Starting May 1, 2021, SEBI has issued new rules alleviating concerns of investors in IPOs with respect to UPI transactions with ASBA (Application Supported by Blocked Amount). There have been queries arising out of operational lapsesis method of blocking the bid amount has received much flak for systemic inefficiencies, frequent laps due to systemic failures by intermediaries.
ASBA is a facility developed by SEBI that streamlines the bidding process for IPOs by retail investors. Retail investors can avail of this facility via Self Certified Syndicate Banks (SCSB) in which the investor must have an account. The Bank is responsible for the acceptance and verification of an investor’s subscription application. Once verified, the bid payment amount is blocked by the Bank in the applicant’s bank account. The bid payment amount is only debited if the applicant is selected for allotment. Once the basis of allotment is settled, the shares are transferred to the investor and the bid payment amount is deducted from their account.
In 2018, SEBI enabled the use of UPI as an additional payment mechanism with ASBA for retail investors. Since its introduction, this method of blocking the bid amount has received much flak for systemic inefficiencies, frequent lapses, and a lack of clear redressal protocols.
Some of the Issues with UPI Payments
Retail investors have been disgruntled with the frequency of issues arising out of payment block mandates, time-lapses and delays, and no clear redressal systems to tackle these challenges. In an attempt to put retail investors at ease, SEBI has released a set of clarifications and rules to promote ease of subscribing to IPOs issues especially given the current economic climate.
Among the common issues that the rules seek to address are:
– Delay in receipt of the mandate for blocking funds due to systemic failures by intermediaries
– Failure to unblock funds in case of cancellation or withdrawal of IPO
– Banks blocking multiple amounts for the same application
– Banks blocking a greater amount in the investors’ account than the amount specified in the application
SEBI has clarified that Lead Managers of the IPOs are the nodal entities responsible for resolving issues arising out of processes, timelines, and compensation highlighting that a compensation policy should be part of the agreement signed between intermediaries.
SEBI has also instructed Self Certified Syndicate Banks to send SMS alerts for a mandate to block and unblock funds. The intent is to keep the investor updated in a timely manner. It has also held Syndicate Banks responsible for compensating investors immediately, as on the date of the receipt of the complaint. In case of delays, a sum of INR 100 per day or 15%p.a. on the IPO application amount is to be offered as compensation.
The Lead Manager will be responsible for ensuring that the processing fee or selling commission to intermediaries will only be released after confirming that there are no pending complaints pertaining to the blocking and unblocking of UPI-based bids.
To promote ease of doing business and assure transparency to investors, SEBI has also proposed that Syndicated Banks should host a web portal listing intermediaries from the date of the IPO opening till the date of listing.
Start-ups benefit from SEBI relaxation of listing norms
In the latest IPO news, providing a much-needed boost to the startup ecosystem, SEBI has released a series of new IPO norms that will buoy high-growth start-ups to the Public Issues Main Board. The SEBI’s IGP (Innovator’s Growth Platform) framework aimed at facilitating young, tech start-ups to list on the mainboard is one the receiving end of a new set of relaxed norms that will make a listing on the IGP and migrating from the IGP to the mainboard, simpler.
The IGP was launched as the Institutional Trading Platform by SEBI in 2015. It was rebranded IGP last year to give it a new lease on life. The IGP framework aims to facilitate an easier transition of young, fast-growing tech companies to the Public Issues Main Board. SEBI’s decision to further ease these norms has come as a breath of fresh air to young companies looking to unlock their full potential through public financing.
SEBIs new IPO norms for start-ups
– SEBI has relaxed the duration for which eligible issues must hold 25% of the pre-issue capital of the issuer company from 2 years to 1 year.
– It has also allowed discretionary allotment of up to 60% to eligible investors prior to the issue opening for subscription with a lock-in of 30 days on allotted shares. Under the current rules, no discretionary allotment is allowed.
– Accredited Investors under IGP have been termed as ‘IGP Investors’. Pre-issue shareholding by investors of the issuer company will be considered for the entire 25% of pre-issue capital as opposed to the ceiling of 10% under the existing norms.
– The threshold trigger for the open offer is relaxed to 49% from 25%.
Further, companies migrating from the IGP to the mainboard will be allowed to do so under lenient eligibility criteria. In case the company does not satisfy profitability, net worth, and net assets requirements, the initial criteria that such companies require 75% of its capital held by Qualified Institutional Buyers (QIBs) has been reduced to 50%.
In spirit, the IGP is a well-intended move to accelerate the growth of tech companies in need of capital to expand operations. It balances investor interest with providing founders with a platform to raise the capital required in the growth stage of their companies.
SEBI IPO norms and compliances are stringent for a reason. They ensure that companies with proper credentials and financial rigor make it to the mainboard. Organizations are put through strict audits and evaluations before being allowed to publicly issue their shares. A relaxation of rules for IGP startups will allow investors to participate in the growth stories of the unicorns of our time while encouraging innovation and enterprise in AI and technology.