What is ASBA, Whare Are It’s Benefits & Process

Do you want to apply for an IPO? This blog describes ASBA meaning and how to use it to make informed decisions.

ASBA is one of the reasons IPO has gained popularity among retail investors. If you are wondering ‘what is ASBA?’ and how to use ASBA, this article is for you. 

ASBA, abbreviated as Application Supported by Blocked Amount, is an application process approved by SEBI. 

This article will cover the following. 

  • • Introduction of ASBA and ASBA meaning
  • • Benefits of ASBA
  • • Detailed ASBA application process 
  • • Eligibility criteria

What is ASBA?

SEBI introduced ASBA in 2008.

During the 90s, the IPO application process was cumbersome and intimidating. Investors used to issue cheques to the banker for the IPO in a fixed price issue. It would take three months to get intimidated regarding IPO share allotment, and during this period, the applicant didn’t receive interest on the locked amount. In an attempt to modernise the Indian stock market, SEBI made significant changes in the IPO application process. A big positive shift was the introduction of the ASBA application.

In ASBA, the amount on the applicant’s bank account only gets blocked to the extent of the application value. It prevents the issuer from receiving interest income on the float for the interim period. 

The ASBA process is quite an improvement from the previous StockInvest, introduced in 1993. RBI discontinued the system in 1993 because of rampant fraudulent activities. It was then that ASBA came into the picture. It is linked to your bank account, and banks follow strict KYC norms, which eliminate harmful practices.

Benefits of ASBA:

 Here are some unique benefits of ASBA.

  • • In the ASBA application, the bank blocks the money in your account, and you continue earning interest on it.
  • • The ASBA application process is paperless and has eliminated the need to write cheques/demand drafts. 
  • • It is hassle-free and doesn’t involve any cost. Individuals can apply using Netbanking and without submitting any document.
  • • It has made the refund process transparent. If you aren’t allotted IPO shares, the SCSB unblocks and releases the money to your account.
  • • The blocked amount is considered in calculating the Average Quarterly Balance in the account.  
  • • ASBA prevents the IPO issuer from using the funds before allotting the shares 

Detailed ASBA application process:

You can avail yourself of the ASBA facility both online and offline. 

Offline method of using ASBA application:

Here are some of the steps to apply for ASBA offline.

The ASBA form is available on BSE and NSE websites for download.

Fill out the details like

  • • Name
  • • PAN card details
  • • Demat account number 
  • • Bid quantity 
  • • Bid pride
  • • Bank account number and Indian Financial System Code (IFSC)

Submit the form at the Self-certified Syndicate Bank and collect the acknowledgement receipt. 

It allows your bank to block the amount in your account.

The bank will upload the details to the bidding platform.  

Investors should ensure that the details in the ASBA form are correct to avoid it from getting rejected. 

Online method of IPO application using ASBA facility:

The online application system is simple and fast. Here are the steps below. 

  • • Log in to your net banking portal and click on the net banking 
  • • Choose IPO Application from the list of options available 
  • • You will be redirected to the IPO application platform
  • • You will need to feel the basic details like name, PAN, bid quantity, bid price, and 16 digits unique DP number 

After applying for the ASBA IPO, you can check the application status on NSE or BSE websites. 

Important points to note to avoid rejection of IPO application 

  • • Once you have submitted the IPO application, the amount will get blocked in your account. So, you will not be able to use the funds for other needs.
  • • You can apply for one IPO using one PAN. Your application will get rejected if you use the same PAN to apply for the same IPO twice.
  • • Under ASBA, investors can apply up to three bids.

Situations that can lead to IPO application rejection 

  • • If you do not have sufficient funds in your account 
  • • If the information furnished in your application is wrong 
  • • If there is a mismatch in your name, PAN card details with the information in your Demat account 
  • • Multiple applications using a single PAN card

Eligibility criteria for using ASBA

Retail investors can use the ASBA application if they meet the following conditions. 

  • • ASBA is available to Indian residents 
  • • The applicant needs a Demat account and the Permanent Account Number (PAN)
  • • Individuals should have a banking account with an SCSB

IPO application process through UPI: An ASBA alternative 

Small investors bidding up to Rs 2 lakh can use UPI to bid for IPOs. Here are the steps to use UPI to apply for an upcoming IPO.

  • • Log in to the client portal of your broker’s website. There you will find an option to apply for IPO online.
  • • Select the IPO you want to bid for. 
  • • In the bidding window, you can change the bid size and cut-off price. 
  • • In the UPI details window, enter UPI payment details.  
  • • You will get a payment request on your UPI app. Accept the payment request to complete the bidding process.
  • • You will receive SMS and email notification that your application is successful.

Can you cancel ASBA application?

Individuals can withdraw the ASBA application till the time the issue is open for bidding. So, if an IPO bidding window remains open for three days, then investors can withdraw the application anytime within these three days. 

Once you cancel the application, the blocked amount is made available the next working day.  

Conclusion

The ASBA application process is simple than the previous methods and allows investors to use the funds available in the bank. It is also a lot safer and more transparent than the old cumbersome ways. ASBA has empowered smaller and retail investors and given more power to them. However, it wasn’t mandatory until 2016. Now all IPO issuers have to offer an ASBA application facility. 

Angel One doesn’t offer IPO applications through ASBA. The article is for educational purposes only to help investors understand ASBA meaning.