ASBA – Application Supported by Blocked Amount
What is ASBA?
ASBA stands for Application Supported by Blocked Amount. It is an application made by investors which include authorization to a self-certified syndicate bank (SCSB) to block the application money in the bank account for subscribing to an IPO. SCSB can be any recognized bank capable of providing ASBA services to its customers.
The application money is debited from the bank account only when your application for IPO or rights issue is selected for allotment. As of April 1, 2019, there are 66 SCSBs which are recognized as being capable of providing ASBA services to customers.
You might be interested to know What Stock Market Indices mean.
These banks accept the application, verify it, block the fund to the extent of the bid amount, upload details in the web-based bidding system of the exchange, unblock the fund as soon as the basis of allotment is finalized, and transfer the amount for the allotted shares to the issuer. In case the application is not selected for allotment, then the bank unblocks the amount.
Introduced in September 2008, the ASBA facility is compulsory now. It has eliminated delays of up to two weeks that investors used to face in case of refunds. The earlier process used to require investors to get demand drafts made or issue cheques for payment of application amount, which took up a lot of time.
Recently, the use of Unified Payment Interface (UPI) has been made available to streamline the process.
How to apply through ASBA?
You can apply for public or rights issues by using your bank account under the ASBA facility. The ASBA facility is available both in physical and online modes.
In physical mode, you have to obtain the ASBA form at the designated branches of the SCSBs. You have to fill in relevant details such as Demat account number, bid quantity, and bid price PAN number. Your bank will block an amount equal to the bidding amount and will upload all the details of the application in the bidding platform.
You can also submit an ASBA application to your broker who is registered in the stock exchange where the securities are to be listed. The bid and the other relevant details of the ASBA forms will be uploaded by the broker in the bidding platform provided by the stock exchanges. Afterward, the ASBA forms have to be forwarded to the required SCSBs for blocking the funds.
In online mode, your trading account would have already got linked to your bank account in an SCSB. When you submit your application for IPO or rights issue, you only have to choose ASBA as the mode of payment. Your broker will send the intimation to your bank to block the amount.
Who can apply through ASBA?
For all public issues from May 1, 2010, onwards, all the investors can apply through ASBA. You can apply for a public issue through ASBA provided,
- You are a Resident Retail Individual Investor and applying for securities up to Rs. 1 lakh.
- You are bidding at a cut-off, with a single option to the number of shares bid for.
- You have agreed not to revise the bid.
- You are not bidding under reserved categories.
In case of rights issues, you can use ASBA provided,
- You are holding the shares in dematerialized form and applied for additional shares or entitlements in dematerialized form in the issue.
- You have not renounced entitlements fully or partly.
- You are not a renounce yourself and applying through blocking of funds in a bank account held with the Self Certified Syndicate Bank.
In the case of non-retail investors such as Qualified Institutional Buyers and Non-Institutional Investors, they have to compulsorily use the ASBA facility for making an application in public/ rights issues.
Want to get financially FIT? Read our blog How to Achieve Financial Fitness?
Important things to know about ASBA
- The entire amount in your bank account is not blocked. Only an amount equal to the bidding amount which has been authorized in the ASBA will be blocked. The balance amount apart from the ASBA amount in the account can still be used for all other transactions.
- The investor shall be responsible if there is an error in the data submitted by the investor in the application form. If the error is committed by the SCSB/Registered Broker/Syndicate Member while entering the data in the electronic bidding system of the stock exchanges, that particular entity shall be responsible.
- You need not bother about delayed refunds because the amount is deducted only if your bid is accepted, and the securities are allotted to you.
- In ASBA, only the amount of money to the extent required towards the allotment of securities is blocked from the bank account, and the rest can be used for all other banking transactions.
- You cannot change the bid amount or quantity once you submit the ASBA.
- If you make any error during submission through physical mode, there is a high chance of it getting rejected.