SEBI ICDR Regulations 2018: summary

This article summarises the principal provisions of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR 2018), the regulations administered by the Securities and Exchange Board of India that govern public equity issuances in India. For the full treatment, including regulatory history, chapter structure, and comparison with international frameworks, refer to the main ICDR 2018 article.

What ICDR 2018 governs

The ICDR Regulations apply to every public issuance of equity (and certain other securities) by Indian companies, including:

• Initial public offerings (IPOs): the first sale of shares to the public, leading to a listing on a stock exchange;
• Follow-on public offerings (FPOs): subsequent public issues by already-listed companies;
• Rights issues: offers to existing shareholders in proportion to their holding;
• Preferential allotments: issuances to specified persons or entities at a negotiated price, subject to pricing formula;
• Qualified Institutions Placements (QIPs): fast-track issuances to qualified institutional buyers by already-listed companies.

Eligibility to access the public market

A company that has not previously been listed may make an IPO through one of two routes:

Route I (profitability route): Minimum net tangible assets of Rs 3 crore in each of the three preceding years, distributable profits in at least three of the five preceding years, and net worth of at least Rs 1 crore in each of the three preceding years. Most established businesses use this route.

Route II (QIB route): No profitability requirement, but at least 75 per cent of the issue must be reserved for Qualified Institutional Buyers. Pre-profit technology companies and financial services firms with regulatory approvals typically use this route.

In both cases, the issuer must have a net offer to the public of at least 10 per cent of the post-issue paid-up capital (or 25 per cent, depending on the post-issue market capitalisation). SEBI does not approve the price or the merits of the business; it reviews only whether the disclosures are complete.

The offer document process

The DRHP contains no price information; the price band is added in the RHP. SEBI’s observations letter is not an endorsement of the issue; it is a checklist of disclosures to be corrected or amplified.

Pricing and book building

For book-built issues, the issuer sets a price band with a maximum spread of 20 per cent between floor and cap. Investors bid at any price within the band. The final price (the “cut-off price”) is the highest price at which the issue is fully subscribed in the institutional portion.

Retail investors may bid at the “cut-off price” option, meaning they agree to pay whatever price is discovered by the book-building process, rather than specifying a price.

Allocation norms at a glance

Standard allocation (Route I issues)

QIB route issues (Route II)

QIBs include mutual funds, foreign portfolio investors, scheduled commercial banks, and insurance companies.

NIIs are non-QIB applicants who apply for more than Rs 2 lakh. Since April 2022, NIIs are split into sNII (Rs 2 lakh to Rs 10 lakh; one-third of NII allocation) and bNII (above Rs 10 lakh; two-thirds of NII allocation), with allotment by lottery within each sub-category.

RIIs are individuals who apply for Rs 2 lakh or less. Allotment is by lottery at the minimum lot level if oversubscribed, so each applicant has a fair probability of receiving at least one lot.

Anchor investors

Up to 60 per cent of the QIB allocation may go to Anchor Investors – large institutional investors invited to bid on the day before the issue opens. The anchor investor price is disclosed before the issue opens, signalling value to the broader market. At least one-third of the anchor portion must be allocated to domestic mutual funds. Anchor investors are locked in for 30 days (50% of allocation) and 90 days (remaining 50%) from allotment.

ASBA: how application money is handled

All IPO applications (except anchor investor bids) use the Application Supported by Blocked Amount (ASBA) mechanism. The application money is not deducted from the investor’s bank account; it is blocked. If the investor does not receive an allotment, the block is lifted within one working day of the basis of allotment being finalised. No refund is necessary in the traditional sense.

Post-IPO listing timeline (T+3)

Since 1 September 2023, SEBI mandates that equity shares must be listed within three working days of the close of the issue (T+3). Before this change, the standard was six working days. The shorter window reduces the period during which applicants’ funds remain blocked and reduces the period of price risk between issue close and trading.

Promoter lock-in

After the IPO, promoters are subject to mandatory lock-in of their shares:

• The minimum promoters’ contribution (typically 20 per cent of post-issue capital) is locked in for eighteen months from allotment.
• Any excess promoter holding above the minimum contribution is locked in for six months.
• Pre-IPO shares held by non-promoters are locked in for six months.

