Xelpmoc Design's IPO will allow subscribers to pay via UPI for first time

 The Securities and Exchange Board of India’s (Sebi’s) latest reform for the primary market will undergo its first test later this week. 

The first initial public offering (IPO) of the calendar year by Xelpmoc Design and Tech, a small-sized tech company, will allow retail investors to pay through the Unified Payments Interface (UPI). UPI is a mobile-based application that enables instant payment from one bank account to another. 

If successful, it will pave the way for pruning the time period between closing an IPO and listing of the security to just three days.

Market players say the UPI-based payments system for IPOs is ready even though there could be some teething issues.

“Sebi held a meeting with primary market participants recently to take stock of the new payments system. Our understanding is that the system is fully ready. However, the first IPO will be a more accurate assessment,” said an investment banker.

Xelpmoc’s IPO will remain open for subscription between Wednesday and Friday. Although the issue size is only Rs 23 crore, the IPO could see some retail interest as the company is offering discounts to small investors.

The maximum transaction limit for UPI payments is Rs 1 lakh. But an investor can apply for shares up to Rs 2 lakh in the retail category. Market players said UPI payment for IPOs could be up to Rs 2 lakh.

Market players said the payment system has been incorporated in the existing bidding system. Those making payments through the new route will have to provide additional details such as UPI address and bank name, said a banker.

The UPI roll out for IPOs is being done in a phased manner.

In the initial phase, Sebi has kept UPI payments optional along with the traditional payment options such as cheque payment and internet banking. In the second phase, the UPI payments will be made compulsory for retail investors. In the last phase, the timeline will be cut to three days from the existing six days.

Experts said old-time investors who don’t use smartphones may find it challenging once UPI payments are made compulsory.

“Investors who don’t have a smartphone or those who have joint accounts but single mobile number may find it difficult to make payments through the UPI. We have sent several queries to Sebi in this regard. We are hopeful that all the key issues will be resolved during the trial period,” said an investment banker.

According to Sebi guidelines, the first phase will end in March or after 10 IPOs, whichever is later. Similarly, the second phase will be for the next 10 IPOs or till June. The final implementation could take place in the second half of the calendar year.

The reduced listing timeline is expected to give a boost to the IPO market as it will have issuers and investors tide over market volatility.

The market regulator has been trying to bring down the timeline for several years. However, the biggest impediment has been cheque payments and physical handling of IPO forms. The UPI mechanism was seen as the most viable alternative to cheque payments.
 

About half a dozen IPOs are expected to hit the market next month, said investment bankers. “As more IPOs hit the market, we will get a clearer picture if the new system is foolproof,” said a retail-focused broker.

New Year, New System

| Starting 2019, retail investors can pay for IPOs through UPI 

| UPI payments to remain optional for first 10 IPOs of the year

| Investors will also get the option of cheque payments

| Cheque payments will be done away with in next 10 IPOs of the year

| After 20 issues, timeline will be cut from 6 days to 3 days

| Shorter timeline will boost primary market, help reduce volatility