SEBI has proposed a broad set of changes to how small companies list on the SME platforms of NSE and BSE. In a consultation paper dated October 14, 2026, the regulator suggests a new way of deciding which companies can list there. It also proposes a higher profit requirement and a lower minimum application amount.
These are proposals, not final rules. The current SEBI SME IPO rules stay in force until SEBI amends its regulations and notifies the changes.
This article explains SEBI’s proposed SME IPO rule changes, including eligibility criteria, profit requirements, and minimum application amounts. It also covers how these proposals could affect companies and retail investors.
What Are SME IPOs?
An SME IPO is a public issue of shares by a small or mid-sized company. These companies list on separate platforms, NSE Emerge and BSE SME, instead of the main boards of the exchanges. The SME route has its own eligibility rules, so smaller businesses can raise money from the public without meeting mainboard norms.
For investors, these issues can carry different risks. Shares of SME-listed companies often trade in lower volumes, which can make them harder to buy or sell at a steady price.
Why Is SEBI Proposing Changes to SME IPO Rules?
Today, a company’s eligibility for the SME platform depends mainly on its paid-up capital. This is the amount shareholders have actually paid for the shares issued to them. SEBI says this figure may not reflect a company’s economic size, value or growth potential.
The paper says a study of 735 mainboard and SME IPOs over three financial years showed a significant gap between paid-up capital and market value. Some companies also issued bonus shares to meet the existing limit, which added cost and tax liability.
The paper also describes the segment’s growth. As of July 31, 2026, 1,496 companies were listed on SME platforms, including 365 that later moved to the mainboard. SME IPOs had raised ₹40,222 crore.
On costs, SEBI notes that underwriting fees made up 49.52% of total issue expenses for NSE SME IPOs in FY 2024-25 and 38.41% in FY 2025-26. It also says compulsory market making contributed little to actual trading in many SME stocks.
What Changes Has SEBI Proposed?
Some proposals make it harder for companies to enter. Others reduce costs and widen investor access.
Who could list on the SME platform?
SEBI proposes to replace the paid-up capital test with a test based on a company’s estimated market value after the IPO, calculated at the offer price. Under the proposal:
- Up to ₹1,000 crore: the company would list on the SME platform only.
- Above ₹1,000 crore and up to ₹4,000 crore: the company could choose the SME platform or the mainboard. If it picks SME, it would need restated consolidated financials under Indian Accounting Standards (Ind AS) for the last three years.
- Above ₹4,000 crore: the company would list on the mainboard.
In practice, a company expected to be worth ₹800 crore after its IPO would list on the SME platform. One worth ₹2,500 crore could pick either. These bands are proposed and are not in force today. Currently, a company with post-issue paid-up capital of up to ₹10 crore must use SME. Between ₹10 crore and ₹25 crore, it can choose.
The proposals at a glance
| Area | Existing rule | Proposed change | What it could mean |
| Operating profit | At least ₹1 crore in two of the last three years | Average of at least ₹3 crore a year over three years | A higher bar for companies. The test is an average, not ₹3 crore every year. |
| Alternative route | None for companies that fail the profit test | A company missing the profit test could still list through book-building if qualified institutional buyers (QIBs) take at least 75% of the net offer | Depends on strong institutional demand. If 75% is not reached, all money would be refunded. |
| Minimum application | ₹2 lakh | ₹1 lakh, in four lots of at least ₹25,000 each | Lower entry amount for investors. |
| Minimum allottees | 200 | 500 | Shares spread across more investors. |
| Underwriting | 100% underwriting of the issue | Only the unsubscribed portion to be underwritten, with a 90% minimum subscription; the QIB portion under the alternative route would not be underwritten | Lower costs for companies. |
| Market making | Compulsory for three years after listing | Compulsory requirement to be dropped | Lower costs, but no guaranteed liquidity support. |
| Trading lot after listing | Fixed lots of 100 to 10,000 shares, depending on price | One share | Smaller trades after listing. |
QIBs are large institutional investors such as mutual funds, insurers, and banks. Underwriting means an intermediary agrees to buy shares that the public does not. Market making means a broker keeps buying and selling a stock to maintain trading.