SME IPO framework

The ICDR Regulations include a separate, lighter framework for SMEs listing on BSE SME or NSE Emerge. Requirements are proportionally lower: the post-issue paid-up capital must be at least Rs 1 crore (versus Rs 10 crore for the main board). A market maker is required to provide liquidity support for three years post-listing. SME-listed companies may migrate to the main board upon meeting specified criteria.

Key definitions

Offer document timeline at a glance

The standard sequence from decision to list for a main-board IPO under ICDR 2018:

1. Pre-DRHP preparation (4-6 months typically): selection of book running lead managers (BRLMs); appointment of legal counsel, auditors, and registrar; preparation of financial statements restated to SEBI requirements; drafting of DRHP.
2. DRHP filing with SEBI: at least 30 days before issue opening; simultaneously filed with stock exchanges and made public.
3. SEBI observations: issued within 30 days of DRHP receipt; contain comments and requests for amendment.
4. Roadshow and book-building preparation: BRLMs conduct pre-deal investor education (after SEBI observations); legal and auditor due diligence updates.
5. RHP filing with stock exchanges and ROC: at least 3 days before issue opening; contains price band.
6. Issue open: 3 working days for main board; investors bid through ASBA-enabled bank accounts or UPI mandate.
7. Issue close.
8. Basis of allotment: determined by the registrar; filed with stock exchange.
9. Listing (T+3): shares credited to successful allottees’ demat accounts; trading commences.

Greymarket and unofficial price discovery

The ICDR framework is a formal regulatory instrument; it does not govern the grey market in IPO shares that operates informally in India before official listing. The grey market sets a price (the Grey Market Premium, or GMP) based on demand and supply for unlisted IPO applications and shares. GMPs are widely reported in financial media but are not regulated by SEBI and carry no legal standing. Investors using GMP as an indicator of post-listing performance should be aware that grey market prices are based on private bilateral transactions, are illiquid, and provide no recourse if the counterparty defaults. SEBI has cautioned investors against relying on GMP for investment decisions.

Anchor investor: rationale and criticism

The anchor investor mechanism was introduced to the ICDR framework in 2009 to address a specific market structure problem: in very large IPOs, retail and institutional investor confidence depended on the visible participation of credible long-term institutional investors, but there was no formal mechanism for large investors to commit to an issue before the book-building period opened.

Anchors address this by taking an allocation at a disclosed price before the public subscription period, creating visible evidence of institutional demand. Critics argue that the mechanism has evolved into a signalling exercise without real price discovery value: anchor prices are often set at the cap of the price band regardless of demand conditions, and the 30-to-90-day lock-in is short enough that anchors can exit at a premium shortly after listing. Academic analysis of anchor investor IPO participation in India has found mixed evidence on whether anchor investor participation predicts post-listing performance.

Regulatory developments post-2024

SEBI’s consultation agenda for the primary market in 2024-2025 includes:

• Voluntary corporate restructuring disclosure: proposals to require issuers to disclose any material corporate restructuring (merger, demerger, business transfer) completed or announced in the three years before the DRHP, in a standardised format;
• Rationalisation of anchor investor lock-in: consultation on whether the 90-day lock-in period for 50 per cent of the anchor allocation should be extended to improve the signalling value of anchor investment;
• Standardised DRHP template: a machine-readable standardised DRHP format to facilitate automated comparison of disclosures across issues and reduce drafting inconsistencies; and
• SME IPO tightening: following a sharp increase in SME IPO volumes and concerns about promoter manipulation of SME-listed stocks, SEBI issued a consultation paper in December 2023 proposing stricter eligibility criteria and enhanced post-listing surveillance for SME-listed companies.

Further reading

• SEBI (ICDR) Regulations, 2018 – full article for the complete regulatory text, history, and chapter-by-chapter analysis
• Securities and Exchange Board of India (SEBI) for the regulator’s mandate, powers, and enforcement role
• SEBI SCORES for investor grievance procedures relating to IPO allotment disputes

References

1. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. SEBI/LAD-NRO/GN/2018/31, dated 11 September 2018.
2. SEBI Circular SEBI/HO/CFD/DIL2/CIR/P/2022/45, dated 30 March 2022. NII sub-categorisation.
3. SEBI Master Circular for Issue of Capital and Disclosure Requirements, 2023 series.
4. SEBI. Frequently Asked Questions – Primary Market. sebi.gov.in, accessed 2025.