SEBI's Role in the IPO Process
The Securities and Exchange Board of India (SEBI) is the regulator for India's securities markets. Every IPO in India — from a large mainboard issue to an SME listing — must comply with SEBI's regulations, primarily the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations).
SEBI's IPO regulations cover: company eligibility, disclosure requirements, pricing, allocation rules, lock-in periods, and timelines. Understanding these rules helps investors know their rights and the safeguards in place.
Eligibility Criteria for Mainboard IPOs
Not every company can do an IPO. SEBI mandates specific eligibility requirements:
Option 1: Profitability Track Record
- Net tangible assets of at least ₹3 crore for each of the last 3 full years
- Net worth of at least ₹1 crore in each of the last 3 full years
- Distributable profits in at least 3 of the last 5 years
- Issue size cannot exceed 5 times the pre-issue net worth
Option 2: Qualified Institutional Buyers (QIB) Route
- Companies that do not meet profitability criteria can still list if at least 75% of the net offer is allotted to QIBs
- This route is used by many new-age, loss-making technology companies (Paytm, Zomato, PolicyBazaar used this route)
- Higher QIB reservation compensates for the absence of a financial track record
Minimum Public Float Requirement
SEBI requires that all listed companies maintain a minimum 25% public float — meaning at least 25% of shares must be held by the public (non-promoters). For very large companies (market cap above ₹1 lakh crore), the minimum is 10%.
This rule ensures adequate liquidity for price discovery and prevents promoters from controlling too large a share of a listed company.
Category-Wise Allocation Rules
SEBI prescribes how IPO shares must be distributed across investor categories:
- QIB (Qualified Institutional Buyers): At least 75% of the net offer (in QIB-route issues)
- NII (Non-Institutional Investors / HNIs): Minimum 15% of net offer
- RII (Retail Individual Investors): Minimum 10% of net offer
- Employee reservation: Up to 5% of post-offer paid-up capital (separate from above)
- Anchor investors: Up to 60% of QIB portion
In the standard (non-QIB route) mainboard IPO: QIB 50%, NII 15%, RII 35%.
Retail Investor Protections
SEBI has built specific protections for retail (small) investors:
- Lottery for oversubscribed retail portion: Unlike proportional allotment for HNIs, retail allotment is done by lottery — every successful applicant gets exactly one minimum lot, regardless of how many lots they applied for (up to the 2-lakh limit).
- Maximum investment limit: Retail investors are defined as those applying for shares worth up to ₹2 lakh. This prevents wealthy individuals from crowding out retail applicants in the RII category.
- Cut-off price bidding: Retail investors can bid at cut-off price, ensuring they are not priced out if they bid too low.
- ASBA mechanism: Funds are blocked (not debited) until allotment, so your money earns interest in your bank account during the subscription window.
SEBI IPO Timeline Requirements
SEBI mandates specific timelines from IPO close to listing:
- T+3 listing: Shares must be listed within 3 working days of subscription close (reduced from T+6 in 2023)
- Refund initiation: By T+2
- Credit to demat: By T+2
- Maximum subscription window: 3 working days (10 days for rights issues)
Lock-In Rules (Summary)
- Promoter minimum contribution (20%): 18 months
- Remaining promoter holding: 6 months
- Pre-IPO investors (within 1 year): 6 months
- Anchor investors: 30 days (50%) + 90 days (remaining 50%)
Disclosure Requirements
SEBI's disclosure regime is extensive. Key mandatory disclosures include:
- All material litigation and regulatory orders
- Related party transactions for 3 years
- Capital structure changes in the last 3 years (including bonus issues, rights issues, private placements)
- Promoter and key management personnel background checks
- Use of IPO proceeds with specific allocation
- Restated financial statements if any restatements were made
- Post-IPO utilization report (company must report how it used IPO funds)
Key Takeaways for Investors
- SEBI's ICDR Regulations govern every Indian IPO
- Retail investors are protected by lottery allotment, ASBA, and ₹2 lakh investment cap
- Loss-making companies can list via the QIB route (75% QIB allocation)
- T+3 listing timeline ensures quick access to your money whether allotted or not
- Lock-in rules prevent insider dumping for at least 6 months post-IPO
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