Market regulator SEBI (Securities and Exchange Board of India) is ready to make Application Supported by Blocked Amount (ASBA) mandatory for retail investors, according to media reports.
ASBA is a facility where funds remain in a retail investor’s bank account till shares are allotted to him in an initial public offer (IPO). At present, retail investors have two payment options for IPOs: first is by issuing a cheque with the IPO application form, and second, through the ASBA facility.
ASBA reduces the pressure on fund payment and clearing mechanism in the banking system as the money doesn't leave the retail investor’s account. The investor also benefits from interest earnings.
In 2011, SEBI made ASBA compulsory for institutional investors and HNIs (high net worth individuals). Since its introduction in 2008, the ASBA facility has been used in over 90 public issues and 37 rights issues.
“In these public issues, ASBA facility has been opted for on an average in 18.42% of the total applications. (18.44%, 14.93%, 62.85% for Retail, NII and QIB categories respectively). Overall, ASBA applications, as a percentage of total applications, which was less than 1% when the facility commenced, is now hovering at around 25%,” an internal note to the SEBI board had said.
SEBI also plans to provide some comfort to retail investors in IPOs by making it mandatory for issuers to provide an exit window if the share price falls below a certain threshold limit, the reports added.