SME IPO Eligibility Criteria in India: SEBI and Exchange Rules
Under the SME IPO eligibility rules in India, a company must have operating profit (EBITDA) of at least Rs 1 crore in two of the last three financial years, a three-year track record, and post-issue paid-up capital of no more than Rs 25 crore. These tests, tightened by SEBI in 2025, apply on both NSE Emerge and BSE SME, and each exchange adds criteria of its own.
The rules were tightened after a period of oversubscribed, loosely governed SME issues. For promoters, the effect is a higher entry bar and less room to use the IPO as an exit.
SME IPO Eligibility Criteria Under SEBI
The SEBI (ICDR) (Amendment) Regulations, 2025, applicable to draft offer documents filed on or after 19 December 2024, set the core conditions:
Operating profit (EBITDA) of at least Rs 1 crore in any two of the three preceding financial years.
Post-issue paid-up capital of up to Rs 25 crore; above that, the company belongs on the main board.
Offer for sale capped at 20% of the issue size, with no selling shareholder offering more than 50% of their pre-issue holding.
General corporate purposes limited to 15% of the amount raised or Rs 10 crore, whichever is lower.
Issue proceeds may not be used to repay loans taken from promoters, the promoter group or related parties.
Promoters must also contribute at least 20% of post-issue capital, locked in for three years, with any excess holding released in phases.
NSE Emerge vs BSE SME: Additional Tests
The exchanges add their own filters on top of SEBI's. In broad terms:
NSE Emerge looks for positive net worth and positive free cash flow to equity in at least two of the last three years.
BSE SME looks for net worth of at least Rs 1 crore in the two preceding years and net tangible assets of at least Rs 3 crore.
Both expect a track record of at least three years, a clean regulatory history and fully dematerialised promoter holding.
Exchange criteria are revised more often than the regulations, so the current circular of the chosen exchange is the one to check.
Investor-Side Changes
The minimum application in an SME IPO is now two lots, with the application value set above Rs 2 lakh. This narrows the retail base to investors able to commit a meaningful sum. For the issuer, the practical effect is a smaller but more deliberate investor pool, and greater reliance on the market maker for post-listing liquidity.
What Promoters Should Test Early
Most eligibility failures surface late, when the merchant banker begins diligence. Four areas deserve attention a year or more before filing:
EBITDA consistency: one weak year can knock out the two-of-three test.
Related party balances: loans from promoters cannot be repaid out of proceeds, so they need a separate plan.
Objects of the issue: with general corporate purposes capped, uses must be specific and supportable.
Exit expectations: the 20% offer for sale cap limits how much promoters can sell at listing.
Key Takeaways
The Rs 1 crore EBITDA test in two of three years is now the main gatekeeper.
Post-issue paid-up capital above Rs 25 crore means a main board IPO instead.
The SME route is for raising growth capital, not for a large promoter exit.
Check both SEBI's conditions and the specific exchange's current criteria.
By CA Dhruv Seth, Seth & Associates, Chartered Accountants, Lucknow | dhruv@sethspro.com
This article is for general information and does not constitute audit, legal or tax advice. Regulations change; please verify the current position or speak to a qualified adviser before acting.
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