Application Supported by Blocked Amount (ASBA)

Application Supported by Blocked Amount, or ASBA, is a SEBI-developed IPO (Initial Public Offering) application process. It is a process providing authorization to block money in a bank account to subscribe to an IPO issue. Applying through ASBA as an investor enables your money to be deducted from the bank account only if your application is chosen for allotment. In the below article, we will be discussing the working principle, advantages, and features in detail.  

How Does ASBA Function?

To begin with, let’s keep in mind that not all banks offer the ASBA facility. The ASBA facility is only available in Self-Certified Syndicate Banks (SCSBs). Application Supported by Blocked Amount or ASBA is an application allowing you to request your bank to set aside funds for a specific IPO. 

Remember that the money from this application is temporarily blocked rather than deducted from your account. As a result, you will continue to receive interest in this sum. The blocked amount will be debited only in the event of the allocation of shares. Before being listed, the shares are sent to your Demat account. 

But what happens when you apply for 100 shares and are only given 50? In this case, only the sum equal to 50 shares is deducted, and the remaining funds are unlocked. It is known as a partial allotment.

Advantages of ASBA

• Refunds are not an issue.

Investors do not need to be concerned about possible refunds if the application for IPO shares is approved by the Application Supported by Blocked Amount. This is because the funds are transferred digitally and only when the shares have been allocated or completed. The procedure also permits debiting accounts with exact figures for granted shares. Since no actual money transfer is done at the beginning of the process, there is also no need to ask for a refund if your application is refused.

• Money security

The main benefit that ASBA may provide to investors is that it needs a person’s bank account or money to be frozen until the IPO shares are allotted. If the application for such shares has not yet been concluded or the relevant shares have not yet been allotted, the investor’s money will not be debited. In this way, the Investors’ hard-earned money will be safe and secure thanks to the ASBA process.

• The account’s interest-earning feature remains intact.

When considering a particular investment, most people follow the conventional procedure of writing checks, for example, covering the allotment of available shares. In the case of Application Supported by Blocked Amount, the investor’s account will be unaffected until the transaction is completed. It also implies that the account can continue collecting interest until the day money is debited from the account for the fair shares’ allotment. Accounts can keep reaping interest as they should with the ASBA process.

Features of ASBA

Application Supported by Blocked Amount offers an alternate payment method in which the application money remains in the investor’s account until the basis of allotment in the public offering is finalised. 

SEBI, the stock market regulator, ensures that the entire investment activity for an investor is pleasant. Furthermore, it supports any opportunity for the investor to subscribe to more IPOs. The entire process requires minimal manual intervention, with complete transparency being maintained.

The prime features of ASBA are:

• Only authorised SCSBs who can perform ASBA can accept investor applications for IPO subscriptions.

• SCSBs will verify the account’s relevant background once they receive the form.

• Post application approval, the amount is blocked from the applicant’s account and set aside for the IPO.

• The shares are assigned through the NSE’s bidding mechanism, and the details are uploaded to the bidding system.

• Shares are credited to the investor’s Demat account in the event of a successful subscription. In a failed allotment, the blocked amount is restored to the investor’s original account.

• SEBI has notified that all IPO subscriptions will be made through ASBA from 10th November 2015 onwards.

Conclusion

SEBI designed the Applications Supported by Blocked Amount (ASBA) technique to block funds for applications such as Initial Public Offerings (IPOs), Follow-on Public Offerings (FPOs), Rights issues, etc. The bank account of an IPO applicant is not debited until they get the allotment of shares, according to ASBA. Investors can submit their ASBA applications to the Self Certified Syndicate Banks or SCSBs. There are several benefits of ASBA. Firstly, even while the application is processed, funds in the ASBA bank account keep earning interest. Secondly, issues with refunds are avoided.