Recently, the Securities and Exchange Board of India (SEBI) gave details of a proposed framework for shifting to a new payments system for secondary market trades.

 

What is Application Supported by Blocked Amount (ASBA)?

  • This process is developed by SEBI to apply for IPOs, Rights and Debts Issues, FPS and more.
  • It entails that the amount to be paid for subscribing to the shares does not get debited from the investor’s account until the shares have been allotted by the company.
  • Investors can apply for ASBA and have the bank block out the application money until the shares get allotted to the investor.
  • This system will provide the authorisation of the investor to subscribe only when the application is selected for the issue. This blocking is carried out by Self-Certified Syndicate Banks (SCSB).
  • Upon the approval of the issue to the investor, the funds are paid accordingly.
  • Self-Certified Syndicate Banks (SCSBs) — These are SEBI-authorised banks that conform to the conditions laid by SEBI to accept the applications, verify and block the amount to the extent of what the application requires, upload the details to the web and stay updated with the process until the shares are allotted.
  • If the issue gets withdrawn, or the investor has not been allotted the shares, then SCSBs refund the money back to the investor’s account.
  • Subscribing to issues via ASBA is a mandatory option since 2016.
  • If the money has been blocked in an interest-bearing ASBA account then the amount will continue to earn interest during the time it takes to get the allotment of the share. The investor needs to be an Indian resident to avail of ASBA.
  • Significance The reason for this process to come into effect was to eliminate the inconvenience of finding refunds or having shares not be allotted.