The ₹1 lakh application and the one-share lot are different things
The ₹1 lakh figure is the proposed minimum amount for applying in an IPO. The one-share trading lot applies to buying and selling on the exchange after the shares list. A smaller trading lot does not mean an IPO application can be for one share.
Other proposals cover lock-ins, offers for sale and use of funds. For example, the lock-in on pre-IPO shares held by non-promoters would fall from one year to six months. A lock-in is a period during which shares cannot be sold.
How Could the Proposals Affect Companies Planning an SME IPO?
Companies close to the current thresholds would feel the changes most. A firm with ₹1 crore of operating profit in two of three years can qualify today, but may fall short of a ₹3 crore average.
Such a company could still use the alternative route if institutions take at least 75% of the offer. Under that route, retail investors would get up to 10% of the net offer and non-institutional investors up to 15%.
Costs could fall if the underwriting and market-making changes go through. Companies valued above ₹4,000 crore would have to use the mainboard. Under the proposal, mainboard companies would not be allowed to move down to the SME platform.
What Could Change for Retail Investors?
The lower minimum application is the most direct change. In March 2025, SEBI raised it to ₹2 lakh, citing the higher risks of SME investments for smaller retail investors. The new paper proposes ₹1 lakh and says this would sit within a strengthened regulatory framework.
Retail investors would receive at least one minimum lot, subject to availability, with remaining shares allotted proportionately. In issues using the alternative route, retail investors would be limited to 10% of the offer.
Eligibility rules do not make an IPO a good investment. Investors still need to check the company’s revenue and profit history, its debt, how the IPO money will be used, the valuation, and the promoters’ background. The offer document is the main source for these details.
Will Stricter SME IPO Rules Make These Issues Safer?
A higher profit requirement and a larger base of allottees could screen out some weaker applicants. Institutional demand under the alternative route could act as an extra check.
But eligibility rules cannot remove business risk, overvaluation, or low trading volumes. The proposals also relax some features, such as compulsory market making, so the net effect on investor risk is unclear. The paper does not suggest that SME IPOs will become safer or more profitable.
When Could the New Rules Take Effect?
SEBI has invited public comments until November 4, 2026. After that, SEBI will consider the feedback. The changes take effect only once the ICDR Regulations are amended and notified. No final date has been announced.
As proposed, the new rules would apply to draft offer documents filed three months after notification. During that period, companies could choose between the old and new frameworks. Issues whose final offer document is already filed, and companies already listed on SME platforms, would continue under the existing rules.
Key Takeaway
SEBI proposes to base SME listing on a company’s post-issue market value, raise the profit test to a ₹3 crore average, and cut the minimum application to ₹1 lakh. It also proposes to drop compulsory market making and narrow underwriting. None of this is final, and the proposals do not guarantee safer SME IPOs.
FAQs
What are SME IPOs?
Public issues by small and mid-sized companies, listed on NSE Emerge or BSE SME instead of the mainboard.
Why is SEBI proposing changes to SME IPO rules?
SEBI says paid-up capital does not reflect a company's real size. It also wants to cut issue costs and widen investor participation while keeping safeguards.
What are the major proposed changes?
Eligibility based on post-issue market value, a ₹3 crore average operating profit test, a ₹1 lakh minimum application, 500 minimum allottees, narrower underwriting, and no compulsory market making.
Will the proposed rules affect retail investors?
They could. The minimum application would fall to ₹1 lakh, and trading after listing could be in single shares. Retail shareholding would be capped at 10% in QIB-backed issues.
When could the new rules come into effect?
No date has been announced. Comments close on November 4, 2026, and the rules apply only after SEBI notifies them.
ARN Disclosure: Investik Future is an AMFI-registered Mutual Fund Distributor. ARN-341107 — Verify on AMFI ↗. Komal Thakur is the content author and digital marketer; the ARN registration belongs to Investik Future, not to the author personally.
