Published: October 16, 2026
StartupFeed Quick Take
- SEBI would judge a company by market value, not share capital: up to Rs 1,000 crore stays on the SME platform, Rs 1,000 crore to Rs 4,000 crore may choose, above Rs 4,000 crore moves to the main board.
- The profit bar rises to an average Rs 3 crore over three years, from Rs 1 crore in two of three years. The minimum application drops to Rs 1 lakh.
- Comments close on November 4, 2026. Nothing changes until SEBI issues final rules.
India’s market regulator SEBI has proposed a wide rewrite of the rules for SME IPOs, with public comments open until November 4, 2026.
The plan sits in a consultation paper the regulator floated on October 14. It builds on a SEBI working group report submitted in August.
Since the SME platform opened in 2012, about 1,496 companies have listed on it. Together they have raised Rs 40,222 crore. Those still listed are worth about Rs 4.7 lakh crore.
What Changes for a Company Planning an SME IPO
SEBI wants to size up a company by its market value, not its share capital. Today a company can use the SME platform only if its post-issue paid-up capital stays within Rs 25 crore. The draft replaces that with market value.
A company worth up to Rs 1,000 crore must list on the SME platform. One worth between Rs 1,000 crore and Rs 4,000 crore may pick the SME platform or the main board. Above Rs 4,000 crore, it must go to the main board.
The profit test also gets harder. Now a firm needs operating profit of at least Rs 1 crore in two of the last three years. The draft asks for an average operating profit of Rs 3 crore across three years, on restated consolidated accounts.
Firms formed by converting a proprietorship, partnership or LLP face a cleaner clock: four full quarters after the change, plus one annual audited account. The same test now covers business reorganisations where more than half the revenue comes from such a former business.
| Rule | Now | Proposed |
|---|---|---|
| Eligibility measure | Post-issue paid-up capital up to Rs 25 crore | Post-issue market value up to Rs 4,000 crore (SME platform up to Rs 1,000 crore) |
| Profit test | Rs 1 crore in two of three years | Rs 3 crore average over three years |
| Minimum application | More than Rs 2 lakh | Rs 1 lakh |
| Minimum allottees | 200 | 500 |
| Trading lot | Price-linked lot | One share |
| Underwriting | 100%, plus 15% by the lead manager | Removed; main board rules apply |
| Market making | Mandatory for three years | Removed |
| Non-promoter lock-in | One year | Six months |
| General corporate spend | 15% or Rs 10 crore, whichever is lower | 15%, no Rs 10 crore cap |
Cheaper Entry and One-Share Trading for Investors
Smaller investors would find SME shares easier to buy and sell. The draft cuts the minimum application to Rs 1 lakh, from more than Rs 2 lakh now. That Rs 2 lakh floor came in during March 2025 to keep small retail buyers out.
The plan would also raise the minimum number of allottees to 500, from 200. After listing, shares could trade in lots of one, in place of the current price-linked lots. The consultation paper says about 5% of shareholders ended up holding odd lots they could not easily sell.
SEBI also wants SME issues to follow the main board’s split: 35% for retail, 15% for non-institutional buyers and up to half for large institutions, with room for anchor investors.
SEBI Moves to Cut the Cost of Listing
SEBI would drop two rules that make an SME IPO costly. Right now every SME issue must be fully underwritten, and the lead manager must underwrite 15% on its own. The draft removes both and applies the lighter main board rules instead. It also scraps the three-year market-making requirement.
The numbers show why. Underwriting made up 49.5% of SME IPO issue costs on the NSE in FY25, the consultation paper says. Market-making fees ran as high as 4.2%.
A minimum subscription of 90% stays, with refunds in four days if an issue falls short. The draft would also lift the Rs 10 crore cap on general corporate spending from IPO money, while keeping the 15% limit.
SEBI chairman Tuhin Kanta Pandey, flagging the review in August, put the cost problem plainly:
“Issues such as market-making were adding to the cost for small company IPOs. A comprehensive review is underway.”
Tuhin Kanta Pandey, chairman, SEBI. From his remarks in Mumbai, August 19, 2026.
What Founders Should Do Before November 4
Any founder weighing an SME listing has three weeks to send views to SEBI. The window closes on November 4. If a company’s value crosses a band while the IPO is on, it must refile under the right framework.
The draft also wants a one-way path to the main board. It would end the option to move from the main board back to the SME platform, and tie the SME-to-main-board move to market value. A board vote alone would be enough, with no shareholder meeting. SMEs already listed when the rules take effect keep the current migration terms.
A company that fails the Rs 3 crore profit test could still list through a book-built route, if at least 75% of the issue goes to large institutions.
What this means for you: If you run a profitable SME weighing a listing, the cost to go public should fall, but the bar to qualify is higher. Check whether your three-year average operating profit clears Rs 3 crore, and send your views to SEBI before November 4.
StartupFeed Insight
The headline change reads like a crackdown, with the profit bar rising to Rs 3 crore. The quieter half is a cost cut that could matter more. SEBI’s own paper shows underwriting and market-making can eat a large slice of what a small issuer raises, and both now go. For a genuinely profitable firm, an SME listing gets cheaper and the ceiling rises to Rs 4,000 crore. For the weakest issuers, the door narrows. Expect the comment window to run hot, and a final set of rules, softened on a few points, by the first quarter of 2027.
By Avinash Mishra, Business Correspondent
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