What Is ASBA and How Does It Work for IPOs?

Application Supported by Blocked Amount (ASBA) is a payment mechanism designed to streamline the application process for various capital market transactions. It primarily applies to public offerings such as Initial Public Offerings (IPOs), where companies issue new shares to the public for the first time. ASBA ensures that the application money for shares remains within an investor’s bank account, providing a secure and transparent method for subscription.

Understanding ASBA

ASBA, which stands for Application Supported by Blocked Amount, represents a specialized process for applying to public issues in capital markets. The core concept behind ASBA is that the application money is not immediately transferred from the investor’s bank account. Instead, the specific amount required for the application is temporarily blocked in the investor’s account, acting as a lien against the funds.

This means the funds are set aside and cannot be used for other transactions, but they are not debited from the account until a specific condition is met. The money is only debited if and when shares are successfully allotted to the investor. If no shares are allotted, the blocked amount is simply unblocked, making it available for the investor’s use again.

This mechanism is widely used for IPOs, Follow-on Public Offers (FPOs), and Rights Issues, simplifying the application procedure for market participants.

How ASBA Functions

An investor initiates the ASBA process by submitting an application for a public issue, which can be done either online through net banking or by submitting a physical form at a designated bank branch. These designated banks are known as Self Certified Syndicate Banks (SCSBs), which are authorized by market regulators to facilitate ASBA applications. Upon receiving the application, the SCSB verifies the details and places a block on the specified application amount in the investor’s bank account. This ensures that the investor has sufficient funds for the potential share purchase without the money leaving their account immediately.

After the application period closes, the Registrar to the issue processes all applications and finalizes the basis of allotment. If shares are allotted to the investor, the SCSB debits only the amount corresponding to the allotted shares from the blocked funds and transfers it to the issuer’s account. Conversely, if no shares are allotted or only a partial allotment occurs, the unutilized portion of the blocked amount is promptly released back into the investor’s usable balance without any refund process. This streamlined procedure connects the investor, the SCSB, and the Registrar to the issue, ensuring efficient handling of funds throughout the public offering process.

Key Characteristics of ASBA

ASBA incorporates several design principles that distinguish it from older application methods for public issues. A significant characteristic is that investors continue to earn interest on the blocked application amount until the shares are actually allotted. This contrasts with traditional methods where funds were debited upfront, leading to a loss of potential interest earnings for the investor during the application period.

The mechanism also enhances security by reducing the risk of fraudulent withdrawals, as funds are not transferred to an intermediary but remain within the investor’s own bank account under a temporary block. The ASBA process is designed for greater transparency and efficiency, minimizing the need for manual intervention and paperwork.

It eliminates the often cumbersome and delayed process of issuing physical refund orders for unallotted shares or oversubscribed applications. Instead, unblocked funds are immediately available in the investor’s account. These attributes collectively make ASBA a preferred and often mandatory method for participating in public offerings, providing a secure and investor-friendly approach to capital market investments.