What is ASBA in IPO? Benefits & Application Process

What is ASBA?

ASBA, an acronym for Application Supported by Blocked Amount, was introduced by the Securities and Exchange Board of India (SEBI) in 2008. This innovative IPO application process marked a significant departure from the complexities of earlier methods, offering a more efficient and investor-friendly approach.

In this article, we will look in details about ASBA, what are its benefits and detailed application process.

Evolution of ASBA

To appreciate ASBA fully, let’s briefly look back at the challenges of the 90s IPO application process. Investors had to issue cheques for fixed-price issues, leading to a prolonged three-month waiting period for allotment notifications.

During this time, the locked funds did not accrue any interest. In response to these challenges, SEBI revamped the IPO application process, introducing ASBA.

In ASBA, only the application value is blocked in the applicant’s bank account, mitigating the issuer’s access to interest income during the interim period. This marked a significant improvement over the previous StockInvest system, discontinued in 1993 due to widespread fraudulent activities.

Also Read : Who are Syndicate Members in IPO? What are their roles?

Benefits of ASBA

Understanding the benefits of ASBA is crucial for investors considering this application method. Let’s delve into the advantages it offers:

1. Continuous Interest Earning:
   • With ASBA, investors can continue earning interest on the amount blocked for the IPO application until the share allotment process is finalized. Unlike traditional IPO application methods where the entire amount is debited upfront, ASBA allows investors to retain the earning potential of their funds throughout the application period.
2. Paperless Application:
   • ASBA revolutionizes the IPO application process by eliminating the need for physical cheques and demand drafts. Investors can apply seamlessly through their net banking accounts, contributing to a paperless and environmentally friendly application process. This digitization enhances convenience and reduces the administrative burden associated with traditional paperwork.
3. Transparent Refund Process:
   • In cases where investors are not allotted IPO shares or if the IPO is withdrawn, ASBA ensures a transparent and efficient refund process. The blocked funds are promptly released, providing clarity and ease of access to the unutilized funds. This transparency reduces uncertainty for investors regarding the return of their money.
4. Consideration in Balance Calculation:
   • The amount blocked through ASBA contributes to the calculation of the Average Quarterly Balance (AQB) in the investor’s bank account. This consideration in balance calculation provides an additional financial benefit by contributing to the maintenance of a healthy average balance. It aligns with the investor’s overall financial planning and management.
5. Prevention of Fund Utilization:
   • ASBA acts as a safeguard by preventing the IPO issuer from accessing the funds before the share allotment is finalized. The blocked amount remains reserved exclusively for the IPO application, minimizing the risk of fund misuse during the application period. This feature enhances the security and integrity of the investor’s funds during the IPO process.

Detailed ASBA Application Process

ASBA Offline Method:

Step 1: Download the ASBA form from BSE or NSE websites. (NSE ASBA Form Page) and (BSE ASBA Form Page)

Step 2: Fill out the form with your details, including name, PAN card details, bid price, bid quantity, Demat account number, bank account number, and Indian Financial System Code (IFSC).

Step 3: Submit the completed form, along with necessary documents, to a Self-certified Syndicate Bank.

Step 4: Collect the acknowledgment receipt from the bank, confirming the submission of your application.

Step 5: The bank will immediately notify the stock exchange of your application details and simultaneously block the minimum amount required to place a bid in your bank account.

Step 6: Ensure all details in the ASBA form are correct to avoid rejection.

Step 7: Wait for the IPO subscription period to end.

Step 8: Check the status of your application on either the BSE or NSE website.

Step 9: If allotted shares, the blocked funds will be reduced to the corresponding amount. If not allotted, the remaining funds from the blocked amount are released.

Step 10: The bank account is adjusted based on the final allocation, and upon receiving shares, you become a shareholder in the issuing company.

ASBA Online Method

Step 1: Log in to your net banking account using your username and password.

Step 2: Once logged in, find the section related to IPO applications or a similar term, usually located in the investment or securities section.

Step 3: Select the specific IPO you want to invest in from the available list.

Step 4: Enter necessary details such as your name, PAN (Permanent Account Number), bid price, bid quantity, and 16-digit DP (Depository Participant) number.

Step 5: Review the entered details for accuracy and confirm your order.

Step 6: Submit your application to express your intention to apply for shares.

Step 7: Monitor the status of your application on official stock exchange websites, such as NSE and BSE.

Step 8: Wait for the IPO subscription period to end. Allotment results will be announced by the issuing company.

Step 9: Verify the status on stock exchange websites. Details about allotted shares, if any, will be available.

Step 10: If allotted shares, the blocked amount in your bank account will be deducted. If not allotted, the blocked amount is released back to your account.

Important Points and Tips

• The application amount gets blocked, restricting other uses until share allotment.
• Use one PAN for a single IPO; multiple applications may lead to rejection.
• Under ASBA, investors can apply for up to three bids.

