In the last few years India’s growth story has been quite remarkable, aligning with that several large companies have been interested in exploring the primary markets to raise Initial Public Offerings (IPO). IPOs can de defined as the equity shares of a company that are offered to the general public in the open market. The Application Supported by Blocked Amount (ASBA) is a free tool that enables investors to bid for shares without money being taken from their bank accounts – the money is taken only when the allotment is fixed and the rest of the amount can be used for other purposes. When the allotment is finalized the bank will then transfer the amount for allotted shares to the issuer. The ASBA was initially introduced in September 2008 and has been made a mandatory process since January 2016.

Advantages of using ASBA

With the aid of ASBA, investors do not need demand drafts or cheques which were previously required while applying for an IPO. They had to primarily have demand drafts made or issue checks in order to pay the application money, and the entire process was considerably time consuming ie. the waiting period was as long as 2 weeks in order to attain refunds. In most cases, the shares alloted to investors end up being lesser than the number they initially applied for, this can lead to the investors bank balance taking a toll.

Alternatively, the ASBA enables investors to directly use the money in their bank accounts for IPO application.  This amount  is not debited until the investor’s  application is selected for allotment. Until the selection is done, the investor continues to earn interest on the money as the money does not leave the bank account. The investor does not have to worry about refunds as only the amount of money required for allotment is taken from his or her account ie. the balance money in the account can be utilized elsewhere.

For example, if an investor with 5,00,000 in his bank account bids for shares worth 2,00,000 (which is the maximum amount for retail individual investors to invest in an IPO).  Then only 2,00,000 will be blocked by the bank and the remaining  balance  remains untouched.

Procedure for applying for IPO through ASBA

For applying for IPOs through ASBA, investors need to select banks part of the Self Certified Syndicate Bank (SCSBs) list. The SCSB is a bank capable of providing individuals with ASBA services and list of SCSBs is available on the Securities and Exchange Board of India (SEBI) and the National Stock Exchange (NSE) website. Investors can attain the ASBA form from the websites of stock exchanges, SCSBs then accept the completed application and verify the same, they then proceed to block the funds from the selected bank account and upload the details in the web based bidding system of the NSE.

  • – The first step of the process is for investors to get the ASBAform from the stock exchange websites or those of book running lead managers (Book running lead managers are the lead coordinators responsible for analyzing company financials and the market conditions to decipher the initial value and the quantity of shares to be sold in IPOs). Currently, banks provide internet banking services wherein investors can apply for IPOs online. Alternatively, they can also fill the physical form in any of the SCSB branches where the investor has a bank account.
  • – Some of the details required in the form are the name of the applicant, PAN, demat account number, bid quantity and bid price.
  • – After selecting the IPOthe investor is interested in applying for, he or she can make upto 3 bids. The amount equal in value to the highest bid is selected and blocked, then the SCSB uploads the application in the bidding platform.
  • – The investor needs to ensure that the data in the form is accurate else there may be chances of rejection.

Conclusion

The ASBA interface has facilitated an easy free application for the IPO through the SCSB, and this is greatly making the process hassle free and timely. Once investors have gone through the application form, the actual transfer of money solely takes place when allotment has been finalized and they continue to have the flexibility to use the remaining balance and earn interest on the same.