Sebi mulls UPI-based payments for IPOs to reduce listing period to 3 days

Capital market regulator Securities and Exchange Board of India (Sebi) on Wednesday proposed Unified Payments Interface (UPI)-based payments for retail investors investing in initial public offerings (IPO). The move will help cut down the time taken between closing of an IPO and listing of the security from current six days to just three days, Sebi said. It will also do away with physical movement of application forms.

UPI is an instant payment system developed by the National Payments Corporation of India (NPCI), an entity regulated by the Reserve Bank of India (RBI).

“Securities market, including the market for public offerings, is dynamic and needs to keep pace with the evolving economic and technological environment,” Sebi has said in the discussion paper. “In view of the significant developments in the payment mechanisms, it is felt that the UPI could be incorporated with ASBA mechanism to further improve the efficiency of the process,” it added.

The so-called ASBA (Applications Supported by Blocked Amount) mechanism blocks funds in the investor’s bank account till the time the allotment is made. Earlier, the application amount used to move from an investor’s account to an escrow at the time of application. The funds were again repatriated to the investors bank depending on the allocation received, making the process time-consuming.

Sebi said it has had discussions with the NPCI to ensure the benefits of ASBA are retained. Industry players say a lot of IPO investors still make use of cheque for payments, which makes the process inefficient.

As the UPI system allows instant transfer of money between any two entities, it will help do away with cheque payments.

The UPI system, however, will only be restricted to retail investors, while institutional investors and high net worth individuals (HNIs) will continue to use existing process, Sebi has said. This is because the maximum proposed limit for UPI transfers is only Rs 200,000.

Under the new process, Sebi has proposed that investors will fill in all details in the IPO application form as per the existing process along with their UPI ID, linked to their own bank account. The investor will then have to validate the request by logging into the mobile application that supports UPI payments.

Sebi has said the new payment framework will lead to multiple benefits, shorten IPO timeline and also reduce manpower costs. The move, however, could impact the business of brokers, who currently earn commissions for processing the physical application forms.

The regulator has invited public feedback on its proposals before August 15.