Application Supported By Blocked Amount (ASBA)

Narendra Kumar

16 Sep, 2019

Application Supported by Blocked Amount is a facility that the banks provide to investors in cases of IPOs (initial public offerings), FPOs (follow-on public offers) and NFOs (New Fund Offers) of mutual funds. The ASBA facility has been developed by the Securities and Exchange Board of India^[1] (SEBI).

In this article, we will detail you about the ASBA, Its mandatory laws, and compliances, SEBI guidelines, Procedure to apply for ASBA and related matters.

What is ASBA is all about?

ASBA is a system for making an application to an IPO, as proposed by SEBI. It is investor-friendly and serves as a platform where banks have also become participants in the process of IPO.  

When an application via ASBA is made for IPO/FPO/NPO, the application amount in the bank account of the applicant gets blocked. This application amount stays in the bank account but cannot be used by the till the time units of shares or mutual funds are allotted. The application amount from the bank will get debited provided the application for allotment is selected after finalization of the basis for an allotment or if the issue is withdrawn or failed.  

The amount that gets debited from the bank account will be dependent on the units of shares or mutual funds that get allotted. If after allotment, any amount remains in the bank amount, the same shall be released for use.

ASBA has been made mandatory for IPO’s since January 1, 2016, by SEBI. However, this has not been made mandatory for the retail investors and they can use the facility of making application with a cheque as well.

Main Features of ASBA

The key features of ASBA are discussed henceforth:

Alternative Mode of Payment

ASBA serves as an alternative mode of payment in getting issues by providing the facility of amount blocking in the bank account. Traditionally, the payment for buying units in IPO/NPO was done via demand drafts or cheques. Thus, ASBA has provided the applicants with a more convenient and reliable mode of payment as the application money gets blocked in bank account till the time units of shares/mutual funds get allotted actually.

Investor Bidding

ASBA provides facilities of investor bidding with various options to the investors. The investors can also apply via SCSBs (Self Certified Syndicate Banks) if they have an account in that.

ASBA Procedure

The ASBA procedure is discussed in detail as follows:

• The retail investors can apply for any issue- public or rights through their bank account with the help of the ASBA facility.
• The investors will have to fill out the ASBA form and fill out the necessary details such as applicant’s name, PAN, demat account number, bid quantity and price, and all the other related details. Along with this, the investor will have to give the bank instruction pertaining to blocking the amount in his/her account. (The ASBA form is usually available at the designated branches of the banks that have been approved for providing the ASBA facility).
• After the ASBA form has been duly filled by the investor, the details of the investor are uploaded in the bidding platform by the bank.
• If the details filled in by the investor in the ASBA form are not correct, the application will get declined.
• If the application is accepted and the shares are allotted to the investor by the company, the application amount shall be deducted from the account of the investor by the bank. The amount in excess of the application money shall be refunded.
• When making an ASBA application, it is necessary that the applicant holds an account with the bank that has been approved for providing this facility. However, holding a Demat account in the same bank is not mandatory for the applicant. The option can be availed even via net-banking or submission to the bank.

Who Can Apply via ASBA?

The application can be made via ASBA in a public issue by individual investors. This application can be made through book building route provided the investor:

• is bidding at cut off, with only a single option for a number of shares that are bid for;
• is a resident individual investor, i.e., the investor has applied for shares for not more than INR 1 lakh;
• has made the share application via ASBA with the SCSC where he/she has an account;
• has made an agreement of not revising the bid;
• has not made the bid in any of the reserved categories of shares.

ASBA for Rights Issue

Using ASBA process for a rights issue of shares has been permitted by SEBI. The rights issue allotment of shares via ASBA would be done on a pilot basis. The shareholders can apply for rights issue via ASBA subject to the following conditions:

• the shares are held by the shareholders in dematerialized form;
• the shareholders have made an application for additional shares or entitlement for issue in dematerialized form;
• shareholders have not partly or wholly renounced the entitlements;
• shareholders are not renounced to the shares being issues; (A renounce means a shareholder who has declined the rights shares issued by the company or transferred the rights shares to another person for a consideration.)
• shareholders have made an application for allotment of shares via SCSBs, where they have an account. 

Advantages of ASBA

1. No hassle of draft or cheque

There is no requirement on part of the investor to pay the applicable amount via cheque or demand draft. The investor only has to submit ASBA, via which he/she gives the approval to block the amount in the bank account equivalent to the application money of share allotment.

• No Stress of Refund

There is no tension of refund for the investor. Only the amount equivalent to the application money of share allotment is blocked in the bank account. The amount gets debited only if the application of the investor is selected for the share allotment. Otherwise, the entire amount is automatically refunded to the investor. If the application is selected, the amount in excess of the application money is invested to the investor.

• No Loss of Interest of Investor

There is no loss on the interest that the investor was supposed to earn on the money in a bank account. Even when the amount is blocked, the investor continues to earn interest on it.

• Simple and Time-Efficient

The ASBA form is very simple. It has reduced the stress of the retail investors to a large extent since there is no hassle of drawing a demand draft or making a cheque in the favor of issuing company. Moreover, if the application was rejected earlier, getting a refund from the company was a tiresome process. Now, the blocked amount is automatically refunded.

• 5.      Bank Acts as Intermediary

The bank act as an intermediary between the investor and the company. As a result of this, the bank has taken away a lot of stress and responsibility of the investors as well as the company on itself. With a bank as an intermediary, the whole process of IPO has become quicker, transparent and efficient. It has secured both the company as well as the investor in the sense that the companies are ensured that the application money stays blocked till the time it makes final allotment of shares/securities and the investor has been saved from the hassle of filling out the application forms, drawing cheques/drafts and taking refund in case the application is declined. Hence, a lot of time is saved, both for the issuing company and the investor.

For more information on ASBA or making an application via ASBA, contact us at Enterslice.