SEBI Relaxes IPO Rules For Big Firms, Tweaks Governance Norms For Exchanges, Depositories — Key Takeaways

The Securities and Exchange Board of India has relaxed the minimum public shareholding norms for big companies going for initial public offering, according to a release issued following the SEBI board meeting on Friday.

The market watchdog also announced a number of other measures, pertaining to the governance norms of exchanges and depositories, and the classification of Real Estate Investment Trust as equity instruments.

Here are the key takeaways from the SEBI board meeting:

SEBI has relaxed the minimum public shareholding norms for big companies that are going for initial public offering. This has been done with the aim is to simplify fund-raising in India.

The regulator has eased MPS requirements for large-cap companies while keeping the existing norms unchanged for firms with market capitalisation below Rs 50,000 crore.

For companies valued between Rs 50,000 crore and Rs 1 lakh crore, SEBI said the minimum public shareholding of 25% can now be achieved within five years, instead of the current three. These companies will need to make a minimum public offer of Rs 1,000 crore and at least 8% of post-issue market capitalisation.

For firms with market capitalisation between Rs 1 lakh crore and Rs 5 lakh crore, SEBI has raised the minimum public offer requirement to Rs 6,250 crore, or 2.75% of post-issue market cap, compared to the earlier Rs 5,000 crore and 5% requirement.

The regulator further clarified that if public shareholding at listing is less than 15%, these companies will be given five years to meet 15% MPS and 10 years to reach 25%. However, if shareholding at listing is already 15% or more, the 25% threshold must be achieved within five years.

A new criterion has been added for companies with market capitalisation exceeding Rs 5 lakh crore. Such firms must make a minimum public offer of Rs 15,000 crore and at least 1% of post-issue market cap, subject to a minimum dilution of 2.5%.

Similar timelines apply—five years to meet 15% MPS and 10 years for 25% if starting below 15%, or five years to reach 25% if starting at 15%.

The changes come as large companies face challenges in diluting stakes due to market absorption limits, with immediate equity dilution often creating pressure on share prices.

SEBI has approved classifying Real Estate Investment Trust as equity instruments, while retaining the hybrid classification for the Infrastructure Investment Trusts. This makes it easier for mutual funds to invest in them and further opens the asset class for retail investors.

Due to this, the investment by mutual funds shall be considered within the investment allocation limit for equity instruments and also make them eligible for inclusion in equity indices.

The market watchdog has also amended governance norms for exchanges and depositories. SEBI has mandated the appointment of two executive directors on the board of market infra institutions.

The board roles of managing directors, executive directors and key managerial and others will have to be specified clearly.

The regulator has also offered some relief to investment advisors and research analysts as it has relaxed the education criteria. According to the release, a graduate in any stream will be eligible to be certified.

However, obtaining NISM certification is mandatory. It has also relaxed requirements of CIBIL reports, net worth, asset liability statements and more.

SEBI has made changes to the Foreign Portfolio Investors rules to make it easier for investors in International Financial Services Centres to operate.

Earlier, only certain Alternative Investment Funds in IFSCs with Indian sponsors could register as FPIs. Now, even retail schemes in IFSCs with Indian sponsors can do so.

SEBI and IFSCA had different limits on how much Indian entities could contribute to IFSC funds, which created confusion. Now, the rules have been made uniform. According to the release, sponsor contribution cannot exceed 10% of the fund size or assets under management for retail schemes.

Indian mutual funds are now allowed to invest in foreign Mutual Funds/Unit Trusts that invest partly in Indian securities. To enable this, such overseas funds can register as FPIs and include Indian mutual funds as investors, provided they meet SEBI’s conditions.

SEBI has also launched India Market Access website for foreign portfolio investors. The new website will provide regulatory and procedural information to FPIs for India's securities market.

The regulator has said that in order to incentivise distributors to promote financial inclusion among women investors an additional commission will be paid to mutual fund distributors for inflows from new women investors at industry level.

Distributors will now also get incentives when they bring in new investors from smaller towns that are beyond the top 30 cities. The incentive will be capped at 1% of the first investment or SIP for one year, up to Rs 2,000 per investor. This incentive will also apply for new women investors.

Along with the other changes, SEBI has included life insurance companies registered with IRDAI and pension funds registered with PFRDA will now be included in the reserved category of anchor investors. Additionally, the earlier 33% reserved for the anchors has now been increased to 40% keeping these additions in mind. However, one-third of the anchor share is for mutual funds, while the rest is for insurance and pension funds.

If there is undersubscription in the reserved portion of life insurance companies, then the unsubscribed part will be available for allocation to domestic Mutual Funds.

SEBI in its release has merged the allotment under anchor portion Category I and Category II into a single category for allocations up to Rs 250 crore. This will have a minimum number of anchors allottees of five and maximum of 15. According to the changes, minimum five and maximum 15 investors can share up to Rs 250 crore. Which means that for every extra Rs 250 crore, 15 more investors can be added. This will help big investors to join and spread the risk.

It was further clarified that each investor must get at least Rs 5 crore.

SEBI has amended the Related Party Transactions framework to balance investor protection with ease of doing business. Key changes include scale-based thresholds linked to annual consolidated turnover for determining material RPTs, revised audit committee approval norms for subsidiary transactions, and simplified disclosure for smaller RPTs.

For companies with annual consolidated turnover of up to Rs 20,000 crore, threshold has been fixed at 10% of the annual consolidated turnover of the listed entity.

For companies with annual consolidated turnover of between Rs 20,001 crore and Rs 40,000 crore, threshold has been fixed at Rs 2,000 crore plus 5% of the annual consolidated turnover of the listed entity above Rs 20,000 crore.

Similarly, for companies with annual consolidated turnover of more than Rs 40,000 crore, threshold has been fixed at Rs 3,000 crore plus 2.5% of the annual consolidated turnover of the listed entity above Rs 40,000 crore or Rs 5000 crore, whichever is lower.

The maximum exit load which basically means the fee charged when investors withdraw early has been cut from 5% to 3%. This aligns with current practice, where most funds already charge only 1–2%, while still allowing flexibility for funds holding less liquid assets.

SEBI in the release said that it will enhance its presence by establishing Local Offices at State Capitals and other major cities in a phased manner. This confirmed NDTV Profit's news break on Aug. 5.

In the first Phase, the major Cities where SEBI intends to establish local offices are Chandigarh, Jaipur, Lucknow, Guwahati, Bhubaneswar, Vijayawada, Hyderabad and Bengaluru