Sebi Proposes ₹1,000 Crore Market-Cap Threshold For SME Ipos, Eases Exit Rules

(MENAFN- Live Mint) Mumbai: The Securities and Exchange Board of India (Sebi) has proposed an overhaul of the small and medium enterprise (SME) initial public offering (IPO) framework, including replacing paid-up capital-based eligibility with market capitalisation, lowering lock-in periods for pre-IPO investors and reducing underwriting costs, while retaining safeguards for public investors.

In a consultation paper issued on Wednesday, the regulator proposed that companies with a post-issue market capitalization of up to ₹1,000 crore should list exclusively on the SME platform, while those valued between ₹1,000 crore and ₹4,000 crore could choose the segment, subject to stricter financial reporting requirements, including the adoption of Indian Accounting Standards (Ind AS) where applicable.

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The proposals seek to refine rules for a segment that has grown significantly since its inception. As of 31 July 2026, 1,496 entities had been listed on the SME platform, including companies that subsequently migrated to the main board. SME IPOs had raised a cumulative ₹40,222 crore, while the market capitalisation of listed entities, including those that migrated, stood at ₹4.71 trillion.

Sebi has also proposed raising the minimum average operating profit requirement to ₹3 crore annually over the preceding three financial years, calculated on restated consolidated financial statements, from the existing requirement of ₹1 crore in at least two of the previous three years.

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However, companies that fail to meet the profitability threshold could still access the market through an alternative route. Under the proposal, such issuers would have to use the book-building process and allot at least 75% of the net offer to qualified institutional buyers (QIBs); otherwise, the entire subscription money would have to be refunded.

The regulator has proposed removing the ₹10 crore absolute cap on the use of IPO proceeds for general corporate purposes, while retaining the limit of 15% of the issue size.

The proposed changes also seek to give institutional investors greater flexibility to exit their investments. Sebi has proposed a dedicated framework for offers for sale (OFS), including a one-year holding requirement for shares sold through this route.

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Qualified institutional buyers could be exempted from the existing quantitative limits on OFS, subject to safeguards, although these relaxations would not apply to issues using the alternative route for companies that fail the profitability test.

According to current regulations, OFS by a selling shareholder shall not exceed 20% of the total issue size, and the shares offered through OFS by the selling shareholders shall not exceed 50% of their respective pre-issue shareholding.

The regulator has invited public comments on the consultation paper until 4 November.

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