Applying for IPO via ASBA

It is almost certain these days that you will not get what you asked for in an IPO — two lots for four applied, one lot for five and sometimes nothing at all!

In running the race with lady luck to buy into offers, Shekar ran out of cheque leaves and also saw the balance in his savings account dip below the minimum required.



Can someone have the cake and eat it too? YES, had only Shekar taken the ASBA route!

The securities market watchdog SEBI has facilitated a smarter way of investing in IPOs wherein you can make applications for IPOs with the amount residing in your account till the allotment is finalised.

Cancelling and revising the bid is also possible.

That makes life simpler, isn't it?

Save on interest

ASBA- Application Supported by Blocked Amount is an application that authorises the banker to block a specific sum of money in an individual's bank account for an IPO.

When one chooses to apply through ASBA for an initial public offer, the required amount will only be blocked and not debited from the individual's account; debit will happen only after his application is selected for allotment.

However, even as the blocked amount will not be available for use of the customer, he will continue to earn interest on it, says Mr Puneet Kapoor, Executive Vice-President, Kotak Mahindra Bank.

Unlike the normal procedure where the debit happens immediately and the applicant needs to wait for refunds on a partial allotment, the ASBA route provides interest and saves time. Now, how does one apply for ASBA?

Applying for ASBA

To bid in an IPO, Shekar has to take either the e-route via on-line trading account or fill the physical form and submit it with his banker/broker.

Taking the first scenario of an online investor into consideration, the process is very simple.

Shekar needs to just check the ASBA check-box in his screen (top brokerage houses provide ASBA facility for their online clients) and rest of the process is taken care of automatically.

In case Shekar takes the traditional way of applying to IPOs still, he needs to approach his banker (ASBA application forms can be downloaded from the NSE/BSE Web sites too) for an ‘ASBA Bid cum Application' form.

The applicant has to fill in basic details that include bank account number, PAN number, demat number, the bid quantity and bid price and submit the form with the banker (if the applicant is a Net banking client, he may be able to do this online itself).

The banker then uploads details of the application in the bidding platform and simultaneously blocks the amount in the client's account.

What is to be noted here is that not all banks have ASBA facility; only self certified syndicate banks (SCSBs) offer this.

List of SCSBs is available in the Web site of the Bombay Stock Exchange and also National Stock Exchange. State Bank of India, HDFC Bank, AXIS Bank, ICICI Bank, Bank of India, Kotak Mahindra Bank, Deutsche Bank, Standard Chartered Bank are among those offering the facility. You need to have a current/savings account with one of the SCSBs to be able to apply via ASBA route in IPOs. Shekar should ensure that he makes available sufficient amount in his account while making the application.

Once the process is complete, the banker sends in an acknowledgement which should be filed and kept for future reference .

Recently, brokerage houses have also been given the ‘green' signal by SEBI to distribute ASBA forms. So now you needn't even walk up to the bank for an ASBA application; you can send it through your broker friend (not all brokerages currently offer this service).

Some common doubts

With ASBA applications just kicking off, there are doubts as to whether one can apply at the cut-off price and if the placed bids can be revised. Mr Kapoor says that one can well do that.

“The investor has the option of revising and even cancelling the bid till the cut-off time on the last day of the issue”. The process is simple and doesn't require much of a doing.

For bids that come at the cut-off price, the banker considers the higher limit of the price band to determine the amount to be blocked.

Take for example the offer of Shipping Corporation of India; the issue was in the price band of Rs 135-140.

For any one who had applied for two lots, Rs 14,000 (50*2 lots*140) would have been blocked.

And yes, now the final question — “what's the service fee?” Currently, most brokers and bankers offer this service free of cost for their clients; they collect the selling commission or the processing fee from merchant bankers of the issue.

It is time that investors move away from the traditional ways to make their investment experience better.

via Business Line