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ASBA (Applications Supported by Blocked Amount)

ASBA (Applications Supported by Blocked Amount)

Securities and exchange board of India (SEBI) the regulator for Indian stock market has defined the process called ASBA for companies applying for IPOs (Initial Public Offering), Rights issue, FPS etc. ASBA as a process is implemented in banking application which blocks the investor’s amount from getting debited till the shares are allotted to them.

Not all the banks support this application but self-certified syndicate banks (SCSBs) support this process which is inculcated by the regulator SEBI. The blocked amount cannot be withdrawn by the investor and also the movement of these funds to firms won’t happen until the shares hit their Demat account. ASBA came into existence from the year 2008. 


Significance of ASBA.

Before ASBA investors were supposed to BID for IPOs through cheques which was a lengthy and tedious process for the investors. They will have to pay fees upfront and wait for the refund again through cheques in case if the shares are not allotted. ASBA simplifies the whole process along with bringing the transparency to the system. The investor won’t have to wait for amount to be refunded nor follow up regularly to check the status of the refund. The amount can be utilized then and there as refunded by the investor. The application blocks and unblocks the amount automatically so that investor can subscribe for more than one IPOs simultaneously or one after the other.

SEBI being the regulator of the stock market makes sure the whole investing activity for investor is friendly and encourages any scope if any for the investor to subscribe more for the IPOs.  As the transparency is maintained, the question of discrepancy is very less or none. The process reduces the manual intervention as the whole application runs automatically at the backend.


Features of ASBA

SCSBs who are authorised to perform ASBA can accept the applications from the investors for the subscription of IPOs.

Once they receive the form, they will verify at their end for the necessary background of the account.

Once the application is approved, the amount is blocked from the applicant’s account and set aside for the IPO.

NSE has a bidding system through which the shares are allotted, the details are uploaded to this system.

In case of successful subscription, shares are credited to the investor’s demat account and in case allotment fails, the blocked amount is refunded back to the investor original account.

As of November 10th 2015, SEBI has mandated all subscriptions for IPOs inly through ASBA.


How does ASBA work?

During the IPO, when the bid is made open to the public, the investors start submitting their bids for the subscription. The application receives these bids, post verification each bid is stamped with a number and stored in the book. Each of these bids are unique in terms of number, number of shares requested and bid amount. The applications would have already blocked the amount from the account till the opening day of IPO.

Once the IPO opens, the system started allotting shares based on the bid amount hierarchy and number of lots requested by the investor. At the time of subscription itself the lot size and other priorities would have been set. For all the stamped numbers in the book, where ever the allotment is executed, the blocked amount is debited and credited to the firm’s beneficiary account against the shares being allotted to them simultaneously.

After all the available shares are allotted to the investor, the stamped number remaining in the book without any allotment is unfreezed in one go. This will unblock the amount from the investor amount. Thus the amount not utilized is returned back to the investor in short period of time with no fuzz.


Importance of ASBA

• ASBA is an application which does the blocking-unblocking of funds from account.

• ASBA reduces the manual intervention required to return the unused amount back to investor who have not been allotted with shares during IPO.

• The issuer company guarantees through ASBA that the blocked amount for the IPO is not used or misused for other purposes.

• Till the allotment date the investor can revise, withdraw or cancel his bid for the shares. The blocked amount changes as the revised bid.

• Revision of bid is made easy in ASBA compared to the earlier system, where the investor had to provide whole new bid papers along with destroying the previous ones.

• Investor can check the status of the bid online.

Advantages of ASBA

• ASBA simplifies the IPO subscription which used to happen through cheques, which was a painful process with many limitations.

• Investor need not pay cheques or block funds by himself but is done by application instead. This will help investor earn interest on the blocked amount also.

• Investor doesn’t have to bother about the refund in case if shares are not allotted. The application does it at the backend with ease.

• Investor can revise, review, withdraw and check the status of this bid till the allotment date.

• Due to SCSB, the investor’s intermediary for the subscription will always be his own bank and in case of discrepancy, he would know whom to contact and where to reach out.

• There is no mandatory that the investor needs to have depository account with their SCSB.


Conclusion

ASBA is the process defined by SEBI to make the subscription process for EPO easy for the investor. Earlier the amount had to be given out through cheques which would be blocked/unusable till the allotment date. With the ASBA, the investor not only earns the interest on the amount but also the refund in case of non-allotment of shares is easy. SEBI has made ASBA compulsory for all the SCSB banks for the IPO subscription. It is a automated process which is executed through banking applications, thus excludes all the manual intervention needed during the allotment and refund of the funds back to the investor. When the shares are allotment to a particular investor, the blocked amount is debited from his/her account and the share are credited to the linked demat account.


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