Sunday, February 14, 2016


However, you might face some initial hurdles if you have an account with a bank not designated to offer this - Says Priya Nair - Business Standard

Did you face any hurdle while investing in a recent initial public offering (IPO) stock issue? Did you have to go looking for a bank branch with the Application Supported by Blocked Amount (Asba) facility because your bank did not offer it? Or was your IPO application not processed due to signatures not matching? Or were you advised to invest through a brokerage that is the bank's subsidiary instead of your regular brokerage?

These are some of the initial hurdles a retail investor (one who invests up to Rs 2 lakh) might have faced while investing in IPOs through Asba. However, the process is set to get smoother, say experts.

Asba is an online payment facility provided by some banks, wherein the application money is blocked and gets debited only after IPO allotment is made. It was initially introduced by the Securities and Exchange Board of India (Sebi) in 2008 and was mandatory for non-retail categories of investors. From January this year, Sebi has also made it mandatory for retail investors.

Asba vs earlier process of applying
Under Asba, investors give the IPO application forms either directly to Self-Certified Syndicate Banks (SCSBs), which then make a bid of the application and block funds. Or investors submit applications to registered brokers or other designated intermediaries which then bid the application and send the form to a SCSB for blocking of funds.

In the earlier process when Asba was not mandatory for retail investors, they could send a cheque/demand draft with the application form to their brokers. The application was bid by the broker or intermediary member and the money deposited in escrow collection banks for clearance.

"The Asba mechanism, though prevalent for five to six years, has still not become popular with retail investors. In past issues, where retail investors had the option of subscribing through either the Asba or non-Asba mode, only 15-20 per cent of retail applications came through Asba,'' says Pranjal Srivastava, senior vice-president at ICICI Securities.
  • Investors who maintain a savings, current or flexi deposit with an SCSB branch can send the application physically or through net banking
  • The demat account could be with any depository participant
  • Provide details such as PAN, client ID, bid quantity and bank account number
  • Investors can give a maximum of three bids within the price band. The amount equivalent to the highest bid will be blocked
  • Adequate funds must be available in the account that is proposed to be blocked

Advantages of Asba
Asba is convenient and reduces the time while applying for IPOs, says Hiren Dhakan, associate fund manager, Bonanza Portfolio. The money gets debited directly from your account. You don't have to issue a cheque to your broker and wait for it to get cleared. The other advantage is that the investor's money will continue to earn interest, as funds are in the account, till the time of debit, says Satish Menon, executive director, Geojit BNP Paribas Financial Services. The money is only blocked till you get allotment of shares You also don't have to follow up with your broker for refund of money if you don't get allotment of shares, as the money remains in your account, Dhakan says.

Likely Disadvantages of Asba
There are hassles, too, at least for now. "The actual challenge is on the reach and proper submission of IPO forms, as this should be done only in a designated SCSB," says Menon. If the investor has a bank account with a designated one, there is no problem. The disadvantage is when the investor has a bank account with a non-SCSB bank or a bank without core banking facility. "In the initial period, investors or their brokers might need to reach out to designated branches in their respective cities or nearby cities for applications, as every bank branch might not accept Asba forms,'' says Srivastava.
Also, not all bank employees, even of SCSB branches, are aware of the Asba procedure. In such cases, bank staff might refuse to accept IPO forms. Or they might refuse to do the additional work of processing the forms, as it is not part of their routine work, says Dhakan.
Or, in some cities, the volume of applications might not be sufficient for banks to allocate dedicated resources or personnel for Asba, resulting in lack of experience in handling these forms.
In addition, entities accepting an IPO form from an investor should know all details such as the bank account details and send these to the same bank's SCSB branch. For example, if a broker's office collects IPO application forms from 20 investors and the accounts are in 15 different banks, these forms will have to be sent to the 15 designated SCSBs (assuming all are eligible).
"This will increase the logistical problems and chances of timeline lapses (as IPOs are now open for only three days). Hence, the earlier method of submitting IPO forms at the broker's office might not be efficient and many brokers might be reluctant to take the responsibility of small applications,'' says Menon.
Investors also need to ensure the requisite funds are available in the account for blocking at the time of making the application, adds Srivastava.

Way ahead
Investors who face difficulty while applying through brokers might do so through their respective banks.
Menon of Geojit BNP Paribas says, "We have a specific set of clientele who used to apply for IPOs through the online method and we are getting queries from them. As of now, we are unable to process their forms due to change of methodology and are asking them to apply through their respective bankers.'' But, these are only teething problems. "Sebi has a list of the SCSB branches on its website. Most big public and private banks and even some small co-operative banks are SCSBs,'' says Dhakan.

Courtesy: Priya Nair , Business Standard

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