ASBA in IPOs

Introduction

Applications Supported by Blocked Amount, commonly known as ASBA, is a revolutionary system that has simplified the process of applying for IPOs and other public issues in India. Introduced by the Securities and Exchange Board of India (SEBI), ASBA has gained widespread popularity due to its efficient, investor-friendly approach to IPO applications.

This guide provides a comprehensive look into ASBA, its benefits, application process, and how it functions in the IPO landscape.

What is ASBA?

ASBA, or Applications Supported by Blocked Amount, is a process through which investors can apply for Initial Public Offerings (IPOs), Rights Issues, and Follow-on Public Offers (FPOs) without the need to transfer funds upfront. The system blocks the application amount in the investor’s bank account until it allots the shares. This approach ensures the bank debits funds only upon share allotment, allowing investors to earn interest on the blocked amount until the final allotment.

Introduced by SEBI in 2008, ASBA has become the standard for IPO applications in India. It not only ensures a smooth application process but also offers more control over funds to investors.

IPO Full Form and ASBA’s Role in IPOs

Before diving deeper into the ASBA process, it’s essential to understand the IPO full form. IPO stands for Initial Public Offering, a process through which a private company offers shares to the public for the first time to raise capital. ASBA facilitates the IPO application process by enabling investors to apply while keeping the application amount blocked in their bank accounts.

Key Features of ASBA

1. No Need to Transfer Funds Immediately: The application amount is blocked rather than debited, so investors don’t lose liquidity.
2. Earn Interest on Blocked Amounts: The blocked amount remains in the investor’s account, allowing them to continue earning interest.
3. Reduction in Refund Delays: Since funds are only debited after allotment, there is no need for refunds for unsuccessful applications.
4. Simplified and Secure Process: SEBI regulates ASBA, providing a secure, transparent application process.

Benefits of Using ASBA

1. Convenience: Investors can apply online through their bank, bypassing paperwork and reducing the hassle of physical application forms.
2. Increased Fund Security: ASBA keeps the funds blocked in the bank account without transferring them until allotment.
3. Higher Transparency: SEBI’s regulations ensure a fair process, preventing fund misuse or unauthorized transactions.
4. Time Efficiency: The ASBA application process is faster and simplifies the IPO application process for investors.

Types of Issues Where ASBA Can Be Used

1. Initial Public Offerings (IPOs): Investors can use ASBA to apply for an IPO, ensuring that funds remain blocked in their account until allotment.
2. Rights Issues: In rights issues, ASBA allows investors to subscribe to additional shares offered by the company at a predetermined price.
3. Follow-on Public Offers (FPOs): ASBA can also be used in FPOs, where a company that has already gone public issues additional shares to raise capital.

ASBA is mandatory for all investors applying through IPOs, rights issues, and FPOs. The flexibility and security it provides have made ASBA an indispensable tool in the Indian capital market.

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How ASBA Works: Step-by-Step Process

Understanding how ASBA works will help investors use this facility effectively when applying for IPOs. Here is the step-by-step process:

Step 1: Check Bank Eligibility

Not all banks offer ASBA services. To apply via ASBA, investors must have an account with a Self-Certified Syndicate Bank (SCSB). These are banks that SEBI has authorized to offer ASBA services. Major banks in India, including State Bank of India (SBI), HDFC Bank, ICICI Bank, and Axis Bank, provide ASBA facilities.

Step 2: Fill Out the ASBA Application Form

The ASBA application form, also known as the IPO ASBA form, can be filled out in both online and offline modes. For online applications, investors can access the ASBA IPO application through their bank’s net banking portal. In the offline mode, investors can submit the ASBA form at any designated branch of their SCSB.

Step 3: Provide Necessary Details

The ASBA form requires basic information, such as:

• PAN number
• Demat account details
• Bid quantity and price
• Bank account details for blocking the application amount

This information ensures that the application is processed efficiently and that the funds are blocked correctly.

Step 4: Submission and Verification

Once the form is filled out, it is submitted either online or at the bank branch. The bank verifies the details, blocks the application amount in the investor’s account, and forwards the application to the designated exchange, like NSE or BSE.

Step 5: Allotment and Fund Release

After finalizing the allotment, the system debits only the allotted amount from the investor’s account. If the investor doesn’t receive shares, the system releases the blocked amount without deductions, allowing the investor to retain full control over their funds.

This streamlined process allows investors to participate in IPOs, rights issues, and FPOs without the risk of refund delays or losing interest on their funds.

Online ASBA Application: How to Apply for IPOs Online

Many investors prefer applying for IPOs online through ASBA because it offers a convenient, paperless, and quick process. Here’s how to apply for an IPO online via ASBA:

1. Log into Net Banking: Investors should log in to their bank’s net banking portal.
2. Select IPO/ASBA Option: Under the investment or IPO section, select the ASBA IPO application option.
3. Choose IPO and Enter Details: Select the desired IPO, provide bid details, and enter the application amount.
4. Block Funds: Submit the application to authorize the bank to block the required funds. The bank will confirm the transaction and provide a unique application number.

This process takes just a few minutes, and the application can be tracked through the net banking portal.

ASBA e-Form and its Benefits

The ASBA e-form is an electronic form provided by banks for online applications. It streamlines the IPO application process, reduces paperwork, and provides a quicker and more efficient way to apply. Key benefits of the ASBA e-form include:

• Paperless Application: Investors can apply without filling out a physical form.
• Instant Fund Blocking: The e-form allows funds to be blocked instantly, ensuring timely participation in the IPO.
• Real-time Updates: Investors receive instant confirmation of fund blocking and can track their application status.

Rights Issue and ASBA: Applying with ASBA for Rights Issues

A rights issue is a method by which companies offer additional shares to existing shareholders at a discounted rate. ASBA facilitates applications for rights issues by blocking funds and preventing unnecessary fund transfers.

Investors can apply for rights issues by following the same steps as an IPO application through ASBA. This ensures that funds remain secure and accessible until shares are allotted, with no additional risk to the investor.

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Key Terms Related to ASBA

Understanding these terms can enhance an investor’s understanding of ASBA and IPO applications:

1. ASBA IPO Application: The process of applying for an IPO through ASBA.
2. NSE ASBA: Refers to ASBA applications submitted for IPOs listed on the National Stock Exchange.
3. BSE IPO Form: ASBA forms specifically designated for IPOs listed on the Bombay Stock Exchange.
4. QIB (Qualified Institutional Buyers): Institutional investors eligible for IPO allocation.
5. SCSB (Self-Certified Syndicate Banks): Banks authorized by SEBI to provide ASBA services.

ASBA vs. Traditional IPO Application Process

Before ASBA, IPO applications involved transferring funds upfront, resulting in significant disadvantages:

• Immediate Fund Transfer: Traditional applications required funds to be debited immediately, reducing liquidity for the investor.
• Delayed Refunds: If shares were not allotted, refund delays could result in fund lock-up for weeks.

ASBA, by blocking funds instead of debiting them, removes these inefficiencies, offering a more investor-friendly and reliable process.

Conclusion

ASBA has transformed the way investors apply for IPOs, rights issues, and FPOs in India. By enabling fund blocking rather than immediate transfers, ASBA provides a secure, transparent, and efficient application process. As IPO investments continue to grow, ASBA will remain a critical component of India’s capital market structure, benefiting both retail and institutional investors.