sale, subject to specified exemptions.
QIB selling shareholders could be exempted from the existing limits capping OFS at 20% of the issue size and shares sold at 50% of their pre-issue holding. These exemptions would not apply to issues using the alternative QIB-based eligibility route. The regulator has also proposed reducing the minimum SME IPO application value to ₹1 lakh from above ₹2 lakh.
Investors would have to apply for at least four lots, each worth a minimum of ₹25,000. The minimum number of allottees would rise from 200 to 500, while retail allotment would be delinked from multiples of the minimum lot, subject to availability. The ₹10 crore ceiling on the use of issue proceeds for general corporate purposes could also be removed, while the existing limit of 15% of the amount raised would remain.
Shorter lock-ins, no compulsory market making 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. The trading lot in the secondary market would be reduced to one share, giving investors greater flexibility to trade smaller quantities. Underwriting and migration rules The regulator 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. A 90% minimum subscription requirement is also proposed, alongside removal of the separate requirement for the registrar to confirm 90% subscription before the issue-closure announcement. 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.
Migration would be mandatory at ₹4,000 crore or more, subject to the prescribed conditions. SEBI has also proposed removing the route for migration from the mainboard back to the SME platform. SEBI said 1,496 entities had been listed on the SME platform since inception, including companies that later migrated to the mainboard.
Of these, 365 had migrated. SME IPOs had raised ₹40,222 crore, while the market capitalisation of SME platform entities, including those that migrated, stood at ₹4,70,984 crore as of July 31, 2026. Tags Home / Market News / SEBI proposes changes to SME IPO rules, including ₹3 crore profit threshold, OFS norms
Source: CNBC TV18
