Application Supported by Blocked Amount (ASBA)

ASBA, developed by SEBI, simplifies investing in IPOs by streamlining the application process for investors.
OPEN ACCOUNT
Application Supported by Blocked Amount (ASBA)
OPEN ACCOUNT
3 min
11-November-2024

Within the Indian securities market, investors seek efficient and secure ways to participate in Initial Public Offerings (IPOs) and Follow-on Public Offerings (FPOs). One such mechanism introduced by the Securities and Exchange Board of India (SEBI) that has revolutionised the application process is ASBA. In this article, we delve into the intricacies of ASBA, its benefits, and how it has transformed the landscape of public offerings.

What is ASBA?

ASBA, short for Applications Supported by Blocked Amount, is a process that allows investors to apply for IPOs and FPOs while ensuring that their application money remains in their bank accounts. The funds are temporarily blocked or reserved until the shares are allotted. Only upon successful allotment are the necessary funds blocked or debited from the investor's account.

How does ASBA work?

Here is how ASBA simplifies the IPO application process:

  1. Investor bidding: Investors can bid for shares through Self Certified Syndicate Banks (SCSBs), which are banks authorised by SEBI. These banks accept applications, verify them, and block the bid amount in the investor’s account.
  2. Blocking of funds: The bid amount remains blocked until the basis of allotment is finalised. This ensures that investors have the necessary funds available for the allotted shares.
  3. Allotment and unblocking: Once the shares are allotted, the blocked amount is unblocked, and the funds are transferred to the issuer.

How to apply for ASBA?

Investors have the option to apply through ASBA via either online or offline methods.

Online application process:

  1. Log in to your net banking account and navigate to the 'IPO application' section.
  2. Choose the specific IPO that you want to invest in and select up to 3 bids.
  3. Fill in the application form with all the necessary details on the redirected IPO platform.
  4. Provide information such as PAN, bid price, bid quantity, and your 16-digit DP number.
  5. Place your order and confirm it.
  6. After successfully submitting your application, you can track its status on the NSE and BSE websites.

Offline application process:

  1. Download the application form from the NSE and BSE websites.
  2. Fill in all the required details including your name, PAN details, bid price, bid quantity, Demat account number, bank account number, and Indian Financial System Code (IFSC).
  3. Submit the duly filled application form at a Self-certified Syndicate Bank.
  4. Collect the receipt provided by the bank.
  5. The bank will block the specified amount and upload the application details on the bidding platform.

Eligibility criteria for ASBA

To ensure the smooth functioning and integrity of the ASBA facility, investors must meet specific eligibility criteria set forth by regulatory authorities. These criteria serve to safeguard the interests of investors and maintain the efficiency and transparency of the application process. Here are the key eligibility criteria for ASBA:

1. Residency requirement

Investors applying for ASBA must be based in India. This requirement ensures that only Indian residents participate in primary market offerings through the ASBA mechanism.

2. Valid PAN card and Demat account

To avail of the ASBA facility, investors must possess a valid Permanent Account Number (PAN) card issued by the Income Tax Department of India. Additionally, investors should have a Demat account to hold securities in electronic form.

3. Use of designated SCSBs

 Investors are required to apply for ASBA through Self-certified Syndicate Banks (SCSBs) that meet the prescribed conditions set by the Securities and Exchange Board of India (SEBI). These designated banks act as intermediaries between investors and the primary market issuers.

4. Adequate funds

 Before applying through ASBA, investors must ensure that they have sufficient funds in their bank accounts to cover the bid amount. This ensures that the blocked amount can be readily debited upon allotment without any financial constraints.

5. Bidding at cut-off price

When applying through ASBA, investors typically bid at the cut-off price, indicating their willingness to accept the final price determined through the book-building process. This simplifies the bidding process and enhances the chances of allotment.

6. Single option bidding

ASBA applicants are generally required to bid for shares using a single option, specifying the number of shares they wish to bid for. This streamlines the application process and facilitates efficient allotment.

7. Avoidance of reserved categories

Investors participating in ASBA should refrain from bidding under any of the reserved categories specified by the issuer. Reserved categories may include quotas for retail investors, employees, or other specific groups, and bidding under these categories may lead to disqualification.

8. Non-revision of bids

Once submitted, ASBA bids cannot be revised or altered by the investor. This condition underscores the importance of careful consideration and accuracy in the bidding process, as revisions may disrupt the integrity of the application process.

Benefits of ASBA

ASBA offers several benefits to investors participating in primary market offerings:

  1. Interest income: By retaining funds in their bank accounts until allotment, investors continue to earn interest on their funds, maximising returns.
  2. Hassle-free process: ASBA eliminates the need for physical payments through checks or demand drafts, reducing paperwork and administrative burdens for investors.
  3. No refund hassles: In case of unsuccessful applications or oversubscription, ASBA ensures prompt refund of excess funds without any hassles or delays.
  4. AQB calculation: ASBA allows investors to maintain their Average Quarterly Balance (AQB) in their bank accounts, as funds are blocked temporarily and only debited upon allotment.

Conclusion

The introduction of ASBA has transformed the landscape of primary market offerings in the Indian securities market. By offering a seamless and investor-friendly mechanism for applying in IPOs and rights issues, ASBA has enhanced transparency, efficiency, and investor confidence. As ASBA continues to gain traction among investors and market participants, its significance in shaping the future of the Indian securities market cannot be overstated.

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Frequently asked questions

Do I have a higher chance of getting an IPO if I apply through ASBA?

No, applying through ASBA (Applications Supported by Blocked Amount) does not increase the likelihood of IPO allotment. All applicants have an equal chance, regardless of using ASBA or non-ASBA methods. However, ASBA provides benefits like ensuring funds remain in your account, earning interest on the blocked amount, and eliminating refund delays. This makes ASBA a convenient and efficient method for IPO applications.

Can my ASBA application form get rejected?

Yes, an ASBA application can be rejected for several reasons, such as incorrect or incomplete information, insufficient funds in the account, discrepancies between the name on the application and the PAN or Demat account, or if multiple applications are submitted by the same investor.

If I apply through ASBA, will my entire bank account will be blocked or only the amount worth the IPO is blocked?

Only the amount required for the IPO application will be blocked, not your entire bank account balance. You can still access and use the remaining funds in your account for other transactions while awaiting the IPO allotment.

Can I make applications through ASBA in all the issues?

Yes, ASBA can be used for applications in all types of issues, including both public and rights issues. This flexibility allows investors to use ASBA for various offerings in the market.

What is a Self-certified Syndicate Bank in the ASBA process?

SCSBs are banks authorised by SEBI to handle ASBA applications. They verify and process ASBA forms, block bid amounts, and facilitate the IPO bidding process. Choose an SCSB wisely for a seamless experience.