SEBI Proposes Comprehensive Overhaul of SME IPO Framework under ICDR Regulations

Securities and Exchange Board of India, Consultation Paper on Review of SME IPO Provisions under SEBI (ICDR) Regulations, 2018, October 14, 2026

What happened: On October 14, 2026, the Securities and Exchange Board of India (“SEBI”) issued a consultation paper proposing changes to the Small and Medium Enterprise Initial Public Offering (“SME IPO”) framework under Chapter IX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations”). The proposals cover eligibility for the SME platform, profitability criteria, application and trading lot sizes, allocation to investors, offer-for-sale limits, underwriting, market making and lock-in requirements. The proposals are open for public comments until November 4, 2026.

The context: SEBI reported that, as of July 31, 2026, 1,496 entities had been listed on the SME platform, including entities that later migrated to the Main Board. These issuers had raised an aggregate ₹40,222 crore, while the platform’s aggregate market capitalisation was ₹4,70,984 crore. SEBI considers that the growth and changing profile of SME issuers warrant a review of whether the existing framework remains proportionate, while retaining safeguards for investor protection and market integrity.

Key proposals: The consultation paper proposes the following changes. These are proposals for consultation and are not, at this stage, amendments to the ICDR Regulations.

• Eligibility based on market capitalisation: The current post-issue paid-up capital thresholds would be replaced by thresholds based on post-issue market capitalisation calculated at the offer price. Issuers with market capitalisation of up to ₹1,000 crore would use the SME framework. Issuers above ₹1,000 crore and up to ₹4,000 crore could also access the SME platform, subject to the proposed conditions. Issuers exceeding ₹4,000 crore would be required to use the Main Board framework.
• Profitability requirement and QIB route: The paper proposes increasing the operating-profit requirement to an average of at least ₹3 crore per year over the preceding three financial years. It also proposes an alternative book-building route for eligible issuers under which at least 75% of the net offer would be allotted to Qualified Institutional Buyers (QIBs).
• Applications, allotment and trading: The minimum application amount is proposed to be reduced to ₹1 lakh, structured as four lots of ₹25,000 each. The minimum number of allottees would increase from 200 to 500. For secondary-market trading, the proposal would replace larger trading lots with a one-share lot.
• General corporate purposes and offer for sale: The proposal would remove the ₹10 crore ceiling on the amount that may be allocated to general corporate purposes while retaining the 15% limit. It would also cap an Offer for Sale (“OFS”) at 20% of the total issue size and limit each selling shareholder’s OFS to 50% of their pre-issue holding, subject to the exemptions described in the consultation paper.
• Underwriting and market making: SEBI proposes removing the mandatory three-year market-making requirement and the existing mandatory 100% underwriting requirement. The proposed framework would provide for a 90% minimum-subscription threshold.
• Lock-in periods: The paper proposes reducing the lock-in period for pre-issue holdings of non-promoters from one year to six months. For promoters, the proposed lock-in for holdings in excess of the minimum promoter contribution would be reduced from two years to one year.

Earlier regulatory stance: The existing SME IPO framework under Chapter IX of the ICDR Regulations uses post-issue paid-up capital to determine eligibility and includes specific requirements relating to underwriting, market making, application and trading lots, and lock-in periods. SEBI’s consultation paper considers replacing or recalibrating several of these requirements in light of the growth and changing characteristics of the SME market. The exact legal position remains governed by the regulations currently in force unless and until amendments are notified.

Why it matters: The proposed market-capitalisation thresholds of ₹1,000 crore and ₹4,000 crore would redefine SME Platform eligibility. Reducing the minimum application amount to ₹1 lakh and trading lot to one share, while increasing minimum allottees from 200 to 500, could broaden investor participation and improve trading flexibility. The proposed ₹3 crore average annual operating-profit threshold, alternative route requiring 75% QIB allotment, and revised OFS limits would reshape issuer eligibility and issue structuring. Removing mandatory market making and 100% underwriting could also reduce certain compliance obligations and issuance costs.

Sources: SEBI Consultation Paper on Recommendations pursuant to Review of provisions of SEBI (ICDR) Regulations, 2018 related to IPO by SMEs (October 14, 2026); Chapter IX, SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018; SEBI Working Group Report on SME Framework (October 2026); CorpLawUpdates SME Regulatory Analysis (October 14, 2026);

Last Updated on 30 October, 2026