New block facility sees token trades in 1st week as only few able to avail

The so-called ASBA facility, which has become operational from January 1, has seen only 'token trades' with a limited set of customers making use of the facility

The new block facility to fund trades has kicked off but only a few customers have been able to avail it as banks and brokerages are still in the process of streamlining the back end. 

The so-called Application Supported by Blocked Amount facility or Asba facility, which has become operational from January 1, has seen only ‘token trades’ which is underpinned by the unified payment interface (UPI). 

These trades were successfully settled on a T+1 (trade plus one day) basis also, sources said.

Under the facility, investors will be able to block funds in their bank accounts which will be debited only upon confirmation of trade. The facility is initially rolled out only for the equity cash segment. 

Industry sources said that the clearing corporations are actively testing the processes with 4-5 stock brokers regarding how block requests are being created, release of block, one block and multiple debits, flow of accounting entries, and interconnections between sponsor banks. 

People with direct knowledge said that there have been initial discussions on the cost for such transactions and a final decision is pending.

Brokers need to provide a front-end interface on their apps and websites for the facility and have interconnections for the same with their payment gateways. Through a single block, investors will be able to do multiple trades and with multiple brokers.

Industry players said a block once created will be valid for a period of 30 years, however, depending on the feedback from market participants, it could be brought down to 5-10 days. Investors would be able to put a request for unblocking at any time.

“We have onboarded two banks — HDFC Bank and ICICI Bank — whose customers will be able to avail the facility. Another 10-15 banks are in the process of being onboarded for the facility and we hope to get it done by March,” Dilip Asbe, MD and CEO, NPCI told Business Standard at the sidelines of an event last week.

Though he cleared that currently there will be no cost on the retail investors for using the facility, another source familiar with the developments said that there have been initial discussions with banks and the National Payments Corporation of India (NPCI) on who will bear the cost.

“There have been discussions between Sebi, NPCI, and banks on who will bear the costs. The intention is not to make the facility costly for the end investors or for the overall ecosystem,” said a person with direct knowledge.

While UPI transactions are free for customers and merchants, banks and payment gateways have to bear the costs. In the previous Union Budget (2023-24), the government had allocated Rs 1,500 crore for promotion of digital payments — much lower than Rs 2,137 crore done for Budget 2022-23.

Emailed queries to Indian Clearing Corporation (ICCL) and NSE Clearing remained unanswered at the time of going to print.

In an earlier statement, NPCI had detailed that the beta launch of the block facility was facilitated by Groww, a stock broker, alongside BHIM, Groww, and Yes Pay Next as UPI apps. Zerodha as a stock broker, Axis Bank and Yes Bank as customer banks, and UPI-enabled apps like Paytm and PhonePe are in the certification stage, it added.

Industry experts said that even though the market infrastructure is ready, to provide the facility on a larger scale, the demand has to be driven by investors.

“The facility is meant for the benefit of retail investors. As the mechanism is optional for brokers, we will see a faster adoption only when the investors begin asking their stock brokers for the UPI block facility. Asba is now the norm in the IPO market, we expect a similar response for the new facility too,” said an industry official.

“We expect a similar success for the UPI in the equity cash segment the way we have seen adoption for UPI for regular payments. Investors will have more confidence as they realise that this is a safer option. We expect more directional trades in the coming times,” they added.

The introduction of secondary market Asba is to safeguard client funds from broker misuse. The move follows the introduction of the so-called ‘pledge and unpledge’ facility introduced by the Securities and Exchange Board of India to help safeguard client securities from brokers. 

New provision
 

 Active testing with 4-5 brokers on the mechanism under process

 Demand has to come from investors for brokers to provide the facility, said industry players

 The UPI-based block facility has no charge for retail investors at this stage

 Markets regulator has held discussions with NPCI and banks on costs, say sources

 Intention not to make facility costly for the ecosystem

 Govt had cut down subsidy on UPI transactions for fintechs, banks in the 2023-24 Union Budget