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Only SMEs which have not faced regulatory actions will now be allowed to migrate
| Photo Credit:
Swapan Mahapatra
The NSE’s EMERGE exchange and the BSE’s SME exchange, where small enterprises can list on the public markets, have deliberately been kept distinct from the main exchanges with higher entry barriers. The intent here is that retail investors should not take on the risks of betting on small enterprises with volatile financials and an uncertain future.
However, as the Gensol Engineering case shows, despite demarcation, SME firms with doubtful credentials do manage to migrate to the main board. This seems to have spurred NSE into action. In a recent circular, NSE revised the eligibility criteria for SMEs to graduate from its SME platform to the main board. The new rules attempt to set a higher bar on size for SMEs wanting to move to the main exchange. While the paid-up equity capital requirement has been retained at ₹10 crore, the market capitalisation bar will be raised from ₹25 crore to ₹100 crore from May 1. Market capitalisation, however, is prone to sharp swings and manipulation. This is perhaps why an additional requirement of over ₹100 crore in revenue from operations has been introduced. It is good that NSE has specified ‘revenue from operations’ because total revenues can be propped up by treasury activities or one-off incomes.
The earlier requirement that the SME should have positive cash accruals from operations for the last three years and net profit after tax in the immediate financial year before application, has however been relaxed. SMEs will now need to demonstrate operating profits in two out of three previous years to apply for migration. This dilution is perhaps meant to ensure a level playing field between companies migrating from the SME platform vis-a-vis those directly listing on the main board of NSE. SEBI’s rules allow loss-making companies to list on the main exchanges through book-built offers. In addition to the requirement that SMEs must have a ₹75 crore net worth and not be the subject of insolvency or BIFR proceedings, NSE’s new norms have additional provisos. Only SMEs which have not faced regulatory actions like suspension of trading, debarment of directors/promoter/subsidiaries by SEBI and other regulators, will now be allowed to migrate. The SME, its promoters or directors should not be in default of dues to bondholders or deposit holders. These criteria rightly introduce additional governance filters.
As for relaxations, SMEs will now need to have only 500 shareholders and not 1000 to apply for migration. Earlier, SMEs looking to migrate from other exchanges to the NSE had to get an auditor, credit rating agency or registered valuer to certify their operations, ownership structure, suppliers, profitability, debt servicing track record, among other criteria. The new circular makes no mention of this, so it is unclear if this rule remains.
Published on April 28, 2025
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