The National Stock Exchange (NSE) announced tighter regulations for small and medium enterprises (SMEs) aiming to move from its SME platform to the main board. Effective May 1, 2025, the revised guidelines have been introduced in response to increasing concerns over the governance and financial practices of SMEs, following recent scrutiny by the Securities and Exchange Board of India.
The bar is now higher — under the updated rules, SMEs must meet enhanced financial and corporate governance standards. To qualify, a company must have generated over ₹100 crore in operational revenue during the previous financial year and must have posted a positive operating profit in at least two of the past three financial years.
So what is the fine print? And why have the authorities and regulators made this move? Here’s a closer look.
Understanding SME vs Mainboard IPOs
SME boards and mainboards are distinct platforms used to list companies in the capital markets, differentiated mainly by company size and eligibility criteria. Mainboard IPOs are intended for large, well-established companies with higher capital requirements, while SME IPOs cater to smaller, growing businesses with lower entry barriers and more flexible listing norms.
SME IPOs, or Small and Medium Enterprise IPOs, are designed for business operating in the SME sector. These IPOs are listed on specialised exchanges such as the Bombay Stock Exchange’s SME platform, the BSE SME, or the National Stock Exchange’s NSE Emerge. The main purpose of an SME IPO is to enable smaller companies to raise public capital, helping them expand and grow their business and get more market visibility. In contrast, mainboard IPOs are launched by large firms aiming to raise significant capital and provide higher liquidity.
The main distinction lies in the size of the offering, which is significantly larger for mainboard IPOs.
- Scale: SME IPOs typically feature companies with smaller market capitalisations. These businesses are often in early growth stages or operate within niche sectors.
- Regulations: Compared to Mainboard IPOs, SME IPOs are subject to more relaxed regulatory requirements, making it easier for smaller firms to go public.
- Investment size: Investments in SME IPOs are generally lower, reflecting the smaller scale of the companies involved.
- Liquidity: SME stocks tend to have lower liquidity than Mainboard stocks, which can affect trading volumes and price stability.
Other key differences include requirements related to paid-up capital, the minimum number of allottees, scrutiny of the IPO prospectus, underwriting obligations, minimum application size, and market making provisions.
NSE’s previous rules for migration versus new rules
The NSE’s new stringent norms for migration were put in place from May 1, 2025. Here are the key changes in migration criteria.
- Financial performance
Previous requirement: SMEs needed to have positive cash accruals from operations for the last three years and a profit after tax in the immediate preceding financial year.
Revised requirement: Companies must now demonstrate operating profits (EBITDA) in at least two out of the last three financial years.
- Market capitalisation
Previous requirement: No explicit market capitalisation required.
Revised requirement: An average market capitalisation of at least ₹100 crore is now mandatory.
- Revenue threshold
Previous requirement: No specific revenue criteria were stipulated.
Revised requirement: SMEs must have generated revenue from operations exceeding ₹100 crore in the most recent financial year
- Public shareholding
Previous requirement: A minimum of 1,000 public shareholders was required.
Revised requirement: The threshold has been reduced to at least 500 public shareholders as of the application date.
- Promoters’ holding
Previous requirement: No specific mandates on promoter shareholding retention.
Revised requirement: Promoters must collectively hold at least 20% of the company’s equity at the time of application. Additionally, they must retain at least 50% of the shares held at the time of the initial SME listing.
- Listing period
Previous requirement: SMEs had to be listed on the SME platform for a minimum of two years.
Revised requirement: The listing period has been extended to a minimum of three years
- Net worth
The criteria of a minimum net worth of 75 crore rupees remains unchanged.
Protecting investor interests
The NSE’s EMERGE platform and the BSE’s SME exchange have been intentionally kept separate from the main exchanges which have stricter entry requirements. This separation between the SME and the main index is intended to shield retail investors from the higher risks associated with investing in small enterprises that often have unstable financials and uncertain growth prospects.
So what are the reasons for these new, even more stringent entry rules? Simply put, SEBI wants to protect investor interests. The NSE’s new rules ensure that only financially robust and well-governed companies make the shift, thereby boosting investor confidence and enhancing market integrity. These heightened regulations follow recent allegations of funds misappropriation by certain companies, which migrated from BSE’s SME platform to the NSE main board in 2023.
Several SME companies were flagged for alleged misconduct: fictitious transactions, stock manipulation, and fund misappropriation, including diversion of funds to unrelated ventures and personal luxury assets. Since this came to light, regulators barred some company founders from holding key positions and one of the companies now faces insolvency proceedings.
Cases like these highlighted the risks to public shareholders and exposed gaps in the earlier regulatory framework for SME to mainboard migration. Stricter governance criteria will ensure that only SMEs with sound management practices and transparent financials can migrate, reducing the risk of fraudulent behavior. By closing the regulatory loopholes that allowed problematic companies like Gensol to reach the main board, the NSE is working to rebuild investor trust in SME listings and the broader market.
Sources
https://www.iiaonline.in/msmenews.aspx?code=2321
https://www.religareonline.com/blog/understanding-the-differences-sme-ipo-gmp-ipo-and-mainboard-ipo/
https://www.angelone.in/news/sme-migration-to-mainboard-slows-amid-stricter-sebi-regulations