Applications Supported by Blocked Amount (ASBA) : Full form, Benefits and Working

What is ASBA?

Application Supported by Blocked Amount (ASBA) is a SEBI-established procedure for IPO applications. It is often referred to as ASBA. The full form of ASBA is Application Supported by Blocked Amount. This method requires the submission of an application that authorizes the securing of funds in a bank account in order to subscribe to an IPO. These funds cannot be used for other purposes, but they can accumulate interest.

For institutional investors seeking to participate in an IPO, adherence to the ASBA process is mandatory. If you choose the ASBA route as an investor, the funds will be deducted from your bank account only if your application is selected for allotment. The funds are refunded to your bank account if you are not allotted IPO shares or if the IPO is withdrawn. Since 2016, SEBI has mandated the use of an ASBA form for Initial Public Offering (IPO) investments.

Eligibility for ASBA

Here are some of the essential requirements for eligibility for ASBA:

1. You should be a residential investor from India.

2. You must have a valid PAN number, as well as a Demat account and a trading account.

3. You must apply by blocking funds in your bank account with self-certified Syndicate Banks.

4. Your bank account should have sufficient funds.

5. You should bid at cut-off, with a single option of a number of shares to bid for.

6. You are not permitted to bid in any of the reserved categories.

7. You should have agreed to the terms of not modifying your bid.

Features of ASBA

Here are the main characteristics of ASBA:

1. Facilitates Partial Blocking of Funds: ASBA permits investors to set aside a portion of the application amount in their bank accounts while submitting an application for securities. The funds are only deducted from the investor’s account if the applicant is allotted shares.

2. No Interest Loss: Since the funds stay in the investor’s account throughout the application procedure, there is no interest loss compared with conventional methods in which the entire application amount is debited in advance.

3. Makes the Application Process Easy: The ASBA eliminates the need for the issuance of physical checks and the use of demand drafts for payment purposes. By authorizing the blocking of funds, investors can register online via their institutions or intermediaries.

4. Freedom of Multiple Applications: Investors can submit multiple applications for different offerings, and the blocked amount will be allocated to each application individually.

5. Application Cancellation: Investors have the option to revise or withdraw their application prior to the finalisation of allotment. Upon cancellation, the blocked funds are released immediately.

6. Reduced Risk for Investor: ASBA reduces the risk that comes with refunds for unallocated shares as the investor’s account is never debited until the shares are allotted.

7. Quick Allotment Process: The ASBA procedure simplifies the allotment process, which accelerates the allocation of shares to successful applicants.

8. Less Documentation: Investors can register for IPOs and other offerings directly from their bank accounts, without the need for additional payments or paperwork.

9. Compliance with Regulations: ASBA promotes compliance with market regulations by enabling accurate monitoring and tracing of application funds.

10. Application: ASBA is applicable to IPOs (initial public offerings), rights offerings, and other securities offerings that permit this mode of application. It is broadly recognised by financial institutions and intermediaries.

How does ASBA Work?

In simple words, ASBA is like informing your bank that you desire to buy shares in a company that is going public. You avoid paying all the money at once. Instead, you keep some money aside in your bank account. You give your bank permission to use that money to purchase the shares if you are allotted any. The bank examines everything and makes sure that your approach is appropriate. If you get shares, they pay for them with the money set aside. If you are not allotted the shares, the bank gives you back the money you set away. So, ASBA lets you put money aside to buy shares, and you only pay for them if you get them. Let us look at the entire process :

1. Application: The investor submits an application to their bank or financial intermediary in order to subscribe to an IPO or other securities offering. This application comprises the investor’s personal information, the number of shares they wish to apply for, and their bid price.

2. Blocking of funds: Instead of paying the full application fee upfront, ASBA permits the investor to block the funds that are required in their bank account. The application amount is “blocked” from the investor’s bank account, but the funds remain in the account.

3. Granting Permission: The investor gives the bank or intermediary permission to restrict the funds. This authorization additionally indicates the investor’s intention to submit an application for shares.

4. Verification by Bank:  The bank or intermediary verifies the applicant’s information and the quantity blocked. This helps prevent application mistakes and irregularities.

5. Confirmation of Bid: Once the application has been verified, the investor will receive a bid confirmation indicating that their application has been effectively processed and their funds have been blocked.

6. Allotment of Shares: After the subscription period concludes, the issuing company determines the allocation of shares based on demand and supply. The allocation results are announced.

7. Distribution of Unallocated Funds: If the investor’s application is not completely approved, the remaining funds from the blocked amount are released. The investor gets immediate access to these funds.

8. Deduction of Amount Allocated: If the investor’s application is approved and shares are allotted, the blocked funds will be reduced to the corresponding amount.

9. Refunds: In the event of oversubscription, if an investor is allotted fewer shares than applied for, the excess blocked funds are returned.

10. Completion: The bank account of the investor is adjusted based on the final allocation. Upon receiving shares, the investor becomes a shareholder in the issuing company.

Benefits of ASBA

Here are some of the distinct benefits for investors who apply through the ASBA process:

1. Investor Continues to Earn Interest: You do not lose interest income while money is blocked in your bank account. You continue to earn interest on the cash you have set aside. Also, this blocked amount is taken into consideration when calculating the account’s Average Quarterly Balance.

2. No Cheque and Demand Draft Involved: The ASBA eliminates the need to send money in the form of cheques and demand drafts.

3. Investor Friendly: The ASBA facility is simple to use and free of charge. You can apply online without presenting any physical documentation.

4. Makes the Refund Process Simple: Investors do not need to be concerned about refunds. If no shares are allotted, the funds are released from your bank account for future usage.

Applying for ASBA

ASBA applications can be submitted both online and offline. The following are some of the steps to apply for ASBA.

Online method:

1. Go to the “IPO Application” tab in your NetBanking account settings. You can make up to three bids and specify which IPO you’re applying for.

2. Enter your Demat account information, make your purchases, and confirm them.

3. The bid amount is held in your bank account until the allotment is finalized. However, interest payments will be made to you.

Offline Method:

1. You can get a copy of the ASBA form by visiting the websites of the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

2. You need to complete the form with the necessary information and submit it, along with a photocopy of the required identifying documentation, to one of the Self-certified Syndicate Banks.

3. When you hand in the application, the bank shall immediately notify the stock exchange of the application details while simultaneously freezing the minimum amount required to place a bid in your bank account.

4. You can check the status of your application on either the BSE or the NSE website.

However, it is important to keep in mind that the likelihood of obtaining an allotment is the same for each of the applicants, regardless of whether the application was submitted through ASBA or through a non-ASBA channel. The ASBA method does not ensure an allotment.

To conclude, ASBA simplifies the application procedure for securities offerings, reduces the financial risks for investors, and improves allotment efficiency. It has gained popularity due to its convenience, openness, and investor-friendly traits. It ensures that only the required quantity of funds is blocked and reduces the risk of non-allotment refunds. The process is governed and monitored to ensure transparency, exactness, and investor security.