The Securities and Exchange Board of India is tightening the screws on the SME IPO segment. In a consultation paper dated October 14, 2026, the regulator proposed a significant hike in the profitability threshold. Companies must now demonstrate an average annual operating profit of at least ₹3 crore over the preceding three years, up from the current requirement of ₹1 crore in any two of the last three years. This move signals a clear intent to filter out lower-quality issuers from the SME platform.
But the changes go beyond just the bottom line. SEBI is also overhauling how companies access the market based on size. Issuers with a post-issue market capitalisation of up to ₹1,000 crore will be restricted to the SME platform. Those sitting between ₹1,000 crore and ₹4,000 crore can choose the SME route, provided they submit Ind AS-compliant restated consolidated financial statements. Any company crossing the ₹4,000 crore mark at the offer-document stage will be forced to refile under the mainboard framework. It's a structural shift designed to align SME rules more closely with mainboard standards.
The proposal also touches on how existing shareholders can offload their stakes. SEBI wants a dedicated OFS framework, including a one-year holding period for shares offered for sale. However, Qualified Institutional Buyers (QIBs) could be exempted from the current limits that cap OFS at 20% of the issue size. This exemption wouldn't apply if the issuer uses the alternative QIB-based eligibility route. The regulator is also tweaking the minimum application size, reducing it to ₹1 lakh from above ₹2 lakh, with a minimum of four lots of ₹25,000 each.
Lock-in periods are getting shorter, too. The three-year lock-in for minimum promoters’ contribution will now run from the IPO allotment date, decoupling it from the start of commercial production. For promoter holdings above the minimum contribution, the lock-in is standardised at one year. Non-promoter pre-issue capital sees its lock-in cut from one year to six months. SEBI is also proposing to remove compulsory market making, giving secondary market traders more flexibility with a trading lot of just one share.
The data behind these changes is telling. Since inception, 1,496 entities have listed on the SME platform, with 365 migrating to the mainboard. SME IPOs have raised a cumulative ₹40,222 crore, and the total market capitalisation of SME platform entities stood at ₹4,70,984 crore as of July 31, 2026. The regulator is clearly looking to rationalise this framework, ensuring that only companies with a solid financial base make it to the market. Public comments on these proposed amendments are open until November 4, 2026.