What is ASBA?

ASBA (Application Supported by Blocked Amount) is primarily used for applying Initial Public Offerings (IPOs) and other forms of public issues in India. Investors can apply for shares under this system without immediately transferring the required amount of money but rather blocking it in their bank accounts through the electronic clearing system (ECS). This ensures the safety of investors’ funds since they would only be deducted if the application was successful. In this article, we will discuss how ASBA works, its application process, eligibility criteria, and benefits.

Key Highlights

• ASBA (Application Supported by Blocked Amount) ensures that investors' funds are safely blocked in their bank accounts until share allocation is confirmed, protecting their money while earning interest.

• By eliminating the need for physical cheques and drafts, ASBA offers a streamlined, online application process through net banking, making it more efficient and convenient for investors.

• If shares are not allotted, ASBA ensures that the blocked amount is promptly released back into the investor's account, avoiding complicated refund procedures.

• ASBA modernises the IPO application process, enhancing transparency and making it easier for investors to track and manage their applications with minimal disruptions.

Understanding ASBA

ASBA is a method through which investors can apply for shares by freezing the application money in their bank before share allocation. This means that the bank only approves the application when it has been accepted for issue. This blocking is done by SCSBs (Self-Certified Syndicate Banks) which are acceptable by SEBI. These banks check the authenticity of application forms, block the required amounts, and transfer the details online. If shares aren’t offered or the offer is cancelled, the money from the investor will be returned to their bank account. Moreover, ASBA simplifies the investment process by removing the need for refunds and reducing the use of cheques or demand drafts. This is particularly convenient if you already have a demat account, PAN number, and trading account with them. 

How Does ASBA Work?

The ASBA process means that an application’s money is put on hold in the investor’s bank account until share allotment details are finalised. This way, the funds held by investors cannot earn interest since they are under lock and key.

To apply for IPOs via ASBA, investors use self-certified syndicate banks (SCSBs). These banks comply with SEBI requirements, manage applications, hold bidding money, and make entries into the NSE’s online system. When allocation becomes final, it releases the blocked amount while sending off money collected for allotted shares to their respective issuers.

ASBA makes it easy and transparent to apply for IPOs. It removes physical cheques and smoothens the process for investors. In addition, this implies that during the waiting period, the issuer does not earn any interest on funds.

Why was ASBA Introduced?

SEBI implemented ASBA to make the process of applying for IPOs easier. Investors were previously required to apply for IPOs through cheques, and it took three months before they could know if they had received any shares. Moreover, during this period, they did not earn any interest on the deposited amount. Furthermore, the old stock investment process started in 1993, was discontinued due to fraudulent practices.

ASBA was established to modernise Indian stock markets and make IPOs more transparent and quicker. For non-retail investors applying for IPOs, ASBA is now mandatory. With ASBA, investors’ funds are not locked up, and payment is made upon successful application.

ASBA Application Process

The process of applying for the ASBA method is aimed at ensuring easy and quick applications for IPOs. Here the necessary funds would be safely locked until share allocation is completed. This application can be carried out in either online or offline. Let’s discuss both the mentors in brief: 

Online ASBA Application

1. Log in to your net banking account and click on IPO Application.

2. In this section, you may choose the specific IPO that you would like to bid for and submit up to three bids.

3. Include Demat account details and place orders after confirming them.

4. The bidding amount is blocked in your bank account until allotment is finalised, but you continue earning interest.

Offline ASBA Application

1. Download the ASBA form from the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) websites.

2. Fill the required information and send the form to syndicate self-certification banks with a photocopy of needed identification documents.

3. After applying, the bank sends application information to the stock exchange where the bid amount gets blocked in your account.

4. Check both BSE’s and NSE’s sites for application status updates.

Important Points to Note to Avoid Rejection of IPO Application 

To avoid your application from getting rejected, here are some important points that you must consider: 

• When an IPO application is made, the money will become locked in your wallet. Therefore, you cannot use those funds for different purposes.
  
• Only one IPO can be applied using one PAN. If the same PAN is used for applying to the same IPO more than once, the application will be rejected.
  
• According to ASBA, an investor may submit up to three bids.

Conditions That Can Lead to IPO Application Rejection 

There are various situations in which an IPO application can get rejected. Let’s understand these situations in brief:

• If you don’t have enough money in your bank.

• If the details provided in your request need to be corrected.

• If your name and PAN card details differ from the Demat account.

• More than one application with the same PAN card.

Eligibility Criteria for Using ASBA

Understanding the eligibility criteria for using ASBA is important. So, these are some of the criteria to qualify for ASBA:

• You are an Indian resident investor.

• You must possess a valid PAN number, along with a Demat and trading accounts.

• You should apply through self-certified syndicate banks by blocking funds in the bank account.

• You need to have enough balance in your bank account.

• The best time to bid is at the cut-off, with one option to purchase several shares.

• You should avoid bidding under any of the reserved categories.

• You should have adhered to the terms and conditions regarding not revising a bid.

Benefits of ASBA

Investing in IPOs using the ASBA process has lots of benefits for investors which makes it an attractive option:

Interest Income

Your money earns interest while you wait to access an IPO. Thus, you don't lose out on these earnings like you would if you used a demand draft or wrote a check.

Hassle-free Process

The ASBA procedure eliminates the need for any physical documents or payments made through cheques and drafts. It is processed online through net banking. Thus, saving time and costs at the same time.

No Refund Hassles

If one is not allocated shares then the amount will be released back into their account. Hence, there are no refunds to bear nor do one’s funds remain idle since they may be used for other investments.

AQB Calculation

The blocked amount forms part of your average quarterly balance (AQB) thereby helping one maintain their balance avoiding penalty charges. It also enables investors to earn interest on their savings accounts even when locked by ASBA.

IPO Application Process Through UPI: An ASBA Alternative 

The UPI IPO application process is a modern, more advanced, and better option than ASBA in making it simpler for investors to apply for purchasing new shares using fast and simple payments. So, let’s discuss the steps involved in brief:

• Open the portal meant for clients on your broker’s site. There, look out for an option called apply online for IPO.

• Choose the necessary IPO to place your bid on.

• On the bidding window, you have options to adjust bid size and cut off price.

• On the UPI details screen, fill in the boxes by writing down UPI payment particulars.

• Accept the message sent via your UPI app requesting payment then this completes the whole process of bidding.

• You will receive an SMS and an email informing you that your application was successful.

Can You Withdraw an ASBA Application?

The duration of the bidding process for an IPO determines when individuals can withdraw their ASBA application. For example, if the IPO bidding window is three days long, then three days will serve as the timeframe for investors to withdraw their applications. Moreover, you will get access to the blocked amount the next working day after withdrawing your application.

Conclusion

The ASBA system has transformed the IPO application process in India by making it more secure and efficient for investors. By allowing funds to be blocked rather than transferred immediately, ASBA ensures that investors' money is protected while still earning interest. This method removes the need for physical cheques and simplifies refunds, enhancing the overall investment experience. With the additional option of applying via UPI, the process has become even more convenient and streamlined. Overall, ASBA has significantly modernised IPO applications, making it easier for investors to participate in the stock market while ensuring transparency and security.