Application Supported by Blocked Amount is a facility that the banks offer to investors in cases of FPOs (follow-on public offers), IPOs (initial public offerings), and NFOs (New Fund Offers) of mutual funds. The ASBA facility has been extended by the Securities and Exchange Board of India (SEBI). ASBA is a scheme for applying to an IPO, as intended by SEBI. It is investor-friendly and acts as a platform where banks, too, have become participants in the procedure of IPO.  

When an application through ASBA is put forward for IPO/FPO/NPO, the application amount in the claimant’s bank account gets blocked. This application amount continues to be in the bank account but cannot be utilized till the time units of shares or mutual funds are allocated. The application amount from the bank will be debited in case the application for allotment is chosen or if the issue is withdrawn or failed. The amount debited from the bank account will be reliant on the units of shares or mutual funds that get allotted. If post allotment stays in the bank amount, the same shall be discharged for use.

Main Features of ASBA

The significant features of ASBA are discussed hereafter:

  • Alternative Mode of Payment

ASBA serves as a substitute payment method in getting issues by offering the facility of amount blocking in the bank account. Conventionally, buying units in IPO/NPO was done through demand drafts or cheques. Therefore, ASBA has presented the applicants with a more suitable and consistent mode of payment as the application money is blocked in the bank account until units of shares/mutual funds are allotted truly.

  • Investor Bidding

ASBA gives facilities for investor bidding with several options to the investors. The investors can, in addition, apply through SCSBs (Self Certified Syndicate Banks) if they have an account in that.

ASBA Procedure

The ASBA procedure is elaborated in detail as follows:

  • The retail investors can put out for any issue- public or rights via their bank account with the aid of the ASBA facility
  • The investors will have to complete the ASBA form and fill out the compulsory details, for instance, the applicant’s name, PAN, Demat account number, bid quantity and price, and all the additional details
  • Besides this, the investor will have to give the bank direction to block the amount in their account
  • After the ASBA form has been suitably filled by the investor, the investor’s specifications are uploaded in the bidding stage by the bank
  • If the details entered by the investor in the ASBA form are not accurate, the application will get rejected
  • If the application is admitted and the shares are assigned to the investor by the company, the application amount shall be subtracted from the investor’s account by the bank
  • The amount in surplus of the application money shall be repaid
  • When submitting an ASBA application, the applicant must have an account with the bank that has been granted for providing this facility
  • The option can be enjoyed even through net banking or submission to the bank. Nevertheless, holding a Demat account in the same bank is not obligatory for the applicant

Who can Apply through ASBA?

The application can be made through ASBA in a public issue by individual investors.

This application can be made via book building route if the investor

  • is bidding at cut off, with just one option for several shares that are bid for
  • is a resident individual investor, i.e., the investor has made an application for shares for not more than INR 1 lakh
  • has forwarded the share application through ASBA with the SCSC where they have an account
  • has agreed not to revise the bid
  • has not applied for the bid in any reserved categories of shares

Benefits of ASBA

  • No conflict of Draft or Cheque

There is no obligation on the part of the investor to pay the applicable amount through cheque or demand draft. The investor has to submit ASBA, through which they give the consent to block the amount in the bank account corresponding to the application money of share allotment.

  • No pressure of Refund

There is no stress of Refund for the investor. The amount corresponding to the application money of share allotment is blocked in the bank account. The amount is debited only if the investor’s application is picked for the share allotment. If the application is picked, the amount in surplus of the application money is invested to the investor. Or else, the entire amount is routinely refunded to the investor.

  • Simple and Time-Efficient

The ASBA form is uncomplicated. It has decreased the strain on the retail investors to a large degree since there is no stress of drawing a demand draft or issuing a cheque in favour of the issuing company. Furthermore, if the application was declined earlier, getting a refund from the company was tedious. Now, the blocked amount is routinely refunded.

  •       Bank Acts as Intermediary

With a bank as a mediator, the entire process of IPO has become faster, apparent, and proficient. 

Conclusion

No doubt, there are many troubles in this sector. But by permitting to bid for IPOs without losing out on interest, ASBA does a great deal for individuals. SEBI has, in addition, permitted ASBA for selected right issues.