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Tuesday, June 18, 2019

How ASBA works while applying for IPOs?

ASBA - Application Supported by Blocked Amount

How ASBA works while applying for IPO
Application supported by blocked amount (ASBA) is a investor-friendly way to apply for initial public offerings (IPOs). ASBA is an interface for banks to participate in the process of IPO payments as proposed by the capital markets regulator, the Securities and Exchange Board of India (SEBI). The objective of introducing ASBA is to ensure an investor's funds leave his bank account only on allotment of shares in public issues.

The ASBA process also ensures that only the required amount of funds is debited to the investor's bank account on allotment of shares. In this mechanism, the need for refunds is completely obviated. The banks participating in an IPO process can upload the bids with respect to their customers into the electronic books of BSE and NSE. The interface facilitates not only the controlling branch but also the designated branches of the banks to directly upload the bids into the electronic books.

ASBA provides an alternative mode of payment in issues whereby the application money remains in the investor's account till finalisation of basis of allotment in the issue. The process facilitates individual investors bidding at cut-off, with single option, to apply through self-certified syndicate banks (SCSBs), in which the investors have accounts. SCSBs are banks that meet the conditions laid down by SEBI.

Role of SCSB
  • Accept application
  • Verify application
  • Block funds to the extent of bid payment amount
  • Upload the details on the web-based bidding system of the exchange
  • Unblock once the basis of allotment is finalised
  • Transfer the amount for allotted shares to the issuer
The ASBA is an application containing an authorisation to block the application money in the bank account to subscribe to an issue. If an investor is applying through ASBA, his application money will be debited from the bank account only if his application is selected for allotment after the basis of allotment is finalised, or the issue is withdrawn. ASBA is mandatory for all public issues opening from January 01, 2016.

Earlier Qualified Institutional Buyers were not allowed to participate in IPOs through ASBA facility. Currently as per SEBI guidelines, all three categories of investors, i.e., Retail Investors, Qualified Institutional Buyers, Non-Institutional Investors, making application in public/rights issue shall mandatorily make use of ASBA facility.

Under the ASBA facility, investors can apply to any public or rights issues by using their bank account. Investor have to submit the ASBA form (available at the designated branches of banks acting as SCSB) after filling in details such as name, PAN number, demat account number, bid quantity, bid price and other relevant details to the branch with an instruction to block the amount in their account. In turn, the bank will upload the details of the application in the bidding platform. The investor should ensure the details that are filled in the ASBA form are correct. Otherwise, the form is liable to be rejected.

In case if you apply for IPOs through ICICI direct or any other SCSBs, you might experienced that applied amount was always visible in your available balance but was not available to withdraw (blocked amount)because it could not be used by you untill the IPO allotment process is over. This is possible only because of ASBA facility.

Advantages of applying through ASBA facility

1. No need for cheque payment: The investor need not pay the application money through a cheque. He has to submit the ASBA which accompanies an authorisation to block the amount in the bank account - to the extent of the application money.

2. Refunds don't arise: The investor does not have to bother about refund, as in ASBA only that much money - to the extent required for allotment of securities - is taken from the bank account, only when his application is selected for allotment after the basis of allotment is finalised.

3. Interest ensured: The investor continues to earn interest on the application money as it remains in the bank account, which is not the case in other modes of payment.

4. Simple form: The application form is simpler. The investor deals with a known intermediary - his own bank. An investor who is eligible for ASBA has the option of making an application through the ASBA, or through the existing facility of applying with a cheque.