SEBI Rule Relaxation for IPOs; What Has Changed and Why It Matters

The Background

The primary market of India has been having tough months for some time now. There have been issues ranging from uncertainty in the global economy, war-like situation in West Asia, volatile markets for stocks, and also investors being cautious about their investments. This has made things tough for many companies planning to enter the market. Many companies that had obtained regulatory approval from SEBI were preferring to hold back rather than enter the market. However, these regulatory approvals cannot be held indefinitely. This is when SEBI intervened.

Over the course of April 2026, India's markets regulator announced a series of one-time relaxations for IPO-bound companies. Taken together, these measures give businesses more time, more flexibility on fundraising size, and temporary relief from certain compliance pressures.

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Relaxation One: More Time to Launch

Due to volatility in the market and lack of confidence among investors in the market, SEBI had made some provisional changes concerning the timeline for IPO and public shareholding requirements.

As per the current regulations of SEBI Issue of Capital and Disclosure Requirements Regulations, 2018, an IPO was expected to be floated within twelve or eighteen months after SEBI’s observations. However, because of geopolitical risks and the absence of investors, some companies have faced difficulties in raising funds through capital markets and therefore postponed or canceled their IPOs. To tackle this problem, SEBI has extended the validity period of observation letters till September 30, 2026, once.

The extension applies to around 13 mainboard IPO candidates that were nearing their deadline to launch public issues. Notable among them are Hero Fincorp Ltd, Continuum Green Energy Ltd, and Veritas Finance Ltd, all of which are planning large-scale IPOs backed by prominent investors.

Relaxation Two: Companies Can Now Adjust Their IPO Size by Up to 50% Without Refiling

This is arguably the more significant of the two changes. On April 13, 2026, SEBI took things a step further.
SEBI has allowed companies planning IPOs to reduce their fresh issue component by up to 50% without having to refile their draft red herring prospectus. Under existing rules, any deviation of more than 20% in the estimated fresh issue size requires issuers to refile their DRHP.

In simple terms, under the old rules, if a company had planned to raise ₹1,000 crore and then decided it wanted to raise only ₹750 crore instead, it would have had to withdraw its documents and go through the entire approval process again. Under the new rules, it can adjust its fundraising size by up to 50% either upwards or downwards and proceed without that burden.

The changes will be allowed on a case-by-case basis with SEBI approval. Companies must provide justification for revising the issue size. Book-running lead managers must certify compliance with regulations. Any changes must be disclosed through an addendum to the offer document. The core objective of the IPO must remain unchanged.

This relaxation will apply to IPOs opening for subscription until 30 September 2026. It gives companies greater room to manage their fund-raising plans more effectively amid ongoing market volatility.

Why Was This Necessary

The scale of the problem becomes clear when you look at how many companies are currently stuck in the queue.
Currently, about 144 companies looking to raise ₹1.75 lakh crore have got SEBI approvals but are yet to be launched in the markets, while another 63 companies that plan to raise ₹1.37 lakh crore are pending SEBI approval. The number of companies with approved offers of public share placement but lapsed approvals in fiscal 26 stood at 18 for an amount of nearly ₹22,000 crore, while 15 companies with planned fundraising of ₹9,200 crore withdrew their draft documents.

SEBI has received representation from the industry on difficulties faced by the issuers in mobilising resources and accessing the capital market in the backdrop of ongoing geopolitical tensions in West Asia.

Relaxation Three: Relief on Minimum Public Shareholding Penalties

This is also provided by SEBI in the sense that a one-time relief has been accorded with respect to applicability of penalty clauses for listed companies where their deadline for compliance with MPS norms falls between April 1, 2026 to September 30, 2026. The stock exchange and depository will not take any penal action during this time, and all actions taken by them after April 1, 2026, will be withdrawn.

MPS, or Minimum Public Shareholding, is the rule that requires all listed companies to ensure that at least 25% of their shares are held by the public rather than promoters. Companies that fail to meet this requirement normally face fines and other regulatory consequences. The temporary pause on these penalties gives businesses already struggling with market conditions some additional breathing room, without removing the requirement itself.

This Has Happened Before

It is worth noting that SEBI had introduced similar relaxations in 2020 during the COVID-19 pandemic, when market uncertainty was high. This reflects the regulator's consistent approach of adapting rules to suit changing market conditions.

That precedent matters. It shows that these relaxations are not permanent shifts in regulatory thinking; they are temporary adjustments in response to extraordinary circumstances. When conditions stabilise, the normal rules will apply again.

What This Means Going Forward

The short-term effect may simply be fewer IPO launches over the coming months, as companies use the extended window to wait for better pricing conditions. Many companies appear to be preparing documentation but keeping timing flexible until secondary market sentiment stabilises.

This move signals a more stable and thoughtful IPO ecosystem. While some IPO launches may be delayed in the short term. For companies, the relief is real and meaningful. 

Refiling documents is not just a procedural inconvenience; it takes months, costs money, and requires management bandwidth at a time when businesses are already navigating difficult market conditions. Being allowed to adjust fundraising size without that burden removes one less obstacle from the path to listing.

SEBI's approach here has been measured. The investor protection standards have not been lowered. The requirements around disclosure, lead manager certification, and the purpose of the IPO all remain intact. What has changed is the regulatory flexibility around timing and size, two things that companies cannot always control when global events are moving fast.