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only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn/failed.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.
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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