SEBI Proposes Market-Cap Eligibility and ₹1 Lakh SME IPO Applications

Summary: The Securities and Exchange Board of India has issued a consultation paper dated 14 October 2026 proposing a comprehensive review of SME IPO provisions under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. It proposes replacing paid-up capital eligibility with post-issue market capitalisation: issuers valued up to ₹1,000 crore would access only the SME platform, while those above ₹1,000 crore and up to ₹4,000 crore could optionally use it, subject to Ind AS financial reporting requirements. Other proposals include an average operating profit threshold of ₹3 crore annually over the preceding three financial years and an alternative book-built route for issuers failing that profitability test, requiring at least 75% allotment to qualified institutional buyers while retaining other eligibility safeguards. The paper also proposes four completed financial quarters following conversion or qualifying business reorganisation, relaxation of the absolute ceiling on general corporate purpose expenditure, and revised offer-for-sale and lock-in provisions. Subsequent internal deliberations propose a ₹1 lakh minimum application comprising four lots of at least ₹25,000 each. Further proposals include increasing minimum allottees from 200 to 500, permitting one-share trading lots, rationalising underwriting, introducing a 90% minimum subscription requirement and removing compulsory market making. Migration would be linked to market capitalisation, with optional and mandatory migration thresholds and transitional arrangements. These are consultation proposals, rather than notified amendments. Comments with supporting rationale may be submitted by 4 November 2026.

Securities and Exchange Board of India

Consultation Paper on Recommendations pursuant to Review of provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 related to Initial Public Offer by Small and Medium Enterprises

SEBI- Oct 14, 2026 | Reports : Reports for Public Comments

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1. Objective

The objective of this consultation paper is to seek comments / views / suggestions from the public and other stakeholders on the recommendations pursuant to review of provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (SEBI ICDR Regulations or ICDR Regulations) related to Initial Public Offer (IPO) by Small and Medium Enterprises (SME).

2. Background

Over time, the SME segment has evolved significantly, with a substantial increase in the number of issuers accessing the platform, funds raised through SME IPOs and the number of investors participating in such issues. In view of these developments, SEBI constituted a Working Group for review of the provisions relating to IPOs by SMEs under the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (Working Group), with the objective of undertaking a comprehensive review of the existing SME framework, including its eligibility criteria, issue and allocation framework, trading and market-making arrangements, migration framework and other related provisions. The Working Group held deliberations on various aspects of the framework and submitted its recommendations to SEBI. The Report of the Working Group, containing its detailed recommendations and rationale, may be accessed at :-

https://www.sebi.gov.in/sebidata/commondocs/oct- 2026/WG%20Report%20for%20Review%20of%20SME%20Provisionsp.pdf

The recommendations of the Working Group were thereafter placed before the Primary Market Advisory Committee (PMAC) for its consideration and deliberation. Pursuant to the deliberations of the Working Group and PMAC, subsequent internal deliberations were undertaken by SEBI and certain aspects of the recommendations were further considered and refined. Accordingly, the proposals set out in this Consultation Paper reflect the Working Group recommendations, PMAC deliberations and subsequent internal deliberations.

3. Listing on SME Platform – At a Glance

The SME Platform has emerged as an important avenue for SMEs to access the public capital market.

*Data as on July 31, 2026

*Source :- NSE and BSE

The above data demonstrates that the SME Platform has evolved materially from its initial role as a limited fund-raising avenue for smaller enterprises and has developed into a significant segment of the Indian primary and secondary capital markets. The increasing scale of the segment, together with the growing diversity in the size, maturity and market valuation of entities listed on SME Platforms, provides an appropriate basis for examining whether the existing regulatory framework continues to remain proportionate and fit for purpose.

4. Need for Review of the Framework

The SME regulatory framework was designed with the objective of providing smaller enterprises access to public capital while incorporating safeguards commensurate with the relatively smaller size, scale and investor base of such issuers. However, the SME Platform has undergone significant evolution since the framework was introduced. The increase in the number of issuers, capital raised, investor participation, market capitalization and migration of entities listed on SME Platform to the Main Board indicates that the segment now encompasses enterprises with a wider range of size, maturity and market profile.

