Recent Changes in SME IPO Rules – 2025
CS Neeraj Jain
Mr Neeraj Jain is the Partner of Expert Global Consultants Private Limited
A SEBI Registered Category -1 Merchant Banker
operating out of New Delhi and providing Pan India Services
Introduction:
An SME IPO allows smaller businesses to raise capital by listing on platforms such as BSE SME and NSE Emerge under SEBI regulations. On July 1, 2025, NSE and BSE implemented revised SME IPO rules introduced between late 2024 and mid-2025. These changes aim to boost transparency and financial discipline by tightening eligibility criteria, capping offer-for-sale limits, updating promoter lock-in norms, and standardizing the bidding process to ensure that only strong, compliant SMEs access the public market.
Purpose of SME IPO:
These revisions intend to:
- Increase openness and investor confidence in SMEs’ first public offerings (IPOs).
- Ensure that SMEs follow stronger corporate governance norms.
- Support the long-term growth of SMEs in the capital markets.
- These reforms demonstrate SEBI’s commitment to building a stronger framework that promotes investor safety while allowing SMEs to better access public capital markets.
Under the new criteria, the minimum application size is now two lots worth more than Rs 2 lakh, replacing the previous lower requirements that allowed for smaller retail investments. This applies to all categories. Similarly, the cut-off price option has been removed, as this can cancel or adjust bids downward, resulting in increased pricing discipline.
Aside from that, bidding for SME IPOs will close at 4:00 pm on the final day, with UPI mandate confirmations due by 5:00 pm, tightening the process. The listing requirements mandate that SMEs have a minimum EBITDA of Rs 1 crore for two of the previous three years, limiting the offer-for-sale to 20% of the issue size and capping general corporate purpose funds to 15% of the issue, or Rs 10 crore.
Current Patterns and 2025 SEBI Amendments:
To further expedite the SME IPO procedure in India, SEBI has implemented several improvements as of 2025:
- Streamlined disclosure requirements for companies with sound financial records.
- The reforms include integration with the online SCORES platform to expedite the resolution of investor grievances, as well as incentives for women-led and green-tech SMEs to list.
- For the convenience of retail investors, the IPO application procedure is digital.
Key changes:
1. Eligibility Criteria for SME IPO under SEBI guidelines: To file for an SME IPO in India, a company must meet the following SEBI-specified SME IPO criteria:
a. The post-issue paid-up capital shall not be more than Rs. 25 crores.
b. Track Record: The company must have been in operation for at least three years.
c. Net worth and tangible assets:
- A net worth of at least Rs 1.5 crore.
- Tangible assets totaling Rs 3 crore, with at least 50% held in India.
Profitability:
d. Positive cash accruals from activities for at least two out of the three previous fiscal years.
e. Positive net worth.
f. Dematerialization: The promoters’ whole stake must be dematerialized.
g. No Default: There have been no defaults in loan repayment to banks or NBFCs throughout the last three years.
2. SEBI Filing and Listing process:
a. Merchant Banker Appointment: The issuer is required by SEBI to choose a Merchant Banker who is registered with SEBI as the lead manager.
b. Due Diligence and Draft Prospectus:
- The merchant banker creates the draft prospectus and performs due diligence.
- According to SEBI standards for SME IPOs, the draft prospectus is submitted to the exchange, not SEBI, for assessment.
3. In-Principal Approval: Following review of the prospectus and compliance materials, the Exchange issues in-principal approval.
4. Allotment and Public Offer:
a. The public is allowed to purchase shares.
b. A minimum of Rs. 1 lakh must be applied for.
c. The book-building or fixed-price methods are used for allocation.
5. Listing and Trading: The shares are listed on the NSE or BSE SME Platform upon the completion of allocation.
6. Lock-in Times and Contributions from Promoters:
a. Promoter’s Contribution: Promoters are required to provide at least 20% of the post-issue capital.
b. Lock-in Period: According to SEBI standards for SME IPOs, the promoter’s contribution is locked in for at least three years after the date of allotment.
7. Market-Making Conditions: According to SEBI SME IPO regulations, market-making must continue for at least three years after the date of listing to maintain liquidity and price stability. The Maker of the Market:
a. Offers quotes in both directions.
b. Ensures that the stock has liquidity.
c. Unable to contain more than 5% of the issue size at once.
8. Migration to Mainboard: Businesses may move to the mainboard following a successful listing and performance on the SME platform, provided they meet the following requirements:
a. A minimum of Rs. 10 crores in paid-up capital.
b. Listing for a minimum of three years on the SME Platform.
c. According to the SEBI SME IPO migration criteria, shareholder permission must be obtained by a special resolution.
SMEs’ Obstacles in the Face of SEBI Guidelines:
Even though the SEBI guidelines for SME IPO have made the process easier, SMEs still must deal with issues like:
- High listing and compliance expenses.
- Meeting market-making commitments is difficult.
- Little awareness among investors.
- Pressures on valuation throughout the IPO phase.
Advantages of SME IPO for Indian Businesses:
- SME IPOs offer Indian businesses access to growth capital, allowing for long-term investment without increasing debt burden.
- Brand Visibility: A public listing improves the company’s reputation and stakeholder trust.
- Valuation Benchmark: Determines a realistic market valuation.
- Exit Route: Provides an exit opportunity for promoters and early investors.
- M&A Opportunities: Increases the appeal of mergers and acquisitions.
Conclusion:
Indian entrepreneurs and MSMEs now have a new path to growth thanks to SEBI’s SME IPO rules. It is anticipated that the SME IPO market will expand quickly in 2025 due to changing rules, investor involvement, and digital-first reforms. SMEs must, however, carefully prepare to satisfy eligibility requirements and inspire investor trust. An SME IPO may be the first step toward long-term success for Indian business owners looking for scalability.
For any clarifications or queries, please feel free to reach out to us at admin@fintracadvisors.com
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