The Securities and Exchange Board of India (SEBI) has proposed a major overhaul of the SME IPO framework, including a lower minimum application value of ₹1 lakh, down from ₹2 lakh. The proposals appear in a consultation paper dated 14 October 2026, and public comments are open until 4 November 2026.
The paper proposes amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. SEBI said the aim is to strengthen the SME IPO framework, improve investor protection and align key requirements with those for main board issues, while keeping safeguards suited to smaller companies.
What SEBI Proposes to Change in the SME IPO Framework
The consultation covers who can list on the SME platform, how investors apply and how shares trade after listing. The table below sets the main existing norms against the proposals.
SME IPO rules: existing framework and SEBI proposal
| Area | Existing framework | SEBI proposal |
|---|---|---|
| Minimum application value | ₹2 lakh | ₹1 lakh, in four lots of at least ₹25,000 |
| Minimum allottees | 200 | 500 |
| Market making | Compulsory for at least three years | Compulsory requirement removed |
| Operating profit test | ₹1 crore in at least two of three years | Average of ₹3 crore a year over three years |
| Trading lot after listing | Based on price band | One share |
None of these changes is in force yet. They remain proposals until SEBI reviews the public comments and issues final rules.
Why a ₹1 Lakh Minimum SME IPO Application Matters
Under the proposal, an investor would apply for at least four lots, with each lot worth at least ₹25,000. Later applications would be made in multiples of the applicable lot size. SEBI said the lower threshold seeks to balance investor protection with meaningful access, because it would operate within a substantially strengthened regulatory framework. It also said the change would spread capital across a wider base of investors.
The minimum number of allottees in an SME public issue would rise from 200 to 500. Retail individual investors would still receive at least one minimum lot, subject to availability, with the remaining shares allotted proportionately.
Shares in an SME IPO are allotted in electronic form, so every applicant needs a demat account. Anyone planning demat account opening ahead of a future SME issue should note that the lower minimum application amount is still only a proposal.
New Market Capitalisation Test for SME Platform Eligibility
SEBI has proposed replacing eligibility based on paid-up capital with thresholds based on market capitalisation. The test applies to the post-issue market capitalisation of the company.
Who Can Use the SME Platform
- A company with a post-issue market capitalisation of up to ₹1,000 crore could access only the SME platform.
- A company with a post-issue market capitalisation above ₹1,000 crore and up to ₹4,000 crore could also access the SME platform.
- If a company files its draft red herring prospectus (DRHP) under the SME framework and its post-issue market capitalisation crosses ₹4,000 crore when the red herring prospectus is filed, it must refile the DRHP under the main board framework.
Voluntary and Mandatory Migration to the Main Board
For companies already listed on the SME platform, SEBI proposes a similar yardstick. Voluntary migration to the main board would be allowed for companies with a market capitalisation of ₹1,000 crore or more but below ₹4,000 crore, subject to the applicable eligibility requirements. Migration would become mandatory for companies whose market capitalisation exceeds ₹4,000 crore, again subject to the relevant conditions.
Tighter Profit Rules and an Alternative Route for Loss-Making Firms
SEBI proposes to raise the profitability bar for SME issuers. The current requirement is operating profit of ₹1 crore in at least two of the three preceding years. The proposal replaces it with an average annual operating profit of ₹3 crore over the preceding three financial years.
A company that does not meet the profit test would not be shut out entirely. It could use a separate book-building route in which at least 75% of the issue is allocated to qualified institutional buyers (QIBs). If that allocation is not achieved, the entire subscription money would have to be refunded.
Lock-in, Offer for Sale and Pricing Changes Proposed
The consultation paper also touches several other parts of the issue process. The main proposals reported so far are listed below.
- The offer for sale (OFS) portion would stay capped at 20% of the total issue size, and shares offered by a selling shareholder would be capped at 50% of their pre-issue holding on a fully diluted basis, with specified exemptions for QIBs.
- The amount used for general corporate purposes would remain capped at 15% of the issue size, while the separate ₹10 crore cap would be removed.
- The three-year lock-in on minimum promoters’ contribution would run from the date of IPO allotment, and specified promoter group holdings would face a separate one-year lock-in.
- For book-built issues, the cap of the price band would have to be at least 105% of the floor price, while the existing upper limit of 120% stays.
- The full-issue underwriting requirement would be removed, and a 90% minimum subscription requirement would be retained for applicable issues.
Trading Lot of One Share and End of Compulsory Market Making
After listing, SEBI proposes a trading lot of one share for SME securities, replacing the price-band-based lot-size framework. The move is expected to improve accessibility and flexibility for investors in the secondary market. Anyone buying or selling SME stocks through a trading account would then be able to deal in single shares rather than larger lots.
SEBI also proposes to abolish compulsory market making, under which a designated intermediary quotes buy and sell prices for a listed SME stock. The requirement does not apply to main board companies. The regulator said the review aims to reduce avoidable regulatory and financial burden on issuers while preserving appropriate investor safeguards.
SME Segment Size and What Happens Next
SEBI noted that the SME platform has changed significantly since the framework was introduced. As on 31 July 2026, 1,496 entities had listed on the SME platform since inception, including entities that later migrated to the main board. Together they raised ₹40,222 crore.
The regulator described the segment as now covering enterprises with a wider range of size, maturity and market profile. That, it said, is why the framework needs a holistic review. Public comments can be submitted until 4 November 2026, after which SEBI will decide which proposals to take forward.
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