The process of refund of application money to unsuccessful applicants is a cumbersome process which is responsuble for delay in listing of new issues on the bourses. To overcome these drawbacks, SEBI has introduced an innovative payment mechanism for retail investors applying for new issues and select rights issues. This payment mechanism is called Applications Supported by Blocked Amount (ASBA), and has been introduced with effect from September 1, 2008.
The salient features of the scheme are:
- Available for retail investors (investors with application amount upto Rs. 1 lakh) for IPOs
- All existing shareholders can avail of the facility in a Rights issue, provided shares are held in DEMAT form
- Bidding allowed only at cut-off price
- Bids cannot be revised
- Bids may be in physical form or electronically through a branch of a Self Certified Schedule Bank (SCSB), where the investor maintains his account
- The application money remains blocked in the account till the announcement of basis of allotment by the Company
- In case of a successful bid the appropriate ammount is unblocked and transferred to the issuer company's account
The first company to benefit from the issue was '20 Microns Ltd'. The efficacy of this system will be tested only in a buoyant market. The system is expected to provide an incentive for small investors to aggressively participate in IPOs/ Rights issues.
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