What is ASBA?

Last Updated on January 6, 2024 by BFSLTeam BFSLTeam

In recent years, IPOs have become popular investment channels among investors with prospective companies launching IPOs with a bang. One of the main reasons for their astounding popularity is the process available through ASBA which is prevalent in any IPO. For any IPO investment, it is important to know what ASBA entails and how it is relevant in the IPO process of application and overall investment. 

What is ASBA?

The full form of ASBA is “Application Supported by Blocked Amount”. The Securities and Exchange Board of India or SEBI introduced this concept in 2008. ASBA stands as a process that aids investors in applying for IPOs with the utmost convenience. When you apply for an IPO, you essentially request for a certain number of shares to be allotted to you, the payment of which must be considered. In the ASBA process, if you have applied for an IPO, you must instruct your bank to block the amount of the IPO application in your bank account. 

This way, if you are allotted shares through the IPO in question, the amount that is blocked gets automatically debited to pay for the shares you have bought through the IPO. In case you are not allotted any shares, the amount automatically gets unblocked. This is the way ASBA works and its purpose. 

ASBA – Why was it introduced?

Once you have grasped ASBA meaning, you should know the reason for its introduction. 

Before the introduction of ASBA, investors applied for IPOs at a predetermined price. This was a fixed price and demand drafts and cheques were used to pay for allotted shares through an IPO. Investors had to go through tedious processes and stand in lengthy queues outside banks in order to submit forms and pay for IPO allotment. Once the IPO application was submitted, the cheque or DD amount was instantly debited from the investor’s account, but the allotment of shares was done after nearly 2 months. In this period, the company that had issued the IPO would earn interest on the money collected through the IPO. In case the IPO was oversubscribed, refunds were generated through couriers and much of this was lost via transit. Over and above all this effort and time, paper share certificates were sent to investors by mail and this took the better part of 3 months. 

To solve all the issues that prevailed due to traditional methods, a system called “Stockinvest” was launched. This was similar to the ASBA of today. Nonetheless, the system was banned by the Reserve Bank of India due to cases of fraud. The system of ASBA was then introduced. The system is connected to your bank account so that transactions can be undertaken digitally and with transparency. 

How does it work?

How does the “Application Supported by Blocked Amount” system work? This is an easy application via which your bank account is instructed to block a certain amount for a specific IPO. As mentioned before, this amount is not initially debited from your bank account. It is just blocked temporarily. The funds that are blocked only get debited from your bank account if you are allotted shares through the IPO you have applied for. If you do receive a share allotment, the shares are automatically transferred to your Demat account. 

Furthermore, if you get an allotment of shares in part, say you had applied for 500 and are allotted only 250, then only that amount for 250 shares (your partial allotment) will be debited from the blocked amount, and the rest gets unblocked automatically. You should note that all banks do not make the facility of ASBA available to investors. The facility of ASBA is only provided by self-certified syndicate banks. These must be registered by the Securities and Exchange Board of India.

Additional Read: How does an IPO work?

Advantages of ASBA

You may have already gauged some benefits that ASBA gives you, but they are detailed below:  

• When you go through an ASBA application, your money is blocked in your bank account but you continue to earn interest on it. 
• The whole process of ASBA is paperless and this has made share allotment and dissemination of funds more transparent, safe, and effortless.
• The ASBA process is stress-free and involves no cost. 
• The refund process has been made more transparent with refunds expedited by simply unblocking your funds in your bank account through digital means. 
• ASBA prevents the issuer of an IPO from using the funds unless the shares are allotted. 

The ASBA Application Process

Once you know ASBA meaning, you can learn about other aspects of ASBA, like the application process. You can apply for this facility online and offline. Additionally, the application form is available on the websites of the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) for easy download. Here are some key steps in the application process: 

1. Fill in your details on the application form – these include details like your name, your PAN card details, your Demat account number, the bid price, your bid number, your bank account number, and the corresponding IFSC code. 
2. Submit the application form at the syndicate bank and make sure you collect your acknowledgement slip.
3. The bank will automatically upload all the information to the relevant bidding platform. 

Additional Read: How to apply for an IPO?

Final Lines

Compared to previous methods to apply for an IPO, the ASBA method offers you convenience and transparency in operations. Significantly, it has empowered retail and smaller investors to apply for an IPO with ease and accessibility. The facility was made mandatory in 2016, to make the whole process less cumbersome than in earlier times. You will find that, nowadays, all issuers of an IPO have to offer you the ASBA facility.

Additional Read: Cut-Off Price in IPO Application

It is important to note that there is an alternative to the ASBA facility. For small investors who bid up to ₹2 lakh worth of shares, they are permitted to use the UPI facility to make payments in an IPO application. Furthermore, something else that is relevant in an IPO application is that you can cancel an ASBA application if you wish. This can be done as long as the bidding window of the IPO remains open.

*Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only*