Sebi's move to allow UPI route for IPO payments faces teething problems

The proposed process aims to increase efficiency, eliminate the need for manual intervention, and reduce the duration from issue closure to listing by up to three working days

The Securities and Exchange Board of India’s (Sebi’s) move to introduce a new payment system to bring down listing time is facing teething problems. Starting January 2019, Sebi has allowed retail investors to make initial public offering (IPO) payments through Unified Payments Interface, or UPI. Currently, the UPI payment option is optional, along with the so-called application supported by blocked amount (Application Supported by Blocked Amount or Asba) facility. 

While around 60 banks currently offer the Asba facility, only three banks have adopted UPI as a payment mechanism. 

Sources say the market regulator has reached out to banks, investment bankers, and registrar and transfer agents to expedite the adoption of UPI for initial public offerings (IPOs).

But, only one large IPO has hit the market this year and new offerings are likely to be few and far between till the general election results are declared. This will make it difficult for Sebi to test the new system.

Initially, UPI will offer an additional mode of payment for the retail category, wherein information in the retail application form will be sent electronically through the UPI mechanism from the broker to the bank. The proposed process will help increase efficiency, eliminate the need for manual intervention, and reduce the duration from issue closure to listing by up to three working days.

“All 60 Asba banks are supposed to be part of this; so far, only three have been certified for UPI 2.0,” said a senior industry official. He added that the new system cannot be effectively tested unless a large IPO hits the market. 

The retail portion of Chalet Hotels, a Rs 1,641-crore issue, was subscribed 0.03 times and garnered only a few thousand applications. 

Sebi is bringing the new system in a phased manner. In the first phase, the UPI mechanism for retail individual investors through intermediaries will be made effective along with the existing process and the existing timeline of T+6 days (T is the IPO closing day). This will be for a period of three months or until five main board public issues hit the market, whichever is later.

In the second phase, the existing process of physical movement of forms from intermediaries to self-certified syndicate banks for blocking of funds will be discontinued and only the UPI mechanism with the existing timeline of T+6 days will continue. This will also be for a period of three months or floating of five main board public issues, whichever is later.

In the final phase, the listing timeline will reduce to three days. 

“Reducing the time between IPO close and listing can help reduce volatility that can impact the price of shares at the time of listing,” said Pranav Haldea, managing director, Prime Database.

At present, public issues take six days (termed as T+6) to list after closing for a subscription. Reducing the listing timeline to T+3 days would help reduce the impact of market volatility.

On January 1, 2016, Sebi had brought down the time taken for listing of shares to six days, from the earlier 12 days. Investors were also allowed to give their application forms to banks, brokers, depository participants and registrar & transfer agents. Earlier, the forms could be sent only through banks and brokers.

The regulator had also made use of Asba compulsory for all categories of investors. In this, an IPO applicant's account doesn't get debited until the shares are allotted. This does away with the need to process refunds if shares are not allotted.

UPI is an instant payment system developed by the NPCI. It enables merging several banking features, seamless fund routing and merchant payments under one roof. UPI allows instant transfer of money between any two persons’ bank accounts using a payment address which uniquely identifies a person's bank account.