In this context, certain provisions of the existing SME regulatory framework may warrant reconsideration from the perspective of proportionality, ease of compliance, cost of fund raising, investor participation and consistency with the Main Board framework. Certain SME Platform specific requirements, including those relating to minimum application and allotment, trading lots, underwriting, compulsory market making, migration and other issue-related requirements, may have acquired different relevance in light of the evolution of the market. At the same time, the review also needs to recognize that issuers accessing SME Platform may continue to have characteristics that distinguish them from issuers accessing Main Board and, therefore, requirements necessary for investor protection and orderly functioning of the SME Platform may need to be retained.

Accordingly, the present review seeks to examine the SME regulatory framework holistically, with the objective of creating a regulatory architecture that is proportionate to the nature and scale of issuers accessing SME Platform, facilitates wider access to and participation in the capital market, reduces avoidable regulatory and financial burden, and at the same time preserves appropriate safeguards for investors. The proposals set out in the subsequent sections accordingly seek to rationalise SME Platform specific requirements where warranted, align provisions with the Main Board framework where the underlying regulatory objective is similar, and introduce greater flexibility where the existing framework may impose unnecessary constraints, while retaining requirements that are considered necessary from the perspective of investor protection and market integrity.

5. Proposals

5.1. Review of Eligibility Framework

5.1.1. Shift from Post-Issue Paid-up Capital to Post-Issue Market Capitalization

5.1.1.1. Existing Provision

Regulation 229(1) and Regulation 229(2) of the ICDR Regulations presently provides for eligibility to access the SME Platform based on the post-issue paid-up capital of the issuer. An issuer having post-issue paid-up capital of up to ₹10 crore is eligible to make an IPO under the SME framework, while an issuer having post-issue paid-up capital of more than ₹10 crore and up to ₹25 crore may also issue specified securities in accordance with Chapter IX of the ICDR Regulations.

5.1.1.2. Need for Review

The paid-up capital represents the nominal share capital of an issuer and may not adequately reflect the economic size, scale, valuation or growth potential of an enterprise. An analysis of 735 Main Board and SME IPOs undertaken during the last three financial years, where the paid-up capital at the time of IPO was more than ₹10 crore, also indicated a significant disconnect between paid-up capital and market capitalization whereby issuers with relatively low paid-up capital could have substantially higher market capitalization.

Consequently, an issuer may have post-issue paid-up capital exceeding the prescribed SME threshold and be mandatorily required to access the Main Board, even though its business operations, financial scale and overall enterprise size may be more appropriately suited to the SME Platform. Further, reliance on paid-up capital may, in certain cases, require Mainboard issuers to undertake capital restructuring, including bonus issuance through capitalization of reserves, solely to meet the prescribed paid-up capital threshold. Such restructuring may entail additional costs, taxation implications and compliance requirements, without necessarily representing any corresponding increase in the underlying economic size or scale of the enterprise.

5.1.1.3. Recommendation of the Working Group

5.1.1.3.1. An issuer having post issue market capitalization up to ₹1,000 crore shall be required to access only SME Platform;

5.1.1.3.2. An issuer having post issue market capitalization above ₹1,000 crore and up to ₹4,000 crore may also access SME Platform.

5.1.1.3.3. Eligibility determined at the stage of filing of the Pre-filed draft offer document draft offer document, as the case may be, should remain subject to the post issue market capitalization applicable at the subsequent stage of filing the Red Herring Prospectus in case of book-built issue or Prospectus in case of fixed price issue. Accordingly, where an issuer has initially filed a Pre-filed Draft Red Herring Prospectus/ Draft Red Herring Prospectus (“DRHP”) for a Main Board IPO but, at the stage of filing the Red Herring Prospectus in case of book-built issue or Prospectus in case of fixed price issue, its estimated post issue market Capitalization falls to ₹1,000 crore or below, the issuer would be required to re-file the draft offer document under the SME framework.

