{"id":68,"date":"2025-10-06T10:34:53","date_gmt":"2025-10-06T10:34:53","guid":{"rendered":"http:\/\/localhost\/GretexCorporateMain\/blog\/?p=68"},"modified":"2025-10-06T10:34:53","modified_gmt":"2025-10-06T10:34:53","slug":"sebis-new-norms-for-sme-ipos-what-smes-should-know","status":"publish","type":"post","link":"https:\/\/gretexcorporate.com\/blog\/sebis-new-norms-for-sme-ipos-what-smes-should-know\/","title":{"rendered":"SEBI\u2019s New Norms for SME IPOs: What SMEs Should Know"},"content":{"rendered":"\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">The SME (Small and Medium Enterprises) IPO platform in India has been a game-changer for smaller businesses seeking funding. Since its launch in 2008, hundreds of companies have raised capital and grown through public listings. However, the rapid growth has also brought challenges. The Securities and Exchange Board of India (SEBI) is rolling out new rules to protect investors and ensure market integrity. <\/span>From revised profitability criteria to promoter lock-in periods to fund utilization rules, SEBI&#8217;s new norms for SME IPO create a more robust ecosystem for SMEs<span style=\"font-weight: 400;\">.<\/span><\/p>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">Let\u2019s break down the present scenario &amp; understand SME IPO norms, key changes, and their significance in the capital market.<\/span><\/p>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><b>The Rise of SME IPOs in India<\/b><\/h2>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">In 2024, the SME IPO segment saw exceptional growth, with 243 companies listed on NSE Emerge and BSE SME. The momentum continues in 2025, with 28 SME IPOs already listed. This surge highlights the increasing investor interest in SMEs, as numerous offerings have attracted significant subscriptions and delivered impressive listing gains, marking a milestone for the sector\u2019s expansion.<\/span><\/p>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">SEBI&#8217;s recent measures aim to strengthen investor protection and market integrity by addressing key areas such as SME IPOs, insider trading regulations, and merchant banking norms.&nbsp;&nbsp;<\/span><\/p>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><b>Key Changes to SEBI Norms for SME IPOs: A Simplified Explanation<\/b><\/h2>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">SEBI\u2019s new guidelines are designed to strengthen trust in SME IPOs. By addressing common concerns including insider trading and illiquidity, these rules will create a more reliable ecosystem for small businesses and investors. Here&#8217;s a breakdown of the key changes:<\/span><\/p>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" src=\"https:\/\/gretexcorporate.com\/blog\/wp-content\/uploads\/2025\/10\/compliance-functions-min-1024x1024.jpg\" alt=\"\" class=\"wp-image-70\"\/><\/figure>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><b>Key Change 1: Profitability Criteria for SME IPOs<\/b><\/h3>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li><b>Existing Norms<\/b><span style=\"font-weight: 400;\">: The company should be profitable to qualify for an IPO.<\/span><\/li>\n\n\n\n<li><b>New Norms<\/b><span style=\"font-weight: 400;\">: The company can launch an IPO only if it has an operating profit (EBITDA) of \u20b91 crore or more in at least 2 out of the last 3 financial years before filing the DRHP.<\/span><\/li>\n\n\n\n<li>Why It Matters:<span style=\"font-weight: 400;\"> Demonstrates sustainable business operations and reduces risk for investors, leading to increased confidence.<\/span><\/li>\n<\/ul>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><b>Key Change 2: Offer for Sale (OFS) Restrictions<\/b><\/h2>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li><b>Existing Norms: <\/b><span style=\"font-weight: 400;\">No restriction on the offer for sale.<\/span><\/li>\n\n\n\n<li><b>New Norms: <\/b><span style=\"font-weight: 400;\">1. OFS portion is limited to 20% of the issue size.<\/span><span style=\"font-weight: 400;\"> Selling shareholders cannot sell more than 50% of their shareholding.<\/span><\/li>\n\n\n\n<li><b>Why It Matters:<\/b><span style=\"font-weight: 400;\"> It prevents a flood of shares from insiders post-IPO, stabilizes the stock price, and protects public investors.<\/span><\/li>\n<\/ul>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Key Change 3: Promoter Lock-in Period<\/strong><\/h2>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li><b>Existing Norms: <\/b><span style=\"font-weight: 400;\">Minimum promoter contribution (MPC) is locked for 3 years, excess holding, and 1 year post-IPO.