Eligibility Criteria for ASBA

To leverage the benefits of ASBA, investors must meet the following eligibility criteria:

1. Residential Status:
   • Applicants must be Indian residents to qualify for the ASBA facility. Non-resident Indians (NRIs) are generally not eligible.
2. PAN Card:
   • Possession of a Permanent Account Number (PAN) is mandatory. PAN serves as a unique identification number for tax purposes and is essential for financial transactions.
3. Demat Account:
   • Individuals applying through ASBA should have an active Demat account. A Demat account is necessary for holding and transacting in securities in electronic form.
4. Trading Account:
   • Having a trading account is also a requirement. A trading account facilitates the buying and selling of securities on stock exchanges.
5. Sufficient Balance:
   • Applicants must have a sufficient balance in their bank account. The ASBA process involves blocking a certain amount in the bank account for the IPO application, and this amount should be readily available.
6. Self-Certified Syndicate Bank (SCSB) Account:
   • ASBA applications are routed through Self-Certified Syndicate Banks (SCSBs). Therefore, applicants should have a bank account with a recognized SCSB. These banks are authorized to accept and process ASBA applications.
7. Agreement to Terms and Conditions:
   • Applicants are required to agree to the terms and conditions specified by the bank and the IPO issuer. This includes an understanding of the ASBA process, commitment to not modifying the bid, and adherence to other relevant regulations.
8. Bid at Cut-Off:
   • ASBA applicants need to bid at the cut-off price. The cut-off price is the price decided by the issuer, and investors opting for ASBA typically bid at this price. This simplifies the bidding process by allowing investors to bid for a specific number of shares without specifying the price.

ASBA vs. UPI

For small investors, the option to use UPI for IPO bidding is available. The process involves logging into the broker’s portal, selecting the IPO, specifying bid details, entering UPI payment information, and accepting the payment request.

Withdrawing ASBA Application

Investors can withdraw ASBA applications while the issue is open for bidding, with the blocked amount made available the next working day after cancellation. The option to withdraw an ASBA application is available until the IPO issue is open for bidding. Investors can withdraw their application any time within this period.

To withdraw your ASBA application, follow these steps:

1. Log in to your net banking account.
2. Find the IPO section or a similar term in the investment or securities menu.
3. Locate the option for managing your IPO applications.
4. Select the specific IPO for which you want to withdraw the application.
5. Look for the withdrawal or cancel option and follow the on-screen instructions.
6. Confirm the withdrawal of your ASBA application.

Also Read : What is Shelf Prospectus and how it helps Investors?

Conclusion

The process of applying through ASBA is simpler than the older methods, enabling investors to utilize their available funds more easily. It’s also safer and more transparent compared to the previous complex procedures.

ASBA has empowered smaller retail investors, granting them more control. Although it wasn’t obligatory until 2016, now all IPO issuers are required to provide an ASBA application facility.

Frequently Asked Questions (FAQs) about ASBA:

Q1) What is ASBA in the context of IPO?

Answer: ASBA stands for Application Supported by Blocked Amount. It is a process introduced by the Securities and Exchange Board of India (SEBI) for applying to Initial Public Offerings (IPOs). Under ASBA, an applicant’s bank account is temporarily blocked for the amount of the application money, ensuring that the funds are available to fulfill the allotment if the application is successful.

Q2) How does the ASBA process work in IPO applications?

Answer: When applying through ASBA, investors submit their bid-cum-application forms to banks that are authorized to provide ASBA services. The application amount is blocked in the investor’s bank account but not debited until the IPO allotment process is complete. If the IPO is oversubscribed, the excess amount is unblocked and refunded to the investor.

Q3) Which investors can use the ASBA facility for IPO applications?

Answer: Any individual, Hindu Undivided Family (HUF), corporate entity, or Non-Resident Indian (NRI) eligible to apply for an IPO can use the ASBA facility. Most banks provide ASBA services, and investors need to submit their applications through designated bank branches.

Q4) What are the benefits of using ASBA in IPO applications?

Answer: ASBA provides several benefits, including the temporary blockage of funds rather than immediate debiting. This allows investors to earn interest on the blocked amount until the IPO allotment is finalized. It also ensures that the funds are available for allotment if the application is successful, streamlining the overall IPO application process.

Q5) Can an investor revise or withdraw their IPO application submitted through ASBA?

Answer: Yes, investors have the flexibility to revise or withdraw their IPO applications during the bidding period. They can approach their bank and make the necessary changes or withdrawals before the IPO closes. This feature adds to the convenience and control that investors have over their applications.

Q6) Are there any additional charges associated with using ASBA for IPO applications?

Answer: Generally, there are no extra charges for using the ASBA facility for IPO applications. However, investors should check with their respective banks to confirm whether any service charges or fees are applicable. SEBI guidelines aim to keep the process investor-friendly and cost-effective.

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