5.1.1.3.4. Conversely, where an issuer has initially filed its DRHP under the SME framework and its estimated post-issue market Capitalization subsequently exceeds ₹1,000 crore at the stage of filing the Red Herring Prospectus in case of book-built issue or Prospectus in case of fixed price issue, the issuer may continue to proceed under the SME framework, subject to upper threshold of ₹4,000 crore

5.1.1.3.5. However, where an issuer has initially filed its DRHP under the SME framework and its post-issue market capitalization subsequently exceeds ₹4,000 crore at the stage of filing the Red Herring Prospectus in case of book-built issue or Prospectus in case of fixed price issue, the issuer would be required to re-file the Pre-filed DRHP/ DRHP under the Mainboard IPO Framework.

5.1.1.4. Rationale

The proposed shift seeks to ensure that the eligibility framework is based on a parameter that more closely reflects the economic scale and market value of an enterprise, rather than its nominal capital structure.

Market capitalization reflects the value attributed by investors to an enterprise and, accordingly, captures differences in scale and valuation even where enterprises may have similar levels of paid-up capital. This is particularly relevant for enterprises operating under capital-efficient or asset-light business models, where substantial economic value and growth potential may not be accompanied by a proportionate increase in paid-up capital.

The Working Group further analysed the market capitalization of entities presently listed on the SME Platform based on prevailing market prices. The analysis indicated that while a substantial proportion of SME-listed entities have market capitalization below ₹1,000 crore, there is also a meaningful segment which has attained higher market capitalization. Accordingly, ₹1,000 crore was considered an appropriate principal benchmark, with a flexibility band extending up to ₹4,000 crore.

5.1.1.5. PMAC Recommendation

The recommendation of the Working Group was deliberated upon by PMAC. It is proposed to accept these recommendations.

5.1.1.6. Subsequent Internal Deliberation

It is proposed to accept recommendations of the Working Group at 5.1.1.3 above subject to below discussions.

The matter was further considered internally in relation to issuers having post-issue market capitalization exceeding ₹1,000 crore and up to ₹4,000 crore which would optionally opt for listing on the SME Platform.

It was considered that, given the relatively higher size of such issuers, such issuers should be subject to enhanced financial reporting requirements. Accordingly, it is proposed that where such an issuer has not already adopted Ind AS, it shall be required to adopt Ind AS and its restated consolidated financial statements included in the draft offer document or offer document shall be prepared in accordance with Ind AS.

Rationale :- The additional Ind AS requirement is intended to ensure greater comparability, consistency and quality of financial information in respect of relatively larger issuers which voluntarily opt for the SME Platform. The requirement is proposed to be limited to issuers falling within the optional ₹1,000 crore–₹4,000 crore band, thereby maintaining a proportionate framework for other SME issuers while prescribing enhanced financial reporting requirements for relatively larger issuers.

Therefore, an issuer having post-issue market capitalization above ₹1,000 crore and up to ₹4,000 crore may also access the SME Platform. However, such issuer shall be required to present its restated consolidated financial statements prepared in accordance with Ind AS for the last three financial years and the stub period, if any

5.1.1.7. Proposed Amendments to the SEBI ICDR Regulations

5.1.1.8. Questions for Public Comments

“1A. Do you agree with the proposal to replace the existing post-issue paid-up capital-based eligibility criterion with a post-issue market capitalization-based framework for determining the eligibility of an issuer to access the SME Platform? Please provide your comments with supporting rationale.

1B. Do you agree with prescribing ₹1,000 crore as the threshold, such that an issuer having post-issue market capitalization up to ₹1,000 crore shall be required to access only the SME Platform? Please provide your comments with supporting rationale.

1C. Do you agree with the proposal to permit an issuer having post-issue market capitalization above ₹1,000 crore and up to ₹4,000 crore to optionally access the SME Platform, subject to the requirement to present its restated consolidated financial statements prepared in accordance with Ind AS if any? Please provide your comments with supporting rationale.

1D. Do you agree with the proposal that where an issuer has initially filed a DRHP/Pre-filed DRHP for a Main Board IPO, but its estimated post-issue market capitalization calculated at the offer price falls to ₹1,000 crore or below at the stage of filing the Red Herring Prospectus in case of book-building issue or prospectus in case of fixed price issue, the issuer should be required to re-file the draft offer document under the SME framework? Please provide your comments with supporting rationale.

