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What is the importance of ASBA in IPOs?

Created on 21 Dec 2019

Wraps up in 4 Min

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Updated on 09 Oct 2020

amount blocked in ASBA account for IPO allotment

With various companies announcing their IPOs, these are golden days to make it big in the market for investors. The Indian economy is also favoring us with a growing GDP, and an overall increase of various new startups.

However, some people are afraid of investing in IPOs. They think that it's a highly risky business. But, in the glorious words of Warren Buffet, "Risk comes from not knowing what you're doing."

And, to know what you’re doing, you must possess the proper knowledge of the thing you’re doing. So, let's take our one step closer to know about IPOs in this article, where we'll be discussing all ASBA IPOs.

What is ASBA Account?

ASBA is an acronym for Applications Supported by Blocked Amounts. It is a process developed by the Securities and Exchange Board of India (SEBI) to apply for IPOs. An ASBA is simply an application, which authorizes banks to block funds in the applicants (our, i.e., investors) account.

However, not all banks can offer you this ASBA application. Only SCSB (Self-Certified Syndicate Banks) are allowed to provide this service of ASBA application. Okay, but what does it mean to “block funds”?

Well, the blocked fund is the amount that is reserved for buying shares in ASBA IPO. It is 'blocked' because it cannot be withdrawn by the investor until the IPO application process is done.

The amount is debited from an investor's account only if he/she is selected for ASBA IPO allotment. In such a case, the required amount is debited from the investor's account, and equivalent shares are credited in the Demat account. In case if the investor is not selected, then the blocked amount becomes unblocked, available to be used again normally.

ASBA was introduced by SEBI back in 2008. Before the introduction of ASBA, cheques were preferred as a mode of payment. However, they caused various problems for the investors, like they had to pay all the fees upfront at bidding time and refunds through cheques took a very long time.

Hence the reason ASBA was introduced as an alternative to this traditional method of payment. Now, let's talk about the various SCBS which offer the ASBA account facility.

Some common SCSB
1. State Bank of India (SBI)

The State Bank of India provides an ASBA account facility through Internet Banking.  Investors having Internet banking facility in their debit account, along with transaction rights, can easily access online.

Investors with Internet banking are not required to submit any kind of physical application to bid on ASBA IPO.

2. Axis Bank

Axis Bank provides the ASBA account facility with an IPOSmart application. An account holder can apply for IPOSmart online (using internet banking) or offline.

IPOSmart application allows the ASBA account holders to earn interest on their funds, which they have blocked for applying to ASBA IPO.

3. ICICI Bank Ltd.

ICICI Bank also provides the account holders ASBA account facility by internet banking facility.

Apart from these banks, other SCSB providing ASBA account are:

  • HDFC bank
  • HSBC bank
  • Punjab National Bank
  • Allahabad bank
  • Bank of Maharashtra
  • Kotak Mahindra bank
  • J.P Morgan Chase bank
Applying for ASBA account facility

Now, we'll discuss the ASBA application process.

Eligibility:

  • Investors are required to be Retail Investors, i.e., the one who's making an investment of at most two lakhs.
  • The investors applying for ASBA must have an account in the SCSB they're applying from.
  • ASBA applicants are not allowed to revise their bids.
  • ASBA applicants are not eligible to bid under any reserved category of investors (decided by the IPO issuing company).
  • ASBA applicants should allow blocking of funds in their accounts till the allotment date.
  • ASBA applicants must bid at a cut-off price in IPOs (i.e., issue price as decided by the company).
  • You must have a Demat account, along with a valid PAN.
ASBA Application Process:

The application process can be carried out both online and offline, depending on your choice.

For online applicants:

First, make sure your bank provides an ASBA facility to you, and you have an Internet banking facility.

  • Log in to the Internet banking portal of your bank.
  • Choose the IPO application process and fill in your required details.
  • You'll need to provide information such as DP ID, Bid quantity, Bank account number, PAN, and Client ID.

That’s it.

 For offline applicants:
  • Visit any branch of your SCSB bank (there's no need to have an account in this branch).
  • Download the ASBA bid-cum application form, which is available on the BSE and NSE websites.
  • Put all the necessary details in this form, similar to the online process, and submit it to the branch.
  • After the acknowledgment of your application, the required amount will be blocked by your bank.
  • The applicants can also check the status of their application on NSE and BSE websites.
Closure

The ASBA Application Process must be filled correctly, as any discrepancies found in the application will lead to rejection. Sometimes this becomes a prominent reason for not getting the ASBA IPO allotment.

Following are some scenarios in which your ASBA application will get rejected:

  • If an insufficient amount is found in your bank account.
  • If there are any errors in the ASBA IPO application form.
  • Filling incorrect details in the application form.
  • Multiple applications under the same applicant name.
  • A mismatch between your PAN name and Demat account name.

 Hence, avoid making these mistakes so that you can easily bid for the ASBA IPOs you want.

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Deb P Samaddar

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Deb is a keen learner and eager to learn about the finance world. He is that person who would never stop talking, but my oh my, the words he uses, are not something a normal human would in a regular conversation. While the conversations are well, interesting, the write-ups are faultless. With an increased proclivity towards tech and language, he aims to capitalise on his interests as a content writer at Finology.

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