SEBI Proposes Major SME Listing Overhaul To Widen Investor Participation

India's small and medium enterprise (SME) primary market could be heading for a significant rule change. The Securities and Exchange Board of India (SEBI) is considering widening the eligibility criteria for SME listings and making it easier for smaller investors to trade these shares, according to people familiar with the discussions.

Under the proposal, companies with a market capitalisation of as much as ₹4,000 crore could be allowed to use the SME platforms for their initial public offerings (IPOs). At present, companies valued below roughly ₹500 crore typically use these platforms.

SEBI's Primary Market Advisory Committee discussed the proposed changes on Wednesday. A consultation paper is expected to be released later, after which market participants will have an opportunity to submit their views.

Possible Changes To SME Listing Rules

One of the changes under consideration is an increase in the paid-up capital limit for SME-listed companies to ₹100 crore from ₹25 crore.

If implemented, businesses with valuations between roughly ₹1,000 crore and ₹4,000 crore could potentially have the choice of raising money through an SME platform or opting for a mainboard listing.

That would expand the role of SME exchanges beyond the relatively small businesses that currently dominate the segment.

Minimum Trading Lot May Be Removed

SEBI is also considering doing away with the existing minimum trading requirement.

At present, investors generally have to place bids in multiples of ₹2 lakh, which can make SME shares inaccessible to smaller investors.

Removing the minimum trade-size restriction could allow investors to buy and sell fewer shares at a time, potentially broadening participation in the segment.

Market-Making And Underwriting Rules May Change

The regulator is also looking at two other requirements that have been part of the SME framework.

Currently, market-makers are required to continuously provide buy and sell quotes for SME stocks. While the arrangement is intended to support liquidity, it can increase the cost of getting listed for companies.

Another requirement involves mandatory underwriting of SME IPOs by merchant bankers, who have to absorb the issue if investor demand falls short.

These rules can make SME listings more expensive than mainboard issues. Data from the Prime Database shows that investment banks charged an average of 5.3% of the amount raised on SME IPOs, compared with around 2.2% for mainboard offerings.

SEBI is considering removing both requirements as part of the proposed revamp.

SME IPO Market Has Expanded Rapidly

The possible overhaul comes after a period of rapid expansion in India's SME IPO market.

The dedicated SME platforms were introduced in 2012, and the proposed changes would represent the most significant revision to the framework since then.

The regulator had tightened scrutiny of the segment less than two years ago amid concerns over pricing manipulation and fraudulent practices. Despite that, the market has remained active, with nearly 100 SME listings recorded so far this year, compared with 267 during the whole of 2025.

The proposals are still under discussion and could change before SEBI releases its consultation paper.

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