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ASBA – Key points to remember before applying for an IPO

Published : April 17, 2018

ASBA - Key points to remember before applying for an IPO

ASBA stands for Application Supported by Blocked Amount.” And from January 2016 onward it is mandatory to apply for an initial public offering (IPO) through this method by Securities and Exchange Board of India, the SEBI.

The SEBI is the regulator for an IPO in India. ASBA is an authorization to block the application money in a bank account.

ASBA is a process of applying for IPO. Here your application allows your bank to hold the subscription amount on your account until you accept allotments of shares or refunds, if not allowed. Your bank blocks the subscription amount in your account when you apply for the IPO. And you cannot use the funds for any other purpose. However, it permits you to earn interest on the subscription amount.

As per definition in clause (d) of sub-Regulation (1) of Regulation 2 of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009, ASBA is –

An application containing an authorization to block the application money in the Bank account for subscribing to an IPO/FPO or Rights Issue.

In order to use ASBA, you first fill in the designated IPO application form. Then you submit it to any self-certified syndicate bank (SCSB) through any of its authorized branches.  There are two ways on which any retail investor can apply to IPO through ASBA. First in online through net banking facility and second, through physical application method. Furthermore, online method is simple then application method.

Who are eligible to apply through ASBA?

A retail investor is only eligible to apply through ASBA process if he/she –

  1. is a resident retail individual investor
  2. has the Demat account with any Depository participants like CDSL or NSDL along with a valid permanent account number (PAN)
  3. has the sufficiently clear credit balance (no overdraft) in his/her savings or current account
  4. is bidding at cut-off, with the single option as to the number of shares bid for,
  5. is applying through blocking of funds in a bank account with the SCSB,
  6. has agreed not to revise his/her bid and
  7. is not bidding under any of the reserved categories.

An investor who applies through ASBA is known as ASBA investors.

What is the benefit of applying through ASBA?

The following are the main benefits to a retail investor who chooses to apply through ASBA –

  1. The amount remains blocked in your bank account for the IPO application.
  2. There is no loss of interest. The account continues to earn interest on the funds blocked. The blocked fund is debited post allotment and then the interest stops on the debited part.
  3. There is no need to wait for your refund cheques/ECS credits.
  4. SCSB unblock the application money from the frozen accounts in case the application is rejected or there is no allotment or the issue is withdrawn. For this, the SCSB receive instructions from the registrar of the issue.
  5. The blocked amount is considered while calculating average quarterly balance (AQB) in the account.
  6. The application form is simple and you can apply online through net-banking
  7. The applicant need not have to submit any physical documentation to avail of this facility.
  8. This facility is absolutely free.

The application process of ASBA method if applying online through net-banking

  1. Log in to the net-banking portal of your bank.
  2. Select the “IPO Application” option from the menu.
  3. This re-directed to the IPO Online System.
  4. Fill in the required information.
  5. ASBA IPO application is for individuals. The Corporate, HUF, Trust, etc. cannot use it for applying.
  6. Please note that names of the applicants should be as per the sequence of names on his/her depository account.
  7. By default, the net-banking user will be the 1st applicant.
  8. In the account, a hold is marked on the total amount at the highest price bid
  9. Application money will remain blocked up to the finalization of allotment.
  10. Your application money is debited only after the allotment of shares. Also, there are cases of non-allotment. In such cases, the blocked amount is released but after registrar’s notification.

The application process of ASBA method if applying through physical application

  • First, you need to visit the Self Certified Syndicate Bank (SCSB) branch of the bank where you hold your account. Further, it is not necessary to hold an account in the same branch. An applicant can maintain the account with any of the branches. You can check the list of banks and their branches self-certified syndicate banks (SCSBs) for Syndicate ASBA on the SEBI website.
  • Download ASBA bid-cum-application forms and print it. You can download this form from Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) website. The links for the same are –

ASBA bid-cum-application forms at BSE –  Click to download 

ASBA bid-cum-application forms at BSE –  Click to download 

  • Put correctly your bank account number, PAN, Demat account particulars, etc. and submitted to the branch.
  • After receiving your filled application, for which the bank will provide with an acknowledgment, the bank will block the amount in your account and will send the application information to the designated stock exchange.
  • An applicant should maintain sufficient funds in their bank account, equivalent to the IPO application amount.
  • Finally, the applicant may check their application status on the following links.

Check your application status at BSE – Click to check

Check your application status at BSE –  Click to check

  • Furthermore, please note that the application status is available on both NSE and BSE portal until 6 days after the issue closure date. To avail this facility from NSE the applicant needs to register over NSE website. However, no such registration is required when accessing the BSE website.

What circumstances results in ASBA IPO application form rejection?

The ASBA application is subject to rejection when the below mentioned circumstances met –

  1. The insufficient amount in the bank account
  2. Any discrepancy in the application form
  3. Information furnished by the applicant is incorrect
  4. Name on the PAN card miss-matches with the Demat holder’s name.
  5. Multiple application by the same applicant through ASBA or no-ASBA method.

What is the importance of ASBA for the retail investor?

Earlier till January 2016, most of the retail investors used to apply IPOs or rights offers using physical application forms. Those forms were accompanied by drafts or cheques. This used to lock the funds for several days till the finalization of IPO allotment. Sometimes cheques/drafts went missing.

There were situations were offers used to be heavily over-subscribed. And in such case, the opportunity cost of committing the retail investors’ money and waiting for a refund was usually high. However, ASBA completely eliminates such costs.

Do your own research on Indian IPO at Market Intelligence section for IPO. Get indepth IPO news, ipo result, upcoming ipo calendar, and latest upcoming IPO.

As the retail applications are now moved to ASBA, the entire method of an offer being made till listing of the security on an exchange has come down to just six days. This benefits investors achieve fast returns from one IPO. And maybe helping redeploy the same funds in another IPO. ASBA also allows a built-in mechanism to withdraw bids, following you put them in.

Why should an investor care for ASBA?

ASBA diminishes the losses in opportunity cost and any risk linked with applying to an IPO. An IPO does stack up in bull markets. So ASBA enables you to shift instantly from one offer to another. This is possible without waiting for bids to get refunded.

However, ASBA faces three limitations. Firstly, the compulsory requirement implies that you can now only apply to an IPO by assigned banks. And this restricts your choices.

Secondly, if you don’t own a three-in-one trading account, there are chances for the delay in the ASBA process. The three-in-one trading account links your bank, broking and demat accounts. And you also need to empower your broker to deal with your bank.

Lastly, limit of five applications per account for an ASBA transaction is also a big constraint.

 

 


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