What is ASBA? How to Apply? Its Benefits?
ASBA is a simplified share application process. It stands for Applications Supported by Blocked Account, which is ASBA’s full form. It was rolled out by SEBI in 2008. It is a progressive system. It is being used by people who apply for new shares, like in IPOs. Its improved features, benefit the investors. It is a seamless and effortless system.
What is an ASBA account? To understand ASBA, these are the key concepts:
What is ASBA?
ASBA’s full form is Applications Supported by Blocked Account. ASBA account is not a real account. It is an authorization to the investor’s bank to earmark application money till allotment happens. Banks licensed to do this, are called Self-Certified Syndicate Banks (SCSB). They help the investor bid for fresh shares, by this route. The following paras, give clarity about ASBA
Eligibility Criteria for ASBA
• Retail investors applying for share allotment by ASBA account, require the following:
• Investors must be eligible to apply for shares, under a public offer (IPO) or Rights Issue(RI)
• Investors can submit a physical ASBA form or bid by an internet banking facility with SCSB
• They must have a Demat account
• They must be a PAN card holder
• They must have adequate funds in SB or the Current account of SCSB when applying.
How to Apply for ASBA?
The ASBA application process is simple. When the issue of shares opens, the investor will submit the ASBA form to the SCSB bank branch. He can submit a physically signed form. He can also do this online, by digital banking ie. ASBA online. For this, he must have transaction rights in online banking. The main details to be filled in will be the number of shares bid and bid price along with personal details like Name and Demat account details. Also, the investor authorizes the bank to block the application money for the shares bid, till allotment.
Benefits of ASBA
The benefits of ASBA are of 3 kinds:
Simplicity:
• ASBA online is a one-time submission to the Bank. No separate application for a share issuing company is needed.
• Simple application form with an immediate receipt obtained with order number
• No requirement for a cheque for payment or additional documents
• ASBA bids can be revised or withdrawn before closing
Cost efficiency:
• Application money does not leave the investor account
• No refund is involved on the allotment of shares
• No loss of interest in SB or Current account as funds only blocked, not debited
Time savings:
• Online submission is quick
• Single point of contact till demat a/c share credit happens
• SCSB can solve rejection issues
• Transparent process, with clear responsibilities
• The entire process is supervised and handled electronically by the stock exchange.
How does ASBA work?
• It is mandatory for investors to subscribe to fresh share issues using ASBA accounts with effect from 1st Jan 2016.
• The application process is simple over paper format or through internet banking. This is submitted to the SCSB bank. The bank then uploads details given on the application, onto the Stock Exchange’s bidding platform. This generates an application/order number. With this, the status of the application can be tracked by investors at any time.
• At the same time, the total amount required for application money is blocked or lien marked in the investor’s account with the SCSB. When the equity issue closes, shares are allotted by the company, based on the eligibility of the investor. Simultaneously, an investor’s bank account can have 3 possible outcomes for shares allotted:
• The debit is equal to the blocked amount, if the exact number of shares applied for, gets allotted.
• If a partial allotment occurs (a lesser number of shares is allotted), then only debit for allocation value takes place.
• If no shares are allotted, no debits take place.
• The basis of allotment determines the money paid to the issuing company. Investors need not fear that the entire account balance would be blocked. Also, once the debit happens, any lien on the account is removed. This is true, even if no allotment happens. This is the best merit of the ASBA system.
Clarity about the ASBA process for investors:
•While SEBI permits certain SCSB branches to hold ASBA accounts and this list is available on the SEBI website, all branches of SCSBs can accept share applications
•ASBA account and Demat account can be with different institutions
•The investor gets immediate receipt of ASBA submission in branch or online
•The process of locking funds in a bank account and lifting it is automatic and not troublesome
• Most SCSBs have ‘anywhere banking. So, the location of the investor is not a problem
• Now Unified Payment Interface (UPI) can be used for ASBA payment mode since 2019.
• Online connectivity makes it easy for SCSB to transfer data to a stock exchange server
• Both the Bombay Stock Exchange and the National Stock Exchange offer this participation on the platform.
• Data transfers across the different entities are safe and secure
• SCSBs are given a deadline of 15 days to respond to any complaints
• SCSBs are also allowed to entertain non-retail share applications eg. Book building
• Unless a real problem exists, application rejections are very few
• If a share issue is withdrawn, the blocking in a bank account is cleared immediately, on instructions from the Registrar
• No manual intervention in the entire process
The need for an ASBA account emerged as retail investors had crores of cash locked up in non-interest-bearing, pipeline accounts. This was also for long periods of time. This could prevent further investments in equities by investors. This problem has been solved with the introduction of the ASBA accounting system.
The second purpose of ASBA was a reduction of investor complaints. As the ASBA account has made the bid application transparent, the responsibility of SCSB bank, Depository Participants, Registered Brokers, Issue Registrar, and Stock exchange are clear cut. This leads to less investor grievance.
The ASBA accounting has also led to greater liquidity in the equity market. With no worries about reconciliation or unaccounted cash. Issuers are also assured of shareholder satisfaction as ASBA has reduced the listing date from the close of the issue to a minimum of up to 3 working days.
