Application Supported by Blocked Amount (ASBA) Provisions Explained as per SEBI (ICDR) Regulations 2018

Application Supported by Blocked Amount (ASBA) Provisions Explained as per SEBI (ICDR) Regulations 2018

Application Supported by Blocked Amount (ASBA) is a facility introduced by the Securities and Exchange Board of India (SEBI) to simplify the process of applying for public issues (IPOs) and rights issues by investors.

As per SEBI FAQ on ASBA, ASBA means: ASBA is an application by an investor containing an authorization to Self Certified Syndicate Bank (SCSB) to block the application money in the bank account, for subscribing to an issue. 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.

ASBA allows investors to make application for public or right issues without making actual payment at the time of application. Instead, the application amount is blocked in their bank account, and the funds are debited only when the allotment of shares are made to them.

SEBI’s regulations on ASBA are designed to protect investors from unnecessary risks and losses. ASBA ensures that there is no direct cash flow from the investor to the issuer until shares are allotted. It prevents malpractices associated with refunds, delays, or misuse of funds, making it a safe and secure process for investors

Regulation 35 of ICDR 2018: It provides that the issuer shall accept bids using only the ASBA facility in the manner specified by the Board

Eligibility for ASBA: ASBA is available to all categories of investors including retail investors, qualified institutional buyers (QIBs), and non-institutional investors. Also in public issues and rights issue, all investors have to mandatorily apply through ASBA.

Role of Self-Certified Syndicate Banks (SCSBs): applications through ASBA can only be made via Self-Certified Syndicate Banks (SCSBs). These are banks that are certified by SEBI to offer ASBA services. SCSBs are responsible for blocking the application amount in the investor’s account and forwarding the application to the issuer and exchange.

Process of ASBA:

1. Under ASBA facility, investors can apply in any public/ rights issues by using their bank account.

2. Investor submits the ASBA form (available at the designate 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 the bank branch by giving an instruction to block the amount in their account. Also that only one application can be made from a bank account in a Public Issue

3. In turn, the bank will upload the details of the application in the bidding platform and shall give a counterfoil as an acknowledgement at the time of submission of ASBA . Investors shall ensure that the details that are filled in the ASBA form are correct otherwise the form is liable to be rejected.

4. Retail individual investors can withdraw ASBA bids upto the closure of the issue, However, Non-retail investors i.e. Qualified Institutional Buyers and Non Institutional Investors are not eligible to withdraw their bids at any time. In the event of valid withdrawal , the SCSB deletes the bid in stock exchanges platform and unblocks the application money in the bank account

5. After successful application, the amount to the extent of application money authorized in the ASBA will be blocked in the bank account.

6. Then 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. If share are issued on pro-rata basis, then only amount corresponding to shares allotted will be debited, and remaing will be released to investor.

Advantages of ASBA:

• No Loss of Interest: Since the application money remains in the investor’s account and is only blocked (not debited), the investor continues to earn interest on the amount, if applicable.
• Enhanced Transparency and Safety: The investor’s money is only debited upon allotment, ensuring greater security and minimizing the risk of fraud or mismanagement of funds.
• Simplified Refund Process: In the case of non-allotment, the unblocked funds become immediately available in the investor’s account without the need for a refund process.

Amendments and Key Changes in 2018 SEBI (ICDR) Regulations: SEBI has periodically updated the ASBA provisions, and the SEBI (ICDR) Regulations, 2018, clarified certain aspects:

• Mandatory Use of ASBA for Public Issues: SEBI made it mandatory for all investors applying in IPOs to use the ASBA facility, promoting a uniform and transparent process across all categories.
• Reduction in Timeline: The regulations reduced the timeline for completing the issue process, which, along with ASBA, facilitates quicker allotment and fund transfer.
• Simplification for Retail Investors: Provisions were introduced to simplify the ASBA process for retail investors, ensuring wider accessibility and easier application methods.

Role of Intermediaries: The SEBI (ICDR) Regulations place responsibilities on intermediaries such as SCSBs, merchant bankers, and stock exchanges. These intermediaries are accountable for ensuring proper communication and execution of the ASBA mechanism. Stock exchanges facilitate the bidding process, and SCSBs are entrusted with blocking and unblocking funds based on the allotment status.