The Securities and Exchange Board of India (SEBI) has proposed major changes to the IPO framework for small and medium enterprises (SME). The changes are aimed at widening investor participation, reducing fundraising costs and strengthening investor protection. Through a consultation paper issued on Wednesday, the market regulator proposed changes to listing eligibility, fundraising norms, share allotment, trading liquidity and migration to the main board. The proposals follow reviews by a working group and an advisory committee.
Under the proposed framework, SME listing eligibility would be determined by post-issue market capitalisation instead of paid-up capital. Companies with a post-issue market capitalisation of up to Rs 1,000 crore would have to list on SME platforms. Those valued above Rs 1,000 crore and up to Rs 4,000 crore could choose between SME and main-board listings, subject to additional financial reporting requirements.
SEBI has also proposed raising the average annual operating profit requirement to Rs 3 crore over three years, compared with the existing requirement of Rs 1 crore in at least two of the three years.
Companies that fail to meet the profitability criteria would still be allowed to raise funds through the book-building route, provided at least 75% of the issue is allocated to qualified institutional buyers (QIBs). If this threshold is not met, the entire issue would have to be refunded.
SEBI proposes lower minimum application amount, higher allottee requirement
To make SME IPOs more accessible to investors, SEBI has proposed reducing the minimum application amount to Rs 1 lakh through four lots worth at least Rs 25,000 each.
The regulator has also proposed increasing the minimum number of allottees from 200 to 500. The secondary-market trading lot would be reduced to one share, a move aimed at improving trading flexibility for investors.
In another significant proposal, SEBI plans to remove compulsory market making, the associated inventory requirements and mandatory 100% underwriting of SME IPOs. This would also remove the lead manager’s obligation to underwrite 15% of the issue.
Instead, the main-board underwriting framework and the 90% minimum subscription requirement would apply. However, mandatory QIB allocations under the alternative profitability route would not be eligible for underwriting.
SEBI proposes changes to IPO Fund utilisation, promoter lock-in
The consultation paper also proposes removing the Rs 10 crore ceiling on the portion of IPO proceeds that can be used for general corporate purposes. However, the existing limit of 15% of the issue proceeds would remain in place.
For offer-for-sale (OFS) transactions, SEBI has proposed a dedicated framework that includes a one-year holding requirement and specified exemptions.
The regulator has also proposed changes to lock-in requirements for promoters and pre-IPO shareholders. The minimum promoter contribution would remain locked in for three years from the date of allotment, while excess promoter and promoter-group holdings would have a one-year lock-in period.
Other pre-IPO shareholdings would be subject to a six-month lock-in.
SME listing rules: SEBI proposes ending reverse migration
SEBI has proposed ending reverse migration from the main board to SME platforms. Under the proposed framework, migration to the main board would be optional for eligible companies with a market capitalisation of Rs 1,000 crore to below Rs 4,000 crore. Companies with a market capitalisation above Rs 4,000 crore would have to migrate to the main board, subject to eligibility conditions.
Since their inception, SME platforms have listed 1,496 companies, which have collectively raised Rs 40,222 crore. Of these, 365 companies had migrated to the main board as of July 31, 2026.
The proposed framework would come with a three-month transition period, along with stage-specific grandfathering provisions. SEBI has invited public comments on the proposals until November 4, 2026.