SEBI ICDR Chapter IX after the March 2025 amendment
The SEBI (ICDR) (Amendment) Regulations, 2025 tightened the SME route. An issuer now needs an operating profit (EBITDA) of at least ₹1 crore from operations in any two of the three preceding financial years. An offer for sale is capped at 20% of the issue size, and no selling shareholder may sell more than 50% of their pre-issue holding. Money for general corporate purposes cannot exceed 15% of the amount raised by the issuer or ₹10 crore, whichever is lower. The proceeds cannot be used to repay loans taken from promoters, the promoter group or any related party.
Promoters must contribute at least 20% of post-issue capital (MPC), locked in for three years. Holding above the MPC is released in two halves, after one year and after two years. A credit rating agency must monitor use of proceeds where the fresh issue exceeds ₹50 crore. The minimum application is two lots and must be above ₹2 lakh, and the issue fails if there are fewer than 200 allottees. Under Regulation 229, an issuer whose post-issue paid-up capital is up to ₹10 crore must use the SME platform; between ₹10 crore and ₹25 crore it may.
BSE SME criteria
BSE's eligibility criteria (notice 20231124-54) ask for net tangible assets of at least ₹3 crore in the last financial year, net worth of at least ₹1 crore in each of the two preceding years, a three-year track record, positive operating profit (EBITDA) in at least two of the last three years, a leverage (debt-equity) ratio of no more than 3:1, all promoter shares in demat form, no change in promoters in the preceding year, no IBC admission or winding-up, and a functional website. The SEBI ₹1 crore EBITDA test applies on top of BSE's own positive-EBITDA test.
NSE Emerge and the revised FCFE test
NSE Emerge requires operating profit of ₹1 crore in two of the last three years, positive net worth, a three-year track record, promoters holding at least 20% after the issue, and positive free cash flow to equity (FCFE) in at least two of the three preceding years. From 20 April 2026 (circular NSE/SME/73818) FCFE is computed as cash flow from operations − purchase of fixed assets + cash proceeds from issue of capital + net borrowings − interest × (1 − tax rate). Non-cash issues such as bonus shares or loan conversions do not count as equity proceeds.
What this screen does not do
It does not test the qualitative conditions: litigation and defaults of the issuer, promoters and group companies, disciplinary history, outstanding convertible instruments, and each exchange's detailed definitions. The merchant banker's due diligence and the exchange's in-principle approval are what count.
Sources: SEBI (ICDR) (Amendment) Regulations, 2025 (sebi.gov.in, 3 Mar 2025); BSE notice 20231124-54; NSE circular NSE/SME/73818 (nseindia.com). Checked 6 Oct 2026.
Common questions
Is EBITDA here before or after other income?
Use operating profit from operations: earnings before interest, depreciation and tax, excluding other income. The SEBI test speaks of operating profit "from operations", so treasury income or one-off gains should not be counted.
Which years count as the three preceding financial years?
The three completed financial years before the draft offer document is filed, on restated consolidated figures. If you file in, say, October 2026, Y-1 is FY 2025-26.
Does a bonus issue help the NSE FCFE test?
No. Only equity proceeds received in cash, including securities premium, count. Bonus shares, conversion of loans into equity and ESOPs without cash consideration are excluded.
Can we repay bank loans from the IPO proceeds?
Yes, repaying bank or NBFC debt is a permitted object. What is barred is repaying loans taken from promoters, the promoter group or related parties.