A S BANKA ADVISORS

If your company is two or three years from an SME IPO, the rules you plan against today may not be the rules you file under. On 14 October 2026, SEBI published a consultation paper proposing a review of the SME IPO provisions in Chapter IX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Comments are open until 4 November 2026. Nothing in the paper is law yet: an IPO filed today follows the current ICDR Regulations. But the proposals change the three questions every SME IPO plan starts with: are we the right size, are we profitable enough, and who can sell and when.

Question 1: Are you the right size for the SME platform?

Today the test is post-issue paid-up capital: up to Rs 10 crore is eligible for an SME IPO, and above Rs 10 crore and up to Rs 25 crore may also use the SME route (Regulation 229(1) and (2)). The paper proposes to test post-issue market capitalisation instead:

The test would be applied again when the Red Herring Prospectus or Prospectus is filed. An issuer in the optional band that chooses the SME platform would have to present restated consolidated financial statements prepared under Ind AS for the last three financial years and any stub period. A paid-up capital number is something you control; a market capitalisation estimate depends on the valuation your bankers expect. If your expected valuation sits near Rs 1,000 crore, plan your financial statements for both outcomes.

Question 2: Are you profitable enough?

Regulation 229(6) today requires operating profit (earnings before interest, depreciation and tax) of Rs 1 crore from operations in at least two of the three previous financial years. The paper proposes an average operating profit of not less than Rs 3 crore a year over the preceding three financial years, calculated on restated consolidated financial statements. A single weak year would count against the average instead of being one of the years you could skip.

For a company that misses the profit test, the paper proposes a new Regulation 229(7) route: the issue must be book built, at least 75% of the net offer must be allotted to Qualified Institutional Buyers, and the entire subscription money is refunded if that is not achieved. The other eligibility conditions in Regulations 229(3) to (5) still apply. This route depends on institutional demand, so it calls for a different investor story from a retail-led SME issue.

If your company was a proprietorship, partnership firm or LLP, the paper proposes four consecutive completed quarters from conversion in place of one full financial year, at least one audited financial statement filed with the Registrar of Companies before the draft offer document, and the same rule for business reorganisations where the issuer earns more than 50% of its revenue from the business taken over.

Question 3: Who can sell, and when?

• Offer for sale: a proposed Regulation 230A would allow only fully paid-up equity shares held for at least one year before the draft offer document is filed to be offered for sale. The current 20% issue-size cap and 50% per-seller cap would not apply to a QIB selling shareholder, except in a Regulation 229(7) issue.
• Promoter lock-in: the minimum promoters’ contribution stays locked in for three years, counted from IPO allotment without the link to commencement of commercial production. Promoter holding above that would be locked in for one year, in place of 50% for two years and 50% for one year. Promoter group holdings: one year.
• Other pre-issue shareholders: six months from allotment, in place of one year.

If you are raising a pre-IPO round, the one-year holding period for offer-for-sale shares would be counted back from the filing of the draft offer document. A share transfer or late round close to filing affects who can sell in the issue.

The issue mechanics

The paper also proposes a minimum application of four lots of Rs 25,000 each (Rs 1 lakh) in place of two lots above Rs 2 lakh, at least 500 allottees in place of 200, a trading lot of one share, removal of 100% underwriting and compulsory market making, and removal of the Rs 10 crore ceiling on general corporate purposes while keeping the 15% ceiling. Migration to the Main Board would be optional at a market capitalisation of Rs 1,000 crore or more but below Rs 4,000 crore, with board approval, and mandatory above Rs 4,000 crore.

When would it apply?

The paper proposes that the revised framework apply mandatorily to draft offer documents filed on or after three months from its notification in the Official Gazette. A draft offer document filed within those three months could follow either framework, and must say which. SEBI has not set a notification date. Issuers already listed on the SME platform on the notification date would keep their existing lock-ins until they expire and stay on the existing migration rules.

What to do this quarter

1. Keep planning on the current rules: the Rs 1 crore EBITDA test in two of three years and the paid-up capital limits.
2. Run both tests: post-issue paid-up capital and an estimated post-issue market capitalisation, and the three-year profit record under the current and the proposed tests.
3. Map every pre-IPO share transfer against a one-year holding period before the draft offer document.
4. If your expected market capitalisation is above Rs 1,000 crore and you want the SME route, start on Ind AS restated consolidated statements.
5. If a proposal affects your plan, comment by 4 November 2026 on SEBI’s public comments page.

For the groundwork that does not change with these proposals, see our SME IPO readiness guide and the SME IPO Readiness Checklist.

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Source: Securities and Exchange Board of India, Consultation Paper on Recommendations pursuant to Review of provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 related to Initial Public Offer by Small and Medium Enterprises, 14 October 2026, sebi.gov.in
Source: Securities and Exchange Board of India, SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, Regulations 229, 230 and 267, sebi.gov.in

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A S Banka Advisors Private Limited. This article is for general information and is not legal advice.