Banker to an issue

A public issue moves a great deal of money in a short time: application money in, allotment money in, refunds out, and later dividends and interest out. SEBI does not let just anyone handle it. That job belongs to the banker to an issue.

The workbook's definition: a banker to an issue means a scheduled bank or such other banking company, as specified by SEBI, to carry out activities such as:

1. acceptance of application and application monies;
2. acceptance of allotment or call monies;
3. refund of application monies; and
4. payment of dividend or interest warrants.

Like every other constituent of an issue, the banker must be registered with SEBI under its regulations — the workbook refers to the SEBI (Bankers to an Issue) Regulations, 1994. The lead manager has to ensure that every constituent it brings in is registered.

For an RTA candidate the banker matters because the two work hand in hand: the RTA gives the instructions — who gets refunds, whose accounts are unblocked, who is paid a dividend — and the banker moves the money.

Who appoints the banker. The workbook says it two ways:

The chapter's sample question takes the second line: bankers to an issue are appointed by the Issuers for anchor investors.

Working with the RTA during the issue. Before the issue, the RTA enters into an Escrow Agreement with the company, selling shareholders, book running lead managers and the Bankers to the Offer, under which the Registrar issues instructions to the bankers. After the basis of allotment, the RTA prepares details of rejected and unsuccessful bids so that the Bankers to the Offer or SCSBs can refund the amount or unblock the relevant bank accounts; if the offer fails, the RTA instructs unblocking of ASBA accounts and refunds to anchor investors.

Related bank roles.

• Sponsor Bank: registered with SEBI as a Banker to an Offer, holds UPI certification from NPCI, and acts as the conduit between the stock exchanges and NPCI for UPI mandates.
• Payments banks: SEBI permits non-scheduled Payments Banks with prior RBI approval to register as Bankers to an Issue, and to act as SCSBs; money moves only through the investor's savings account with that payments bank.

After listing — the 2018 SEBI circular. Its norms on payment of dividend, interest and redemption apply to RTAs, issuer companies and bankers to an issue:

• the master file of beneficiaries is shared with the banker through a secured process;
• instruments lying unpaid beyond their validity are cancelled and the amount credited back to the issuer immediately;
• banks provide reconciliation of paid and unpaid details quarterly, till transfer of funds to the IEPF;
• records are kept for not less than 8 years.

A dividend run, end to end (illustrative figures). Sunrise Textiles Ltd declares a final dividend of ₹2 per share on 50 lakh shares, so ₹1 crore is transferred to the dividend processing bank account.

Step 1 — the file. The RTA prepares the master file: company name, folio number, client ID, first holder's name, payment date and amount, payee and bank details. It goes to the banker through a secured process.

Step 2 — payment. The bank credits ₹98,40,000 electronically to holders whose bank details are on record. For holders without bank details, the RTA first tries to obtain them through the prescribed process; the remaining ₹1,60,000 goes out as payment instruments.

Check: ₹98,40,000 + ₹1,60,000 = ₹1,00,00,000.

Step 3 — expiry. Instruments worth ₹40,000 are never encashed. Once they pass their validity period, the bank cancels them and credits ₹40,000 back to Sunrise immediately.

Step 4 — reconciliation. Every quarter the bank sends paid and unpaid details, and all three — RTA, issuer and bank — keep those files. This continues until the unpaid money is transferred to the Investor Education and Protection Fund. All the records are retained for at least 8 years.

Chapter 10 (Roles and Responsibilities in a Public Issue), section 10.3, defines the banker to an issue, says who appoints it for anchor investors and covers payments banks; section 10.1 lists the RTA's escrow and refund instructions to the Bankers to the Offer, and section 10.2 ties the Sponsor Bank to the same registration. Chapter 6 (SEBI — Role and Regulations) summarises the 2018 circular that binds RTAs, issuers and bankers to an issue; Chapter 9 lists bankers among the constituents the lead manager appoints. Expect a question on the four activities, on who appoints the bankers for anchor investors, and on the eight-year record rule.

• Four activities: application money, allotment or call money, refunds, and dividend or interest warrants.
• Scheduled bank or other banking company specified by SEBI — and registered with SEBI.
• For anchor investors, the Issuer appoints the bankers (sample question answer), even though Chapter 9 lists bankers among constituents the lead manager appoints for the issue generally.
• The RTA instructs; the banker pays or unblocks.
• Non-scheduled payments banks can register as Bankers to an Issue with prior RBI approval, and can act as SCSBs.
• The Sponsor Bank is itself a registered Banker to an Offer with NPCI UPI certification.
• Unpaid instruments past validity are cancelled and the money returned to the issuer; reconciliation is quarterly until transfer to IEPF.
• Records: not less than 8 years.