The Securities and Exchange Board of India (Sebi) is considering a proposal to redefine

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the term “retail investor” to mean any individual putting in application for shares worth up to Rs 2 lakh from up to Rs 1 lakh at present.

The market regulator may also simultaneously look at raising the percentage of shares in public issues allocated to retail investors. At present, 35 per cent of shares in public issues are earmarked for retail investors.

Going by the current definition, an investor would not be able to bid for more than 100 shares in the retail category for the just concluded SKS Microfinance IPO, where the price band was Rs 850-Rs985 a share. The retail segment of the IPO was subscribed nearly three times.

Sebi had made Rs 1 lakh as the cut-off for a retail investor in March 2005. Till then, retail investor meant any individual putting in application for shares in public issues worth up to Rs 50,000.

“There is a thinking whether to redefine retail investor segment from up to Rs 1 lakh to up to Rs 2 lakh as the current definition came into effect some time back. We have not reached any conclusion as yet,” a senior Sebi official said.

He said if Sebi decides to redefine the term “retail investor” to include all investors who are buying up to Rs 2 lakh worth of shares in public issues, then the regulator will also have to simultaneously raise the allocation of shares in public issues to retail investors from the present 35 per cent.

“When you are allowing a whole new bunch of investors into the retail segment, it is essential to hike the (share of) the retail category further from the present 35 per cent,” the official said.

For instance, when Sebi redefined retail investors as those who apply for shares worth Rs 1 lakh from Rs 50,000 in 2005, it had simultaneously increased the allotment to the retail segment to 35 per cent of the public offer from 25 per cent.

The Sebi official also pointed out that there are some who feel that the present definition should be retained.

At present, for 100 per cent book-building issues, in addition to the retail category, the rules prescribe that non-institutional investors (NIIs) should be allotted 15 per cent of the issue while the remaining 50 per cent is earmarked for qualified institutional bidders. While raising the allotment to retail investors to 35 per cent, Sebi had reduced the allotment to NIIs from 25 per cent to 15 per cent.

If and when Sebi decides to raise the allotment to retail investors, it is likely that the share marked for NIIs will be reduced further.

“The Rs 1 lakh definition should not be a fixed one. It should be increased, in keeping with the rise in salaries, among others,” said Anil Ladha, head of capital markets at ICICI Securities.

India has 1.68 crore demat accounts, which may include multiple accounts. The number is abysmally low compared with the population of more than 113 crore.