ASBA and IPOs: All you need to know

The best part of ASBA is that the investor does not have to pay any amount till the shares are allotted; as a result, there is no loss of interest income, and no refund hassles in case of non-allotment of shares.

ASBA and IPOs: All you need to know

For the past few years, India’s market regulator SEBI (Securities & Exchange Board of India) has put in place a system that enables investors to sidestep intermediaries such as brokers while applying for rights issues, IPOs, or mutual fund New Fund Offers (NFOs). It also does away with traditional payments modes such as demand drafts and cheques.

Widely known by its acronym ASBA (Application Supported by Blocked Amount), this system requires investors to apply through a bank that offers the facility, whereby the application amount stays in the investor’s bank account till the issue allotment takes place. As a result, the IPO issuer cannot unjustifiably earn interest on an investor’s money for the interim period. 

ASBA has thus proved to be largely positive for small and medium-sized investors. First mooted in 2008 and tried on a pilot basis thereafter with a few select rights issues, ASBA was made mandatory for IPOs from 1 January 2016.

1. How ASBA works

‘Application Supported by Blocked Amount’ implies that by taking this route, an investor is authorising the bank to block the application money in their bank account, for applying for subscription to an issue. The application money is debited only if the application is selected for allotment after the basis of allotment is finalised, or the issue is withdrawn or deemed to have failed.

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

Related: What is ASBA? All you need to know 

2. Balance amount

The entire bank account is not blocked; what is blocked is only the application amount. The remaining amount in the account (which has not been blocked), can still be used by the investor-account holder for withdrawals, cheque payments etc.

3. Authorised banks/SCSBs

When an investor makes an ASBA application, it is done through a self-certified syndicate bank (SCSB). As of 1 April 2019, there were 66 SCSBs including premier banks such as HDFC Bank, SBI, ICICI Bank, Kotak Mahindra Bank etc. A list of SCSBs is given in the ASBA application form, but investors are also advised to check with their banks when making an IPO application.

Related: All about IPOs in India 

4. SCSB and bank account

SEBI does not allow submission of the ASBA form randomly at any of SCSBs on its list; an investor can submit it only at an SCSB branch where they have a savings account (current accounts are disallowed).

5. ASBA and IPO

There are two ways by which one can apply for an IPO through ASBA: the traditional offline way, and the newer online way.

When applying offline, an investor still has to fill an ASBA form, which can be downloaded from the BSE or NSE website or procured from the SCSB. The information entered (bank account number, demat account number, PAN, or even the spelling of the investor’s name) has to be correct; if there is any mismatch with the information filed with the SCSB, the bank will reject the application. An incomplete form will also face rejection. The SCSB then uploads the filled-in application on the bidding platform.

Online applications can be made through the facility available on the SCSB portal. If you want to start investing in the stock market, get yourself a demat account and apply online for an IPO. Here’s how you can go about it:

  • Log in to your internet banking account;
  • Locate IPO application on the left side menu and click on it;
  • All the IPOs underway will be listed; select the one you wish to apply for;
  • Fill in your details, and place and confirm the order.
  • 6. Submitting the ASBA form

One can either fill up a physical ASBA form and submit it at an SCSB branch where they have an account, or apply electronically through the internet banking facility (if provided by SCSB). SEBI also allows RTAs (Registrar and Share Transfer Agents) and DPs (Depository Participants) to accept application forms (both physical and online) and make bids on the stock exchange platform. This is in addition to SCSBs and stockbrokers who have such facilities. The SEBI decision was taken to increase the number of submission points and enhance the use of ASBA.

7. Different branches

It may so happen that an IPO has opened when the investor is travelling and is in a different city. In such a case, can an application be filed at an SCSB branch where the investor does not have an account? The answer is – yes, this can be done, provided the branch has core banking facility.

8. Type of IPOs 

The ASBA facility is permitted only for book-built issues and not for fixed-price issues. In any case the latter is almost non-existent these days, as issuers opting for the IPO route prefer the book-building process (where price discovery is done through bidding). The investor’s ASBA application funds are blocked on the basis of indicative price, though the actual debit on allotment is based on the discovered price.

