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SEBI approves Application Supported by Blocked Amount (ASBA) for IPOs

The Securities and Exchange Board of India (SEBI) has come up with detailed guidelines for Application Supported by Blocked Amount (ASBA) for Initial Public Offerings (IPOs).

A couple of months back, SEBI had proposed a retail investor friendly IPO regime that would totally eliminate the complications associated with refunds of IPO application money. (Please read the details in “Initial Public Offering (IPO) Modernization – Benefits for small investors”)

Now, SEBI has come out with the details of the proposal through a circular issued on 30th July.

The scheme would be called “Application Supported by Blocked Amount”, or ASBA, and would be applicable to all IPO having a book building process for price discovery.

With this new process in place, the investors would not have to pay the money during IPO application. The amount would be retained in the investor’s bank account, and would be earmarked for the IPO application. It would be retained till the completion of entire allotment process.

Only if shares are allotted to the investor, the amount would be paid to the company towards the IPO allotment. If there is no allotment, the amount would be simply released, and the investor would be able to utilize it immediately.

This new process would be supported by Self Certified Syndicate Banks (SCSBs). The banks would be required to register themselves in the SCSB list, which would be available on SEBI’s website.

SEBI has made the necessary amendments in the Disclosure and Investor Protection Guidelines, 2000. These guidelines would come into effect once recognition of banks as SCSBs is completed.

Initially, ASBA would co-exist with the current process of payment of IPO money through cheques, and would replace it subsequently.

Important Points

  • ASBA would be available to retail investors only
  • Initially, only investor bidding at the cut-off price would be allowed to opt for ASBA
  • Investors opting for ASBA would not be allowed to revise their bids
  • Investors opting for ASBA would be allowed to cancel / withdraw their bids

(Please read “Initial Public Offering (IPO) Modernization – Benefits for small investors” to know the many benefits of Application Supported by Blocked Amount – ASBA)

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