Application supported by blocked amounts or as it is popularly known, ASBA is one among the game changers in Indian Financial history. In the early 1990’s, Indians increasingly became more visible in the stock markets after the liberalization. But applying for an IPO was a very intimidating process. Investors paid a fixed amount through cheques for the IPO issues. The money would be locked for a period of 3 months till the allotment was completed.
Investors who locked their money in IPO’s could never earn interest on the gross amount. It was an insurmountable loss with the IPO process taking a long time. SEBI brought in new norms after the stock market crash of the mid-90’s. The IPO process had to be completed in a weeks’ time with disclosures standards bringing total visibility to the allotment process.
Introduction of ASBA was the next big paradigm shift that brought a new cheer for small and mid-sized investors. It ushered a simple and transparent process in IPO investment. Investors were no longer required to pay money through cheque. The application blocked the amount in the account but the investor continued to earn the interest. In case of non-allotment of shares, the amount was automatically released back to the investor’s account.
The other benefits of ASBA on the table include,
- ASBA can be opted by customer for an online and off-line IPO. In case of an off-line IPO, the investor needs to provide details of Demat account, IFSC code, and bank account number correctly.
- The process becomes very simple in case of an online application.
- The application can be withdrawn any time before the closing date specified on the IPO announcement. The investor needs to approach the Registrar & Transfer Agent (RTA) for the IPO withdrawal with the acknowledgement copy for cancellation.
- IPOs usually opt for the book build issues and not fixed price issues. The price is defined through bidding and ASBA funds are blocked based on the indicative price. So once the IPO price is settled, the amount is debited. ASBA may not be useful for fixed price issues.
- Under ASBA, the investor is entitled to put in 3 bids. Multiple bids are allowed, but the risk of rejection is higher. Similar is the case of multiple applications.
ASBA debuted in 2008 and has ensured that small and mid-sized retail investors are capable of participating in the IPO process. It is also a lot safer in terms of debt as the bank accounts are automatically subject to the strictest KYC process and identity checks.
Evolvus Mantle ASBA enables banks to deliver a seamless IPO experience for its customers.