SEBI in a Retail Investor's Interest has Introduced new system "Applications Supported by Blocked Amount" (ASBA) Processan additional optional method for IPO application where instead of making payments by cheque, IPO bidding amount remains in investors account, but blocked by the bank until allotment is done.
This alternate method has been exclusively for retail individual investors through participatory banks (SCSB's). Earlier, many retail investors faced various issues in getting the refund of amount, but Investors applying for IPO through ASBA will not have to face issues like this anymore. Although this system is already in place from May 1, 2010, retail investors are not aware of this and not using this facility.
How it works
If an investor is applying through ASBA, his application money
shall be debited from the bank account only if his/her application is selected for
allotment after the basis of allotment is finalized, or released if the issue is withdrawn/failed.
Under ASBA facility, investors can apply in any public/ rights issues by using their bank account. Investor submits the ASBA form (available at the designated branches of the banks acting as SCSB) after filling the details like name of the applicant, PAN number, demat account number, bid quantity, bid price and other relevant details, to their banking branch by giving an instruction to block the amount in their account. In turn, the bank will upload the details of the application in the bidding platform. Investors shall ensure that the details that are filled in the ASBA form are correct otherwise the form is liable to be rejected.
ASBA facility can also be used in rights issues. All shareholders of the company as on record date are permitted to use ASBA for making applications provided he/she/it:
Advantages of Applying through ASBA
The application form is simpler.
The investor need not pay the application money by cheque rather the investor submits ASBA which accompanies an authorization to block the bank account to the extent of the application money.
The investor does not have to bother about refunds, as in ASBA only that much money to the extent required for allotment of securities, is taken from the bank account only when his application is selected for allotment after the basis of allotment is finalized.
The investor deals with the known intermediary i.e. its own bank.
The investor continues to earn interest on the application money as the same remains in the bank account, which is not the case in other modes of payment.
