In a significant shift poised to impact small and medium enterprises (SMEs) looking to transition to the mainframe, the National Stock Exchange (NSE) has unveiled new migration criteria, effective May 1. This move is expected to tighten the reins on SMEs wishing to upgrade their status, introducing a series of stringent eligibility requirements that could reshape the landscape for these businesses.

Stricter Eligibility Requirements for Migration

The NSE’s recent circular outlines several key stipulations that SME companies must meet to migrate successfully. Notably, the paid-up equity capital must be a minimum of Rs 10 crore, and the average market capitalization should not fall below Rs 100 crore. Additionally, companies must maintain a listing on the SME platform for a minimum of three years and demonstrate a public shareholder base of at least 500 at the time of application.

• Promoter Holding: Companies must ensure that promoter and promoter group holdings stand at a minimum of 20% during the application process.
• Revenue Requirements: To qualify for migration, the company’s revenue must exceed Rs 100 crore in the preceding financial year, alongside showing positive operating profits for at least two out of the last three financial years.

Additional Regulatory Conditions

The NSE’s circular also introduces further regulatory conditions to ensure compliance and stability:

• Companies must not have any proceedings pending under the Insolvency and Bankruptcy Code.
• No winding-up petitions should be admitted by the National Company Law Tribunal (NCLT) or under the IBC.
• There should be no material regulatory actions against the company by exchanges in the last three years.
• Companies or regulated entities must not face any debarment by the Securities and Exchange Board of India (SEBI).

This tightening of migration guidelines comes at a time when the Securities and Exchange Board of India has already implemented stricter regulations for initial public offerings (IPOs). Last month, the regulator emphasized that SMEs intending to launch an IPO must showcase a minimum operating profit of Rs 1 crore in at least two out of the last three financial years.

Recent Trends in SME IPO Activity

Over the past two years, there has been a noticeable surge in SME IPO activities, with 240 SMEs raising over Rs 8,500 crore in 2024, nearly doubling the Rs 4,500 crore raised in 2023. This boom prompted the need for more stringent regulations to ensure only the most viable SMEs progress to larger platforms.

A representative from the Bombay Stock Exchange (BSE) indicated that starting January 1, 2024, the BSE will also modify its eligibility criteria for migration, addressing aspects such as net worth, minimum listing duration, and the number of public shareholders required.

Expert Insights and Future Considerations

Robert Kiyosaki, renowned author of "Rich Dad Poor Dad," has recently highlighted silver as a prime investment opportunity, projecting a price increase by 2025. This perspective suggests that investors are seeking alternative assets amid tightening regulations in the SME sector.

BSE officials have stated that these norms will undergo periodic reviews, with further strengthening anticipated as necessary. The latest BSE circular mandated that companies seeking migration must meet a Rs 10 crore paid-up capital requirement, a Rs 25 crore market cap, and maintain a 20% promoter holding along with Rs 15 crore net worth for the preceding two financial years.

With these changes, the regulatory landscape for SMEs is evolving, ensuring a more robust framework for companies aiming to transition to larger platforms.