Applying for IPOs through a new system - ASBA
Application Supported By Blocked Amount
Have there been times when you wanted to subscribe for an Initial Public Offer (IPO) but hesitated because you couldn’t afford to lock-in so much money for extended period? Apart from your money being frozen, you are seldom assured of full allotment of shares.
There have been many instances over 2007 and 2008 when investors could not get any allotment in an IPO. In such instances, the dejection only increases. The ASBA or Application Support Blocked Amount process introduced by SEBI in 2008 can lessen investors’ anxiety to a great extent.
What’s ASBA?
ASBA means “Application Supported by Blocked Amount”. It enables investors to apply for Initial Public Offers (IPOs), Follow on Public Offers (FPOs) and right issues without making a payment. Instead, the amount is blocked in investor’s own account & only an amount proportionate to the shares allotted goes out when allotment is finalized. It is a supplementary process of applying in IPO made through book building route and co-exists with the current process of retail investors using cheque as a mode of payment and submitting applications.
Once you decide to go through this route, you cannot make another application through a cheque. If you apply through a cheque and ASBA, your application will be rejected on grounds of multiple applications.
When introduced in 2008, ASBA could be availed only by retail investors. Recently, this clause was amended to accommodate corporate investors and high net worth investors (HNIs) from January 1, 2010.
How it works:
- To submit ASBA Application form
ASBA can be submitted to the Self Certified Syndicate Bank (SCSB) with whom the bank account authorised to be blocked, is maintained. You can either fill up the physical ASBA form available with SCSB and submit the same to it or apply electronically through the internet banking facility (if provided by SCSB). Investors need not necessarily have their DP account with the SCSB, where they are submitting the ASBA form. In case of public issue, the application form for ASBA will be different from the existing application form for public issues. In case of rights issue, there will not be a separate form for ASBA. The investor has to apply by selecting ASBA option in Part A of the Composite Application Form. ASBA forms will be treated similar to the non‐ASBA forms while finalizing the basis of allotment. The SCSBs are required to give the acknowledgement for submission of ASBA application form. The bids received through ASBA mode will also be reflected in the demand graphs displayed in the website of stock exchanges.
- To fill the application of ASBA
List of SCSBs & their designed branches i.e branches where ASBA application form can be submitted, is available on websites of BSE (www.bseindia.com), NSE (www.nseindia.com) & SEBI (www.sebi.gov.in). The same would also be given in the ASBA application form.
- Applicant allowed withdrawing ASBA bids
During the bidding period, one can approach SCSB, to which he/she had submitted the application and make a withdrawal request, post which, the bank will unblock the amount. After the bid closure period, applicants need to send their withdrawal requests to the Registrars in order to withdraw their bids. Subsequently, the Registrar will ask the SCSB concerned to unblock the application money in the bank account after the finalization of basis of allotment. Note that once you have submitted your bid, you cannot revise it, though you may withdraw from the bidding.
Advantages
• Despite not being mandatory, it makes sense to opt for ASBA as it scores over the traditional mode of cheque payment in several areas.
• It enhances the transparency of the share allotment process. Only that amount that is required to make share allotment is debited to the account after the bid is selected for allotment after the basis of allotment is finalized. Therefore, the applicant need not worry about the refund in case he/she is not allotted any share.
• Moreover, since the money remains in the bank account, he/she does not lose out on the interest that can be earned during the period.
• The application form is simpler.
• The investor deals with the known intermediary i.e. his/her own bank.
• Remember, you can bid only at the cut-off price. Therefore you stand a good chance of being allotted a fair portion of the shares you have applied for.
Life is really simple, but we insist on making it complicated. ~Confucius
