India’s markets regulator has proposed replacing paid-up capital tests with market-capitalisation thresholds, cutting the minimum application size and easing offer-for-sale rules as it seeks to reshape the SME listing market.
India’s markets regulator has put forward a sweeping rewrite of the rules governing small and medium enterprise initial public offerings, in a move aimed at making fundraising cheaper, widening participation and bringing some SME-market standards closer to those used on the main board. According to a consultation paper issued on Wednesday, the Securities and Exchange Board of India wants to replace paid-up capital tests with market-capitalisation thresholds, lower the minimum application size to ₹1 lakh and ease rules on offers for sale by institutional investors.
Under the proposed framework, companies with post-issue market capitalisation of up to ₹1,000 crore would be required to list on the SME platform. Businesses valued above that level, but up to ₹4,000 crore, could still choose the SME route, although they would need to prepare restated consolidated financial statements under Indian Accounting Standards if they have not already done so. Moneycontrol said the changes are part of a wider overhaul of the SME IPO regime, while NDTV Profit reported that the higher valuation band would remain optional, subject to additional conditions.
Sebi is also proposing tougher profitability rules in one area and more flexibility in another. The regulator wants to raise the minimum average operating profit requirement to ₹3 crore a year over the past three financial years, replacing the current test that asks for operating profit of at least ₹1 crore in two of the previous three years. At the same time, established companies that do not meet that profitability hurdle would still be allowed to come to market through the book-building process if at least 75% of the net offer is allotted to qualified institutional buyers. If that allocation is not achieved, the issue would fail and all application money would be returned.
For retail investors, the most visible change would be a smaller entry ticket. Sebi wants to cut the minimum application value from ₹2 lakh to ₹1 lakh, with each lot set at ₹25,000 so that an applicant would need to bid for at least four lots. The trading lot for SME-listed shares would also be reduced to one share, which the regulator says would give investors more flexibility once the stock begins trading. Business Standard and Abhipra both said the revisions are meant to lower barriers to participation while keeping the segment accessible to smaller investors.
The consultation paper also takes aim at costs and lock-in restrictions that issuers have long complained about. Sebi wants a dedicated framework for offers for sale, including a one-year holding requirement for shares being sold, though some exemptions would apply. Qualified institutional buyers selling in the offer could be exempted from limits that currently cap the OFS portion at 20% of the issue and restrict sales to half of pre-issue holdings. The regulator is also proposing to loosen promoter lock-in rules, shorten the lock-up for pre-issue non-promoter shares to six months and simplify the treatment of promoter-group holdings.
Other changes include removing the ₹10 crore absolute cap on general corporate purposes while keeping the existing 15% ceiling on issue proceeds for that use, and revisiting underwriting and compulsory market-making rules. Sebi data show the SME platform has raised ₹40,222 crore since inception, with 365 companies moving on to the main board as of 31 July 2026. The regulator has asked for comments on the proposals by 4 November, signalling that the overhaul is still at the consultation stage but already marks one of its most significant efforts yet to reshape the SME listing market.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
