ASBA catches on after the entry of institutions

Nearly half of the application amounts collected in recent public issues have come through the application supported by blocked amount (ASBA) route, with a majority of institutional investors opting for this mode of payment.

ASBA provides an alternative mode of payment in public issues, whereby application money is blocked in an investor’s bank account until finalisation of issue allotment. Depending on the allotment, money is debited from an investor’s account and the rest is released.

Large public issues floated after May 1, from when qualified institutional buyers (QIBs) have been allowed to apply through the ASBA route, have seen a very good response for this mode of payment, data available from registrars showed.

For example, in the follow-on public offer of state-run Engineers India, which was open between July 27 and July 30, around 56 per cent of the over Rs 13,000-crore application amount came through the ASBA route. In that issue, 62.77 per cent of the QIB application and 22.32 per cent of the retail application amounts came through ASBA.

In SKS Microfinance’s IPO, 41.70 per cent of the application amount came through the ASBA facility. In that issue, 52.59 per cent of QIB application and 11.68 per cent of the retail application amounts came through ASBA.

“Participation through the ASBA route is increasing gradually,” says Haren Modi, chief operating officer of Link Intime India, a leading registrar to public issues. “More and more investors will be able to avail the ASBA facility once the number of banks and branches that offer this service goes up,” he adds

As on July 15, 32 self-certified syndicate banks offered investors the ASBA facility.

Market regulator Securities and Exchange Board of India, which intends to reduce the time for public issues to seven working days by December from the present 12, is working hard to make ASBA successful. Recently, it asked stock exchanges to make ASBA forms available on its website.

Brokers disinclined to promote the ASBA facility to their clients because of a lack of incentives are now pitching in for this investor-friendly mode of payment. “Earlier, only banks received a commission. Now, issuers have started giving brokers incentives, too,” says Anil Bhattar, president – equity, at Mumbai-based Kantilal Chhaganlal Securities.

Brokers now get 1.5 per cent on the allotment amount as brokerage for client applications that come through the ASBA route.