What is “ASBA”? ASBA means “Application Supported by Blocked Amount”.  ASBA is an application containing an authorization to block the application money in the bank account, for subscribing to an issue. If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn/failed.

This means that the money does not leave your account at all. So if you are entitled to say shares worth Rs. 100,000 in a rights issue and you decide to apply for shares worth Rs. 200,000, your bank will block Rs. 200,000 and inform the registrar accordingly. If you are allotted shares worth say Rs. 179,000, exactly that much will be debited to your account. The huge advantage is that there are no frauds possible, as the ‘cash value’ document (aka cheque) does not leave your account.

Under ASBA facility, investors can apply in any public/ rights issues by using their bank account. Investor submits the ASBA form  after filling the details like name of the applicant, PAN number, demat account number, bid quantity, bid price etc.  to their banking branch by giving an instruction to block the amount in their account. In turn, the bank will upload the details of the application in the bidding platform.

In public issues w.e.f. May 1, 2010 all the investors can apply through ASBA.   In rights issues, all shareholders of the company as on record date are permitted to use ASBA for making applications provided he/she/it: a. is holding shares in dematerialized form and has applied for entitlements or additional shares in the issue in dematerialised form;

Applying through ASBA facility has the following advantages:

(i) The investor need not pay the application money by cheque rather the investor submits ASBA which accompanies an authorization to block the bank account to the extent of the application money.

(ii) The investor does not have to bother about refunds, as in ASBA only that much money to the extent required for allotment of securities, is taken from the bank account only when his application is selected for allotment after the basis of allotment is finalized.

(iii) The investor continues to earn interest on the application money as the same remains in the bank account, which is not the case in other modes of payment.

(iv) The application form is simpler.

(v) The investor deals with the known intermediary i.e. its own bank.

5. It is mandatory for the investors whose application amount is more than Rs. 200,000 to apply through ASBA.

Frankly I do not see any downside using ASBA for a rights issue or an IPO…I keep wondering why it is not popular.

Any guesses?

 

Ps: thanks for inputs from Haren Modi, one of the veteran pillars of the R&T business, he continues to be an Adviser with Link-Intime Share registrars and transfer agents. Content from the sebi website.

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  1. One reason which I faced using ASBA is, brokerage agencies(mine ICICidirect) does not allow you to use it if they are not the bankers.When I tried to use ASBA for Canfin rights, they did not accept my application saying that, they have not received any intimation for the same as they are not the bankers and also they don’t know how to process it.They also twisted the rule that, if your application money is less than 2lks, then you are not supposed to use it(this rule was stated by some manager of the ICICIDirect in the main branch when I insisted to use it).
    Another reason is, only via specific branches we can apply using ASBA.

    Prashant

  2. I have been using ASBA since it was launched. Had no issues with ICICI direct as doing it online thru 3 in 1 account. Don’t know how they handle it offline. But my experience with its employees has been very unpleasant.

    Physical form of ASBA is not popular because it is so congested (too much information on the tiny form) and many a times difficult to read (one needs a magnifying glass)

    Also there is not enough space to write the details and signature due to which the same gets rejected.

    And very limited no. of branches accept it.

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