What is ASBA? All you need to know

TomorrowMakers ™

What is ASBA? All you need to know

02 May 2017
Everything you need to know about ASBA (Application Supported by Blocked Account) and how it helps investors.
 
 

India’s market regulator SEBI (Securities & Exchange Board of India) has enabled investors to make payments through an alternate route– the ASBA route – when applying for a public issue of equity shares.

 

ASBA, or ‘Application Supported by Blocked Amount’, does not require investors to furnish demand drafts or cheques that were earlier needed when applying for IPO shares. Under this option, investors can apply through banks, which will hold a lien on investor deposits – that is, the money stays in the bank account until the issues are allotted.

 

There are two benefits to this process. First, the usual problems associated with refunds are avoided. Second, the ASBA funds continue to earn interest even during the application process, if they are held in interest-bearing accounts.

Related: All about IPOs in India

Here are some important questions regarding ASBA that investors should know about.

What is ASBA?

ASBA is an application mechanism containing an authorisation to block application money in a bank account when subscribing to an issue. 

This means that an investor’s application money (if applied through ASBA) will only be debited from the bank account if his/her application is selected for allotment, and after the basis of IPO stock allocation is finalised; or if the issue is withdrawn or deemed to have failed.

In case of rights issue, the application money is debited from the bank account after the receipt of instruction from the registrars.

*SCSB: Certified by SEBI, Self-Certified Syndicate Banks enable retail individual investors to use the ASBA method to apply in IPOs. These banks are authorised to block the IPO application amount until IPO allocations are finalised. This way Issuer Companies are guaranteed that the money is blocked and not used for other purposes. 

 

SEBI has permitted the ASBA process in rights issue on a pilot basis. Shareholders of the company, as on record date, can use ASBA for applications in rights issue provided they:

  1. Hold shares in dematerialised form and have applied for entitlements or additional shares in the issue in dematerialised form
  2. Have not renounced its entitlements in full or in part
  3. Are not a renouncee* to the Issue
  4. Applied through a bank account maintained with SCSBs

*Who is a renouncee? A company may issue securities to existing shareholders in a ratio, based on the number of securities the shareholder has. The shareholder can decline the offer or renounce the shares in favour of another person, called the renounce, for a price.

 

Advantages of applying through ASBA as opposed to a cheque application?

Applying through the ASBA process offers the following advantages:

  1. An investor need not pay the application money by cheque. Rather the investor submits the ASBA, which includes an authorisation to block the bank account, to the extent of the application money
  2. The investor does not have to worry about refunds. This is because only the required amount for allotment of securities is taken from the bank account. And this happens only when the application is selected for allotment.
  3. The investor continues to earn interest on the application money as the same remains in the bank account
  4. The application form is simpler
  5. The investor deals with a known intermediary i.e. his or her own bank.

Related: Investing in Equities- Identifying the Best Plan for Your Financial Goals

Investors eligible for ASBA do not compulsorily have to apply through this process. They can also apply through the current cheque procedure if they choose to.

 

Can investors make applications through ASBA process in all issues?

No. ASBA is applicable to only book-built public issues, which provide a uniform payment option to retail individual investors. On the pilot basis, SEBI has enabled ASBA in few selected rights issues.

 

NOTE: When a company offers its shares to the public, either through an Initial Public Offer (IPO) or Follow on Public Offer (FPO), it may quote at a fixed price or offer a price range (where investors decide the right price). The method of offering shares by providing a price range is called a book-building method.

Can investors use the existing application form for public issues for applying through ASBA?

Investors should check the form carefully. In the case of public issues, the ASBA application form will be different from the existing application form for public issues.

Application forms will be available at designated branches of SCSB. In the case of rights issues, there will not be a separate form for ASBA. Instead, investors can apply by selecting the ASBA option in Part A of the Composite Application Form.

 

Withdrawal and rejection of ASBA bids

Investors can withdraw their ASBA bids through a letter to the same bank where the ASBA was submitted, by citing the application number, and TRS (Transaction Registration Slip) number, if any.

After the bid closure period, the withdrawal request can be sent to the Registrars, who will cancel the bid and instruct the SCSB to unblock the application money in the bank account, after finalising the basis of allotment.

Related: The IPO and the stellar listing of Avenue Supermarket: What you should know

If an application is rejected based on ‘wrong data’, despite providing correct details in the ASBA form, investors can approach the SCSB concerned regarding application-related complaints. The bank is required to respond within 15 days. If the reply is unsatisfactory, an investor can write to SEBI’s Investor Grievance Cell.

 

If the bid made through ASBA is withdrawn, will the bank account be unblocked immediately?

If the withdrawal is made during the bidding period, the SCSB deletes the bid and unblocks the application money in the bank account.

If the withdrawal is made after the bid closure date, the SCSB will unblock the application money only after getting appropriate instructions from the Registrar, which is after the finalisation of basis of allotment in the issue.   

Other important points to remember regarding ASBA submission include:

  • Investors need not necessarily have their Depository Participant* account with the SCSB where the form will be submitted
  • However, they are required to submit ASBA to the SCSBs only
  • Investors can apply either through ASBA or through existing system. Applications made through both (having the same PAN) will be treated as multiple applications and rejected
  • SCSBs are required to acknowledge submission of ASBA
  • ASBA forms will be treated like non-ASBA applications, while the basis of allotment is being finalized.

*In India, a Depository Participant is described as an Agent of a depository. A “depository”, is defined as “an institution that works like bank”, and which maintains accounts for investors owning securities (shares, debentures, mutual funds etc.), in a dematerialised or electronic form, and not as a physical certificate.

 

Related: Life stages and Investment [Infographic]

In the case of failed or withdrawn issues, the SCSB shall unblock the application money from the bank accounts only after receiving instructions from the Registrar. On the other hand, investors who want to register any complaints can approach the bank where the application form was submitted or the Registrars to the issue.

 
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