Related: IPOs that have disappointed investors in the last 10 years 

9. Number of applications

ASBA allows the investor to make up to five applications per issue.

10. Error responsibility

If an error is found in the data furnished in the application form, it is the investor who will be held responsible. But if there is an error in entering the data in the electronic bidding system of the stock exchange, it will be the SCSB’s responsibility.

11. Registering complaints

One has to approach the concerned SCSB for any complaints regarding the ASBA application. SCSB is required to give a reply within 15 days. In case you are not satisfied, you may write to SEBI thereafter at the following address:

Investor Grievance Cell 
Office of Investor Assistance & Education 
Securities & Exchange Board of India
Post no: C4-A, G Block, Bandra Kurla Complex
Bandra (East), Mumbai 400051
Tel: +91-22-26449000/ 404590000
Fax: +91-22-26449016-20/ 40459016-20

12. Application acknowledgement

The concerned SCSB is required to provide a counterfoil as an acknowledgement after the ASBA form is submitted. Also, an order number is generated at the time of uploading the application details. You can put in a request for this in case you need it.

TomorrowMakers Premium Banner

13. ASBA and rights issues

As stated earlier, ASBA does away with cheques for IPOs totally. It is the same for rights issues as well, though a few companies still accept cheques. But where ASBA is required for rights issues, all that the shareholder has to do is fill in their bank details in the appropriate column provided in the rights form.

14. ASBA and brokerage

With ASBA, there is no need for cheques that the broker would have taken care of. Investors are required to submit ASBA forms only with the SCSBs. There’s really no need to approach a broker; after all, the broker will simply submit the form to the SCSB. The application process can be done independently and takes only a few minutes.

15. Benefits of ASBA

There are several benefits of ASBA; let’s see what they are.

  • Earlier, the investor paid the application money through cheques. This meant losing out on interest till the allotment/refund. But with ASBA, the application amount enables the investor to continue receiving interest on that blocked amount;
  • Earlier, various problems arose routinely when it came to refunds. With ASBA, there is no scenario for refunds, as the required money is still in one’s bank account, though blocked. This block is lifted in case of non-allotment;
  • Simple application form;
  • No intermediaries required, as investors deal directly with the bank;
  • The bid can be revised or withdrawn, though only before the end of the subscription and in a prescribed format only.

16. Applicant requirements

As per SEBI, all retail investors can apply through ASBA for an IPO. But for rights issues, only bona fide shareholders are allowed. Moreover, they must hold demat shares and apply in the dematerialised form.

An ASBA investor is also required to furnish the following information: 

  • Permanent Account Number (PAN);
  • Depository participant identification number (DP ID);
  • Client identification number from their broker’s account; 
  • Bid quantity for issue;
  • Bank account number.

17. Demat account and SCSB

Investors are not required to have their demat account (DP number) with the SCSB where the ASBA form is submitted.

18. Withdrawing/Modifying bids

SEBI allows withdrawal or modification of ASBA bids; if during the bidding period, it should be done through a letter to the bank where the ASBA was submitted, mentioning the application number and the TRS (Transaction Registration Slip) number, if any.

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

Related: How IPOs differ from NFOs? 

19. Unblocking amounts after withdrawal

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 instruction from the Registrar, which is after the finalisation of basis of allotment in the issue. 

20. Issue failure or withdrawal

In case the issue fails or is withdrawn, the SCSB shall unblock the application money from the bank accounts upon receiving instructions from the Registrar.

Final words

The biggest takeaway from ASBA is that the entire process favours the retail investor, who is now more empowered and has better control over the IPO process, thanks to the transparency that has been ushered in. Investors don’t have to pay any amount till the shares are allotted; as a result, there is no loss of interest income, and no refund hassles in case of non-allotment of shares. Read to know if your IPO rightly valued.




Related Article