<\/span><\/li>\n\n\n\n<li><b>New Norms: <\/b><span style=\"font-weight: 400;\">Phased release of lock-in for promoter holdings more than MPC:&nbsp; <\/span><span style=\"font-weight: 400;\">50% of excess holdings released after 1 year <\/span><span style=\"font-weight: 400;\">Remaining 50% after 2 years <\/span><\/li>\n\n\n\n<li><b style=\"font-size: 1rem;\">Why It Matters:<\/b><span style=\"font-weight: 400;\"> Aligns promoter interests with long-term company performance, fostering trust and encouraging sustainable growth.<\/span><\/li>\n<\/ul>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><b>Key Change 4: Loan Repayment Prohibition<\/b><\/h3>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li><b>Existing Norms: <\/b><span style=\"font-weight: 400;\">No specific provision.<\/span><\/li>\n\n\n\n<li><b>New Norms: <\/b><span style=\"font-weight: 400;\">SME IPO proceeds cannot be used to repay loans taken from promoters, promoter groups, or related parties.<\/span><\/li>\n\n\n\n<li><b>Why It Matters:<\/b><span style=\"font-weight: 400;\"> Ensures IPO funds are used for business expansion and growth, maximizing shareholder value creation.<\/span><\/li>\n<\/ul>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><b>Key Change 5: Allotment Process for Non-Institutional Investors<\/b><\/h3>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li><b>Existing Norms:<\/b><span style=\"font-weight: 400;\"> NII allotment is done on a proportionate basis.<\/span><\/li>\n\n\n\n<li><b>New Norms:<\/b><span style=\"font-weight: 400;\"> NII allocation will now follow the Draw of Lots method, ensuring fairness and transparency like Main Board IPOs.<\/span><\/li>\n\n\n\n<li><b>Why It Matters:<\/b><span style=\"font-weight: 400;\"> Creates a level playing field for NIIs, increasing participation and broadening the investor base.<\/span><\/li>\n<\/ul>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><b>Key Change 6: Related Party Transactions (RPT) Norms<\/b><\/h3>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li><b>Existing Norms:<\/b><span style=\"font-weight: 400;\"> Mainboard norms did not apply.<\/span><\/li>\n\n\n\n<li><b>New Norms: <\/b><span style=\"font-weight: 400;\">Mainboard norms now apply, with RPT considered material if it is 10% of turnover or Rs.50 Cr (whichever is lower).<\/span><\/li>\n\n\n\n<li><b>Why It Matters:<\/b><span style=\"font-weight: 400;\"> Enhances transparency and reduces potential conflicts of interest, promoting better corporate governance.<\/span><\/li>\n<\/ul>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><b>Key Change 7: Cap on General Corporate Purpose (GCP)<\/b><\/h3>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li><b>Existing Norms:<\/b><span style=\"font-weight: 400;\"> Funds allocated for GCP cannot exceed 25% of the total funds raised.<\/span><\/li>\n\n\n\n<li><b>New Norms: <\/b><span style=\"font-weight: 400;\">Funds allocated for GCP cannot exceed 15% of the total funds raised or \u20b910 crore, whichever is lower.<\/span><\/li>\n\n\n\n<li><b>Why It Matters:<\/b><span style=\"font-weight: 400;\"> Directs funds towards core business activities and expansion plans, improving capital efficiency.<\/span><\/li>\n<\/ul>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><b>Key Change 8: Public Review of DRHP<\/b><\/h3>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li><b>Existing Norms:<\/b><span style=\"font-weight: 400;\"> No specific provisions.<\/span><\/li>\n\n\n\n<li><b>New Norms: <\/b><span style=\"font-weight: 400;\">Draft Red Herring Prospectus (DRHP) for SME IPOs must be made available for public comments for 21 days, along with a public announcement in newspapers and a QR code link.<\/span><\/li>\n\n\n\n<li><b>Why It Matters:<\/b><span style=\"font-weight: 400;\"> Encourages informed investment decisions through increased transparency and public scrutiny of the DRHP.<\/span><\/li>\n<\/ul>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><b>What\u2019s Unchanged?<\/b><\/h3>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">The <\/span><b>1-year norm<\/b><span style=\"font-weight: 400;\"> on <\/span><b>NSE Emerge &amp; BSE SME<\/b><span style=\"font-weight: 400;\"> platforms remains in place.<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">There are <\/span><b>no restrictions<\/b><span style=\"font-weight: 400;\"> on issue size.<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">Existing norms concerning financials and disclosures continue to apply.