ASBA

Before ASBA, applying for an IPO meant writing a cheque. Your money left your account on day one, sat with the issue's bankers for two or three weeks, and came back as a refund if you got nothing — which, in an oversubscribed issue, was most people, most of the time.

ASBA removes that. You still apply for the full amount, but the money never leaves your bank account. Your bank simply marks it as blocked: you cannot spend it, and nobody else can take it. When the allotment is finalised, the bank debits exactly what you were allotted and releases the rest the same day.

SEBI has made this the only permitted route. Every investor applying in a public issue uses ASBA, and payments in a rights issue must go through ASBA too.

The application is routed through a Self-Certified Syndicate Bank (SCSB) — a banker to an issue, registered with SEBI, that offers the ASBA facility. You must hold your bank account with that SCSB. The workbook defines ASBA as an application to subscribe "along with an authorisation to self-certified syndicate bank to block the application money in a bank account".

Bids may be placed through a stock broker, an SCSB, a registrar and share transfer agent, or a depository participant, and every one of them must accept bids only on ASBA.

Retail investors additionally have the UPI route. SEBI introduced UPI as a payment mechanism alongside ASBA in phases from 1 January 2019, and then mandated that all individual investors applying in public issues where the application amount is up to Rs 5 lakh must use UPI, with effect from 1 May 2022. Banks and UPI apps must send SMS alerts when an amount is blocked and when it is unblocked.

For partly paid securities and call money, SEBI has allowed three further channels: Online ASBA through an SCSB's portal, Physical ASBA at an SCSB branch, and an additional online mode through the linked trading-demat-bank account some brokers provide.

When the issue closes, the cut-off price is fixed from the bids. Bidders at or above the cut-off are successful; bidders below it have their blocked amount released. In an oversubscribed issue, allotment is proportionate and the excess block is unwound.

An IPO with a price band of Rs 236 – Rs 248, minimum bid lot 60 shares. (The lot is set so that the minimum application value falls in SEBI's prescribed range of Rs 10,000 to Rs 15,000 — here 60 × 248 = Rs 14,880.)

Meera bids for 4 lots = 240 shares at the cut-off, so at the top of the band:

Amount blocked = 240 × Rs 248 = Rs 59,520

Because the application is under Rs 5 lakh, it goes through UPI-ASBA: she approves a mandate in her UPI app and gets an SMS confirming the block. Her balance still shows the money. She simply cannot spend Rs 59,520 of it.

The retail portion is oversubscribed 8 times, so she is allotted one lot of 60 shares at the discovered cut-off of Rs 248.

Had she been allotted nothing, the entire Rs 59,520 would have been unblocked with no debit at all — no refund cheque, no waiting for clearing, and the money in her own account the whole time.

Chapter 3, sections 3.10 (Public Issue Process of Equities) and 3.12 (Applying to a Public Issue), with the definition carried in a footnote and repeated in section 3.14 for rights issues. Examinable points are narrow and precise: that ASBA is mandatory for all public issues and for rights issue payments; that the blocking is done by a Self-Certified Syndicate Bank; that funds are debited or unblocked on finalisation of allotment, not before; and the Rs 5 lakh / 1 May 2022 UPI threshold for individual investors. Date-and-threshold questions are common here because the figures are unambiguous.

• ASBA is not a broker facility, it is a bank facility. The bid can be placed through a broker, an RTA or a DP, but the block is always made by the SCSB where you hold the account.
• Blocked is not debited. The money stays in your account and is released or debited only when the basis of allotment is finalised. Candidates who answer "the money is transferred to the issuer" lose the mark.
• The UPI threshold is Rs 5 lakh and applies to individual investors — it is not a limit on how much you may apply for, only on which payment rail you must use.
• ASBA is mandatory, not optional, and entry via cheque no longer exists. "Investors may choose ASBA or a cheque" is always wrong.
• Bidding at the cut-off is not the same as ASBA. Cut-off bidding is about price; ASBA is about payment. A question can test either, and they appear in the same paragraph of the workbook.
• Rights issues use ASBA too. Many candidates associate it only with IPOs.