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How ASBA makes the IPO process simpler and more effective

by Lee Mark

When we look at the Indian markets, a lot has changed from the early 2000s. Be it in terms of the listed companies, the market capitals, the indices, or trading volumes. Everything has grown dramatically and as for the number of investors, those numbers have manifolded. And along with this, has changed how stock trading works now. Moving away from months-long allocation periods, physical shares and fixed priced IPOs to book-building backed 7-day IPOs with demands. And one of the key components to support this evolution is ASBA – Application supported by blocked amount.

But how can one thing drive such huge improvements? How does ASBA make IPOs so smooth and convenient for investors?

SEBI introduced ASBA as a process to ease the application process for any upcoming IPO. The investors could now apply to IPOs and the money stays in their account until the actual allotment of shares. This means that the money is simply earmarked and blocked by the bank as a security. And is only deducted once the IPO closes and the shares are allocated to the investors. Or released after successful cancellation of the application. Hence the term – Application supported by blocked amount.

What benefits does this offer to investors?

  1. With ASBA in place, investors do not have to worry about application money and paying the amount upfront to the exchange. Neither do they have to write cheques or transfer any funds. All they need is to authorize the bank to block relevant funds from their account.
  2. While the money is blocked, it is still in the investors’ account. This means that they will continue to earn applicable interest and not lose the passive income by paying to the exchange or broker. Earlier, the money would stay with the exchange or broker until the close of the IPO. In turn, leading to lost interest and hassle until the refund was processed.
  3. One of the greatest of all benefits of ASBA is refund processing. Earlier, the investors would pay the entire lot amount during the application. And after the allotment, any surplus or unused funds were refunded. It meant there was a lot of processing, documentation, and delays. With the new process, refunds go out of the picture, as the money stays in the investor’s account. And only the necessary amount needed for allocated shares is debited at the allotment.
  4. The application and documentation also get easier with the new process. Investors eligible for ASBA or through third-party facilities can simply submit an authorization form along with the IPO application.
  5. It isn’t uncommon for bidders to withdraw or cancel their applications during an IPO bidding window. Similar to the refund process, the bidders no longer have to worry about getting refunds for their cancellations. A simple withdrawal request (before the bid closure period) can make things happen. Additionally, you need to submit a request to SCSB (Self-certified syndicate banks) along with the bid cancellation instruction. And the bank will then unblock your funds.

The trading landscape in India is still evolving and things are streamlining. With the consistently growing investor base in the country, these reforms are necessary. Furthermore, processes like ASBA can go a long way in creating an investor-friendly setup, encouraging more participation.


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