<\/span><\/li>\n<\/ul>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><b>Proposed Additions (Consultation Stage)<\/b><\/h3>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span style=\"font-weight: 400;\">A <\/span><b>cooling-off period<\/b><span style=\"font-weight: 400;\"> of a full financial year for recently converted private limited companies.<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">Minimum issue size proposed at <\/span><b>\u20b910 crores<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n\n\n\n<li><span style=\"font-weight: 400;\">Mandatory <\/span><b>appointment of a monitoring agency<\/b><span style=\"font-weight: 400;\"> to oversee fund utilization.<\/span><\/li>\n<\/ul>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><b>SEBI Streamlined Regulations for Merchant Bankers&nbsp;<\/b><\/h3>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">SEBI has introduced new regulations for merchant bankers, categorizing them based on net worth. SEBI Registered Category 1 Merchant Banker, with a net worth of \u20b950 crore or more, can undertake all SEBI-regulated activities. Category 2 Merchant Banker, with a net worth of \u20b910 crore, faces restrictions, notably excluding equity mainboard issues. merchant bankers must also separate permitted and non-permitted activities, potentially hiving off the latter into a separate legal entity within two years, ensuring greater focus and regulatory compliance.<\/span><\/p>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\"><b>Looking Ahead: A Safer Future for SME IPOs<\/b><\/h3>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">SME platforms have become a preferred route for small businesses to raise capital. The SME platform has immense potential, and SEBI\u2019s reforms are designed to protect this potential while addressing the challenges.&nbsp;<\/span><\/p>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">These changes signal the need to focus on governance and transparency and bring greater trust in the SME market. Together, these reforms pave the way for a more robust and reliable ecosystem for SME IPOs.<\/span><\/p>\n\n\n\n<div style=\"height:64px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><b>Data References:&nbsp;<\/b><\/p>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><a href=\"https:\/\/www.ipoplatform.com\/blogs\/2024-review-record-breaking-year-for-ipos-in-india-and-future-outlook-for-2025\/151\">https:\/\/www.ipoplatform.com\/blogs\/2024-review-record-breaking-year-for-ipos-in-india-and-future-outlook-for-2025\/151<\/a><\/p>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><a href=\"https:\/\/www.ipoplatform.com\/list-of-sme-ipos\">https:\/\/www.ipoplatform.com\/list-of-sme-ipos<\/a><\/p>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><a href=\"https:\/\/www.thehindubusinessline.com\/markets\/sebi-tightens-norms-for-sme-ipos-investment-bankers\/article69001820.ece\">https:\/\/www.thehindubusinessline.com\/markets\/sebi-tightens-norms-for-sme-ipos-investment-bankers\/article69001820.ece<\/a><\/p>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">(Source: Key Amendments Approved in SEBI&#8217;s Board Meeting \u2013 Mumbai, 18th December 2024)<\/span><\/p>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><span style=\"font-weight: 400;\">(Link to the Source: <\/span><a href=\"https:\/\/www.sebi.gov.in\/media-and-notifications\/press-releases\/dec-2024\/sebi-board-meeting_90042.html\"><span style=\"font-weight: 400;\">https:\/\/www.sebi.gov.in\/media-and-notifications\/press-releases\/dec-2024\/sebi-board-meeting_90042.html<\/span><\/a><span style=\"font-weight: 400;\">)<\/span><\/p>\n\n\n\n<div style=\"height:16px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The SME (Small and Medium Enterprises) IPO platform in India has been a game-changer for smaller&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-68","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/gretexcorporate.com\/blog\/wp-json\/wp\/v2\/posts\/68","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gretexcorporate.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gretexcorporate.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gretexcorporate.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gretexcorporate.com\/blog\/wp-json\/wp\/v2\/comments?post=68"}],"version-history":[{"count":0,"href":"https:\/\/gretexcorporate.com\/blog\/wp-json\/wp\/v2\/posts\/68\/revisions"}],"wp:attachment":[{"href":"https:\/\/gretexcorporate.com\/blog\/wp-json\/wp\/v2\/media?parent=68"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gretexcorporate.com\/blog\/wp-json\/wp\/v2\/categories?post=68"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gretexcorporate.com\/blog\/wp-json\/wp\/v2\/tags?post=68"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}