ASBA is an alternative payment method used by investors when they wish to participate in an IPO, wherein the amount remains blocked in the bank account of the investors until allotment is done.
ASBA means ‘Application Supported by Blocked Amount’. This was introduced in July 2008 by SEBI and is applicable to all IPOs having a book-building process for price discovery. This is an alternative payment method for investors participating in an IPO. Herein the IPO bidding amount remains blocked in the bank account of the investors until allotment is done. Thus, the investors are not required to pay for subscribing to an IPO application initially through cheque. If the shares are subsequently not allotted by the company, the amount gets released and the investor can utilize it immediately. Instead, if the shares do get allotted, the amount is transferred to the company towards the IPO allotment. This new process is supported by Self Certified Syndicate Banks (SCSBs). For this, the banks are required to register themselves in the SCSB list. The list of SCSBs and their designed branches i.e. branches where the ASBA application form can be submitted is available on the websites of BSE (www.bseindia.com), NSE (www.nseindia.com), and on the website of SEBI (www.sebi.gov.in). The list of SCSBs is also provided in the ASBA application form.
The following are the key advantages of applying through ASBA:
- The process of applying for an IPO becomes relatively simple.
- The investor deals with his / her own bank.
- The application money need not be paid by the investor through cheque. When an investor submits ASBA, he/she provides authorization to block the bank account balance to the extent of the value of shares applied for.
- The company as well as the investors avoid the hassle of subsequent refunds, as in ASBA only the allotment money actually gets transferred from the investor’s bank account to the company’s account upon final allotment of shares.
- As the application money remains in the bank account of the investor until the final allotment of shares, the investor continues to earn interest on his / her funds.
According to SEBI guidelines, an individual investor can apply through the ASBA process provided he/she:
- is a “Resident Retail Individual Investor” i.e. applying for shares/securities up to INR 2,00,000
- is bidding at cut off
- is applying through his / her blocking funds in a bank account with an SCSB
- has agreed not to revise the bid
- is not bidding under any of the categories which are reserved in nature.
A retail investor has been granted the option of making an application through ASBA or through a cheque. However, non-retail investors i.e. QIBs (Qualified Institutional Buyers) and NIIs (Non-Institutional Investors) are required to mandatorily make use of ASBA when applying in public/ rights issues.
The probability of getting an allotment of shares does not vary irrespective of whether the application is made through ASBA or otherwise. However, ASBA is increasingly gaining acceptance amongst investors as it is a simple, easy and smart way of applying in public issues.
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