Eligibility to Apply for an IPO

An Initial Public Offering (IPO) refers to the process through which a company offers its shares to the public for the first time to raise capital. IPO participation in India is governed by regulations issued by the Securities and Exchange Board of India (SEBI), stock exchanges, and applicable provisions under the Companies Act.

Eligibility norms apply to both the issuing company and investors applying for shares. These norms are intended to ensure transparency, financial disclosure, and regulatory compliance within the capital markets framework.

The Securities and Exchange Board of India prescribes eligibility conditions under the SEBI (Issue of Capital and Disclosure Requirements) Regulations (ICDR) for companies proposing to undertake an IPO. These conditions differ depending on whether the company qualifies under profitability-based criteria or alternative eligibility routes.

SEBI classifies IPO applicants into defined investor categories.

Retail Individual Investors (RIIs)

Retail Individual Investors are individuals who apply for shares with a total bid amount not exceeding ₹2 lakh in a single IPO application. A defined percentage of the issue is reserved for this category under SEBI regulations.

Qualified Institutional Buyers (QIBs)

Qualified Institutional Buyers include entities such as mutual funds, banks, insurance companies, foreign portfolio investors, and other institutional investors recognised under SEBI regulations. QIBs participate with larger bid sizes and have a reserved allocation in book-built IPOs.

Non-Institutional Investors (NIIs)

Non-Institutional Investors include applicants other than RIIs and QIBs whose bid amount exceeds ₹2 lakh. This category generally includes high net-worth individuals, trusts, corporate bodies, and other eligible entities.

Non-Resident Indians (NRIs) and Foreign Investors

Non-Resident Indians and certain foreign investors may apply for IPOs subject to foreign exchange regulations and SEBI guidelines. Applications are processed through NRE or NRO bank accounts linked to an NRI demat account, where applicable.

Under the profitability route specified in SEBI ICDR Regulations, a company may qualify for an IPO if it meets financial thresholds relating to:

• Net tangible assets in preceding financial years

• Net worth in preceding financial years

• Track record of distributable profits

• Average operating profit requirements
   

These financial benchmarks are prescribed under specific regulatory routes and are not uniformly applicable to all IPO structures.

In addition to financial thresholds, issuing companies must satisfy regulatory requirements including:

• Compliance with the Companies Act and SEBI ICDR Regulations

• Submission of audited financial statements

• Disclosure of material risks and related party transactions

• Absence of disqualifications under insolvency or fraud-related provisions
   

Criteria for IPO if the Company is Profitable

Where a company qualifies under the profitability-based route, SEBI regulations prescribe minimum net tangible assets, net worth, and profit track record thresholds across specified financial years, as defined under the ICDR framework.

Investors applying for IPO shares must meet regulatory and documentation requirements, including:

• Completion of Know Your Customer (KYC) verification

• Possession of a valid Permanent Account Number (PAN)

• Maintenance of a demat account for holding shares in electronic form

• Access to a bank account for fund blocking under ASBA or UPI mechanisms

Minimum application amounts are determined by lot size and investor category.

IPO applications are processed only after mandatory identity and account documentation is validated under regulatory norms. Investors are required to provide records that establish identity, tax registration, and account linkage for fund blocking and share allotment.

Common documents include:

• PAN card

• Aadhaar or other valid identity proof

• Demat account details

• Bank account details for ASBA or UPI
   

Applications are verified using these records during allotment processing, and discrepancies may affect acceptance. Accurate and updated documentation reduces the likelihood of application rejection.

Companies that do not meet profitability-based criteria may access capital markets through alternative eligibility routes specified under SEBI ICDR Regulations. These routes may involve book-building mechanisms, institutional participation thresholds, or alternative compliance conditions as prescribed by SEBI.

Stock exchanges such as NSE and BSE evaluate IPO proposals based on:

• Corporate governance standards

• Promoter background checks

• Compliance history

• Adequacy of disclosures in the Draft Red Herring Prospectus (DRHP)
   

SEBI issues regulatory observations on the DRHP prior to public issuance.

SME IPOs are listed on dedicated SME platforms such as NSE EMERGE and BSE SME. Issuer eligibility benchmarks relating to post-issue capital and track record differ from mainboard IPO requirements.

Investor eligibility categories remain consistent; however, application lot sizes and liquidity conditions may vary across platforms.

IPO applications may be rejected due to:

• Incorrect or incomplete KYC details

• PAN and demat account mismatch

• Invalid bank linkage under ASBA or UPI

• Multiple applications under the same PAN

• Non-compliance with bid lot size or price band

SEBI may issue observations or reject a Draft Red Herring Prospectus (DRHP) where:

• Material disclosures are incomplete or misleading

• Financial statements do not meet regulatory standards

• Promoter background raises compliance concerns

• Corporate governance deficiencies are identified

IPO participation requires adherence to regulatory documentation, bid size norms, and fund-blocking mechanisms prescribed under SEBI guidelines. Applications are processed subject to verification of KYC, demat linkage, and payment authentication under ASBA or UPI frameworks.

Both ASBA, UPI-based applications, and offline physical submissions operate under the same eligibility framework prescribed by SEBI.

Online applications are processed through broker platforms or banking interfaces using ASBA or UPI authorisation. Offline applications involve submission of physical forms through designated banking channels.

Both online and offline IPO application modes require the same eligibility compliance.

Eligibility to apply for an IPO in India is governed by regulatory norms applicable to both issuing companies and investors. Compliance with SEBI ICDR provisions, documentation standards, and investor classification guidelines ensures structured participation in public issues.

This content is for educational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.