India plans bigger institutional role in public offers by small firms, sources say

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India's markets regulator, the Securities and Exchange Board of India (SEBI), is considering a significant shift in how small and medium enterprises (SMEs) raise money through public offers. According to people familiar with the discussions, SEBI is examining whether to extend some of the rules currently applicable to large-company IPOs to the SME segment as well.


At the centre of the proposed changes is a new allocation structure for institutional participation. Under the plan being discussed, up to 50% of an SME's public issue could be reserved for Qualified Institutional Buyers (QIBs), with 35% set aside for retail investors and 15% for non-institutional investors — a structure that mirrors the allocation norms already followed by mainboard companies. Within the institutional portion, as much as 60% could be earmarked for anchor investors, who commit capital ahead of the issue opening to the wider market.


The regulator is also said to be reviewing the eligibility criteria for companies wanting to list on SME-dedicated platforms of the BSE and NSE. One proposal under discussion would raise the minimum average operating profit requirement to ₹3 crore over the preceding three years, compared to the current framework. Currently, businesses with paid-up capital of up to ₹100 crore can access these SME platforms, which carry fewer disclosure requirements and are vetted directly by the exchanges rather than by SEBI, unlike mainboard IPOs.


These proposed changes follow growing regulatory concern around two issues: instances of small businesses diverting funds raised from public markets for purposes other than those stated in offer documents, and an ongoing investigation into investment banks allegedly charging unusually high fees while inflating subscription figures for SME issues. SEBI Chairman Tuhin Kanta Pandey had earlier this month indicated that the rules governing the SME listing platform were under review.


If implemented, these changes would mark one of the most substantial recalibrations of India's SME IPO framework in recent years, bringing greater institutional scrutiny and higher entry thresholds to a segment that has otherwise been known for its lighter compliance burden.


Key Highlights

• SEBI may introduce an institutional investor quota of up to 50% for SME public issues, aligned with mainboard IPO norms.
  
  

• Proposed allocation: 50% QIB, 35% retail, 15% non-institutional investors.
  
  

• Up to 60% of the QIB portion could be reserved for anchor investors.
  
  

• SEBI is reviewing higher profitability thresholds for companies seeking to list on SME platforms.
  
  

• The proposed changes follow concerns over fund diversion by SME issuers and scrutiny of high fees charged by some investment banks.
  
  

• Discussions are at a preliminary stage; SEBI has not issued a formal consultation paper or official confirmation yet.
  
  

Conclusion

For SME promoters and founders, this development signals that the listing landscape for smaller companies may soon demand greater financial discipline, stronger governance, and more robust documentation than before. A larger institutional quota can bring credibility and pricing discipline to an SME issue, but it also raises the bar for the quality of disclosures, financial track record, and overall rating and risk profile that a company must demonstrate to attract serious institutional interest. Businesses considering a public offer in the coming years would do well to start strengthening their financial reporting, corporate governance, and rating readiness well in advance of any formal listing plans.


Disclaimer

This content is based on media reports citing sources with knowledge of internal regulatory discussions and reflects proposals that have not been formally confirmed or notified by SEBI as of this writing. It is intended for general informational and educational purposes only and does not constitute investment, legal, or financial advice. Readers are advised to refer to official SEBI circulars and consult qualified professionals before making any business or investment decisions. FinMen Advisors Private Limited is an advisory firm and is not a SEBI-registered credit rating agency; it does not issue credit ratings or guarantee any rating, funding, or listing outcomes.


Source: Reuters, "India plans bigger institutional role in public offers by small firms, sources say," August 28, 2026.