1E. Do you agree with the proposal that where an issuer has initially filed its DRHP under the SME framework and its estimated post-issue market capitalization subsequently exceeds ₹1,000 crore at the stage of filing the Red Herring Prospectus in case of book-building issue or prospectus in case of fixed price issue, the issuer may continue under the SME framework, subject to the upper threshold of ₹4,000 crore

1F. Do you agree with the proposal that where an issuer has initially filed its DRHP under the SME framework and its post-issue market capitalization subsequently exceeds ₹4,000 crore at the stage of filing the Red Herring Prospectus in case of book-building issue or prospectus in case of fixed price issue, the issuer would be required to re-file the Pre-filed DRHP or DRHP under the Mainboard IPO Framework? Please provide your comments with supporting rationale.”

5.1.2. Requirement Following Conversion or Business Reorganization

5.1.2.1. Existing Provision

Regulation 229(4) of the ICDR Regulations prescribes certain conditions for an issuer which has been formed through conversion from a proprietorship concern or partnership firm or LLP, including requirements relating to the period of existence of the issuer following such conversion and the financial track record to be demonstrated by the issuer.

The existing provision is primarily framed around conversion of an existing business into a company and requires the issuer to have completed at least one full financial year after such conversion before accessing the SME Platform.

5.1.2.2. Need for Review

The requirement of completion of one full financial year may result in materially different effective waiting periods depending upon the date of conversion. For instance, an issuer converted on April 1 may become eligible after approximately 12 months, whereas an issuer converted immediately thereafter may effectively have to wait for almost 24 months. Such variation may not necessarily be commensurate with the underlying objective of ensuring a reasonable period of operations in corporate form.

Further, the existing provision is primarily linked to statutory conversion and may not cover situations where substantially similar economic outcomes are achieved through other forms of business reorganization. An issuer may, for instance, acquire, transfer or otherwise take over a business previously carried on by a proprietorship concern, partnership firm or LLP and subsequently derive a significant portion of its revenue from such business. This may result in similarly placed business reorganizations being subject to different regulatory treatment depending upon the legal form through which the reorganization is undertaken.

5.1.2.3. Recommendations of the Working Group

5.1.2.3.1. Replace the existing requirement of completion of one full financial year with four consecutive completed quarters from the date of conversion or from the latest effective date of the qualifying business reorganization, as applicable;

5.1.2.3.2. Require such issuer to have filed at least one annual audited financial statement or part thereof prepared after the conversion or business reorganization with the Registrar of Companies, in accordance with The Companies Act, 2013, before filing the Draft Offer Document;

5.1.2.3.3. Extend the applicability of the provision beyond statutory conversion to cases where, pursuant to a business reorganization, one or more businesses previously carried on by a proprietorship concern, partnership firm or limited liability partnership are carried on by the issuer, where the issuer derives more than fifty per cent of its revenue, as disclosed for the latest financial year in the Draft Offer Document, from such business or businesses.

5.1.2.3.4. Introduce an appropriate clarificatory Explanation defining “business reorganization”, i.e. “business reorganization” includes acquisition, transfer, vesting, succession, a scheme of arrangement or any other arrangement whereby one or more businesses previously carried on by a proprietorship concern, partnership firm or limited liability partnership are carried on by the issuer.”;

5.1.2.3.5. Permit the historical operating track record of the proprietorship concern, partnership firm or LLP to be reckoned for determining compliance with the eligibility requirements under Chapter IX in cases covered by the provision.

5.1.2.4. Rationale

The proposed framework retains the investor-protection objective of Regulation 229(4), while providing a more uniform and certain seasoning requirement. Replacing one full financial year with four consecutive completed quarters would ensure a consistent period of operation in corporate form, irrespective of the date of conversion or business reorganisation.

Extending the provision to qualifying business reorganisations would ensure consistent treatment of substantially similar transactions and address potential regulatory arbitrage. The 50% revenue threshold would ensure that the provision applies where the reorganised business constitutes a substantial part of the issuer’s operations.

The requirement for post-reorganisation audited financial information, while permitting the historical operating track record of the predecessor business to be reckoned, would balance investor protection with recognition of the continuity of the underlying business.

5.1.2.5. PMAC Recommendation

The recommendation of the Working Group was deliberated upon by PMAC. It is proposed to accept these recommendations.