This article explains how this process makes it easier for investors and obviates the need to block funds unnecessarily
Application supported by blocked amount (ASBA) is a new 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 This will co-exist with the current procedure of investors applying through sub-syndicate and syndicate members, with a cheque as a payment instrument. 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account only if his application is selected for allotment after the basis of allotment is finalised, or the issue is withdrawn.
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.
Applying through ASBA facility has these advantages:
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.
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.
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.
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.
Bid can be withdrawn
An investor can also withdraw the ASBA bid. During the bidding period an investor can approach the same bank to which he had submitted the ASBA and request for withdrawal through a signed letter citing his application number.
After the bid closure period, he can send his withdrawal request to the registrars before the finalisation of basis of allotment, and they will cancel the bid and instruct the SCSB to unblock the application money in the bank account after the finalisation of basis of allotment.
