Introduction of UPI route has hurt retail applications for IPOs: Experts

The Unified Payments Interface (UPI) platform has proved to be a successful digital payments tool. Capital market investors are, however, yet to warm up to its use. 

To do away with cheque payments and to speed up the listing process, the Securities and Exchange Board of India (Sebi) made UPI payments — besides the traditional internet banking —mandatory for retail investors applying for initial public offerings (IPOs). 

However, of the total 340,000 applications received from the three IPOs that concluded recently, less than 10 per cent came through the UPI route. Further, a large portion of applications made through UPI faced rejections on account of procedural lapse. 

For instance, the hugely successful IPO of mobile marketing firm Affle India garnered 281,152 applications from retail investors (those investing up to Rs 2 lakh). 

Of these, below 30,000 came through the UPI route and 60 per cent of them were rejected for not following the procedure laid down by the markets regulator, said investment banking sources. The trend was similar in the subsequent two IPOs of microfinance firm Spandana Sphoorty and solar company Sterling and Wilson, although the total number of applications was signifcantly smaller.

Sebi has acknowledged that investors could be facing issues using the UPI payment method.

“We are aware of the issues faced by investors. Our analysis shows there were problems in the applications. It was not the failure of the system as such. The system is robust and has worked well in the previous three IPOs,” said a Sebi member while addressing the media after a board meeting last month. Market players said several investors, who used to apply for IPOs through cheques, were facing trouble using UPI.

“In general, using UPI for transferring money is straightforward. However, the process for IPOs is more cumbersome. Investors can’t use any third-party apps. Further, the mobile number used to register with the UPI has to be same as that linked to the demat account. In case of joint-accounts, there are issues linking the mobile number. Investors who don’t use a smartphone or who aren’t tech-savvy could find it tough applying for IPOs,” said an investment banker.

UPI payments for public offerings can be done only through the National Payments Corporation of India’s (NPCI’s) proprietary Bharat Interface for Money (Bhim) app.

Payment experts say the use of the Bhim app could be a concern.

“Most use UPI through third-party platforms. The share of Bhim app in terms of number of transactions and amount is less than 5 per cent. Sebi could allow payments to be routed through other applications if they want UPI payments for IPOs to take off,” said an official with a digital payments company.

Industry players say the introduction of the UPI route has created a dent in retail applications. Fortunately, the change has come at a time when the primary markets are undergoing a lull phase. 

“Issuers and investors would have felt the pinch had it been a busy time for IPOs. Since there have been only three IPOs in past two months, the issue isn’t getting highlighted,” said another banker, adding that they have had a few meetings with Sebi officials to iron out the application process. 

UPI payments for IPOs were being implemented in three phases, with the second underway currently. 

In the last phase, the time taken between the closing of an IPO to listing of the security will come down from seven days at present to just three days. The introduction of UPI has given a big boost to digital payments. Since its introduction three years ago, the platform has seen over 10 billion transactions worth Rs 17 trillion.