The Initial Public Offering (IPO) market has substantially matured in the last 20 years. We have moved from fixed price IPOs to book-built IPOs. We have also moved from a 2 month allotment process to a 7 day allotment process and that is likely to be compressed still further. We have moved from physical allotments to demat allotments. Among the various improvements in the IPO process, one of the key progressions was the introduction of Applications Supported by Blocked Amounts (ASBA). The ASBA application process is not only simpler but also more transparent and does not unnecessarily lock in the funds of the IPO investor. With the rapid spread of online bank accounts and online demat account; the spread of ASBA has become a lot faster. Let us understand the key ASBA advantages as well as the ASBA process in IPO in elaborate detail..
How exactly does ASBA work?
Under the ASBA process in IPO, you authorize your banks to block an amount equivalent to your application amount while applying for an IPO. Remember, the application amount is not debited to your account at the time of application but it is only blocked. That means, technically, you continue to earn interest on these amounts. It is only when the shares are allotted to you that the amount is actually debited to your bank account. What happens in case of partial allotment? Suppose you applied for 200 shares and got allotted only 100 shares? In that case the unused amount will be unblocked and you will now be able to use that amount freely for other purposes.
There are a few key things for you to remember here. ASBA is only permitted in case of book-built issues and not in case of fixed price issues. If you have an online account with your broker then the entire process becomes a lot simpler. Where the broker is also a banker, the broker may insist that your ASBA application should only come through the 3-in-1 account for ease of transaction.
Can an ASBA application be cancelled or withdrawn subsequently by you?
An ASBA application can be withdrawn till the time the issue is open. So if the issue is open for 3 days then before the cut-off timing announced by the IPO you need to cancel or withdraw your application. There is a subtle issue for you to remember here. Your application can only be cancelled online. Once the application is cancelled then you need to approach the Registrar & Transfer Agent (RTA) for the IPO withdrawal with the cancellation acknowledgement copy. Only after the RTA withdraws the application that the blocked amount will be unfrozen and you will again be able to use your bank funds. As long as your funds are blocked as part of the ASBA IPO application, you cannot use these funds for any other purposes. Even cheques that are issued by you to third parties will not be allowed to use these blocked funds. Hence you need to plan these events appropriately.
Is ASBA facility only available for online trading accounts?
Not at all! In fact, ASBA facility can be availed irrespective of whether you are using the online trading facility or the offline order placement. While the ASBA application for your online IPO can be placed through your trading account; in case of physical application you need to fill up the ASBA application form and submit it to your broker or to the collecting bankers. Ensure that your bank details are properly entered to avoid rejection due to data mismatch.
When you fill up the ASBA form the important fields are name of applicant, PAN number, demat id, bid quantity, bid price, bank account number, serial number of the branch or IFSC code etc. As an applicant you can make up to 3 bids within the price band suggested for a single applicable. If you place more than 3 bids then all bids are liable to be rejected. Please do not put in multiple applications as both are likely to be rejected. You are free to revise your bids upward or downward as long as the issue is open and you can also withdraw or cancel the ASBA application before it closes.
How ASBA is changing the IPO landscape in India..
ASBA process in IPO comes with a few distinct advantages for the small investors:
The ASBA funds are released or used against allotment within a period of 7 days flat. This is a far cry from the old system when funds were tied up for more than a month at times.
You continue to earn interest on your ASBA funds till the time the money is actually debited to your bank account. That helps your float.
Within ASBA, if you use the online application facility, then you have greater control over the entire process and it is also a lot more transparent.
While ASBA application process was first introduced in 2008, it was made mandatory only in 2016. It is surely a major step forward in empowering the small investors in IPOs.