SEBI Proposes SME IPO Rules With ₹3 Cr Profit Threshold and ₹1 Lakh Application Size

SEBI released a consultation paper on October 14, 2026, proposing changes to SME IPO rules across eligibility, offer-for-sale norms, lock-ins, underwriting, market making, and migration to the mainboard. The regulator has invited public comments on the proposals until November 4, 2026.

The SME platform has grown sharply since inception. SEBI said 1,496 entities had listed on the platform, including companies that later migrated, with 365 of them having moved to the mainboard. SME platform entities had raised ₹40,222 crore, with combined market capitalisation at ₹4,70,984 crore.

What Changes in SME IPO Eligibility?

The biggest proposed change is the profit test. SEBI has proposed replacing the current requirement of at least ₹1 crore 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 fail the profitability test could still access the SME platform through an alternative route, subject to two conditions:

• Book-building process: the issue must use the book-building process
• QIB allocation: at least 75% of the net offer must be allotted to qualified institutional buyers such as mutual funds, insurers, and banks. If the required allocation is not achieved, the issuer must refund the entire subscription amount

How Market Capitalisation Replaces Paid-Up Capital as the Threshold

SEBI has proposed replacing paid-up capital-based eligibility with post-issue market capitalisation thresholds:

What Changes for Investors: Application Size and Allotment

SEBI also proposed that retail allotment be delinked from multiples of the minimum lot, subject to availability.

How OFS Norms Could Change

SEBI proposed a dedicated framework for offer for sale, where shares offered must carry a one-year holding period subject to specified exemptions. QIB selling shareholders would be exempt from two existing OFS limits: the cap restricting OFS to 20% of issue size and the limit restricting shares sold to 50% of the seller’s pre-issue holding. These exemptions would not apply to IPOs using the alternative QIB-based eligibility route.

Lock-In Structure Under the Proposed Rules

• Minimum promoters’ contribution: the 3-year lock-in would run from the IPO allotment date, removing the current link with commencement of commercial production
• Promoter holdings above the minimum contribution: one-year lock-in
• Non-promoter pre-issue capital: reduced from one year to six months
• Specified promoter-group holdings: separate one-year lock-in

Underwriting and Migration Rules May Move Closer to Mainboard Norms

SEBI proposed removing compulsory market making and the associated inventory requirements for SME-listed shares. The secondary-market trading lot would be reduced to one share, allowing smaller-quantity trades.

On underwriting, the proposal removes the 100% underwriting requirement and the rule that lead managers must underwrite 15% themselves. The mainboard framework would apply instead, requiring full underwriting of any unsubscribed portion.

Final Outlook