In a significant development aimed at streamlining and standardizing the SME IPO process, the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) have announced a new bidding mechanism for Small and Medium Enterprises (SME) IPOs. These revised guidelines will come into force from July 1, 2025, with a dual-system transition period lasting until July 11, 2025, for IPOs that open on or before June 30, 2025.

This move is expected to enhance transparency, improve investor classification, and bring the SME IPO bidding process closer to that of the mainboard IPO system, but with key distinctions designed to match the SME context.

Key Highlights of the New SME IPO Rules

1. Redefinition of Retail Category

The traditional term ‘Retail Individual Investor’ has now been replaced with ‘Individual Investor’. This new category includes those who:

• Apply for a minimum of two lots

• Invest more than ₹2 lakh per application

This effectively raises the entry barrier for participation in SME IPOs, shifting the focus towards serious investors and possibly reducing extremely small-ticket applications that often complicate allocations and increase administrative workload.

2. Minimum Bid Size Raised to ₹2 Lakh

Previously, retail participation in SME IPOs allowed for lower entry points, sometimes below ₹1 lakh. However, the new minimum bid size for Individual Investors is now set at:

• Minimum: 2 lots

• Minimum application amount: Above ₹2 lakh

This makes SME IPOs less accessible to casual or retail traders, and instead, the exchanges appear to be targeting sophisticated or more committed investors who can assess SME risks and fundamentals better.

3. Elimination of Cut-Off Price Bidding

Unlike mainboard IPOs, where retail investors can bid at the cut-off price (letting the system allocate shares at the final discovered price), the new SME IPO rules state:

• Cut-off price bidding is no longer allowed for any category of investors

• Every bidder must explicitly select a bid price within the provided price band

This change enforces price discovery discipline, ensuring that applicants are consciously involved in price determination rather than relying passively on automatic allotments.

4. No Downward Modification or Cancellations Allowed

Another major procedural change is the ban on bid modifications or cancellations. Once an investor places a bid:

• No downward revision of price or quantity is allowed

• Cancellations are strictly prohibited

This introduces a more rigid bidding environment, similar to the anchor book process in mainboard IPOs. Investors must therefore plan carefully before submitting their applications.

5. Revised Final Day Timings

In line with the Unified Payment Interface (UPI) integration and to ensure seamless fund blocking, the exchanges have defined the following:

• Bidding window closes at 4:00 PM for all investor categories on the last day

• UPI mandate acceptance deadline extended to 5:00 PM

This provides retail investors some buffer time to confirm UPI mandates after market hours, reducing rejections due to missed UPI approvals.

Revised Guidelines for Reserved Categories

Apart from general individual investors, the revised rules also impact employees, shareholders, policyholders, and institutional investors. Here’s how:

a) Employee Category

• Must bid for minimum two lots

• Application amount must exceed ₹2 lakh

• Bids should be in multiples of lot size

• Maximum investment capped at ₹5 lakh

This helps in balancing preferential employee allotments with wider investor participation, while also ensuring that employees are genuinely committed.

b) Shareholders and Policyholders

Similar to the employee category:

• Minimum investment: 2 lots

• Minimum amount: Above ₹2 lakh

This ensures fair treatment across special reserved categories while aligning with the larger framework.

c) Institutional Investors

• Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs) must also bid for more than two lots

• The rule brings consistency across investor segments and discourages low-commitment bids

Implementation Timeline

To ensure a smooth transition, the exchanges have laid out the following schedule:

• For SME IPOs that open on or before June 30, 2025:

  • Either the existing or the new bidding process can be followed

• In case of spillover, dual bidding processes can continue till July 11, 2025

• From July 12, 2025, the new process becomes mandatory for all SME IPOs

This staggered implementation helps intermediaries, registrars, and investors adapt gradually without operational disruptions.

Impact on Investors and Market Participation

These new rules are expected to:

• Limit participation from small-ticket retail investors

• Encourage more informed investment decisions by requiring deliberate price bidding

• Ensure better price discovery and reduced volatility post-listing

• Bring uniformity in SME IPO bidding and possibly lead to higher-quality investor profiles

However, critics argue that this could reduce democratized access to SME IPOs for smaller investors and increase entry barriers, especially for first-time market participants from Tier 2 and Tier 3 cities.

Final Thoughts

The overhaul in the SME IPO bidding process by NSE and BSE marks a major regulatory shift intended to enhance efficiency, transparency, and investor responsibility. With a minimum application of ₹2 lakh and stricter rules on price selection and bid revisions, the new system is geared towards serious market participants.

While these changes may lead to short-term drop in retail participation, they are likely to elevate the quality of SME IPOs in the long run, reducing speculative interest and promoting disciplined, value-driven investing in India’s growing SME ecosystem.

The Upcoming IPOs in this week and coming weeks are NSDL, Spunweb Nonwoven, Smartworks Coworking, Asston Pharmaceuticals, CFF Fluid Control,  Anthem Biosciences.

The Current active IPO are Glen Industries, Smarten Power Systems, Travel Food Services, Chemkart India, Meta Infotech.

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