‘Application Supported By Blocked Amount’ or ASBA is used during the Share Application process by Individuals while applying for new shares coming in the market in forms of Initial Public Offer (IPO) or Follow on Public Offer (FPO).
The current practice that is followed so far is that the applicant submits a filled up application form along with a cheque for the amount of shares, to the registrar. Then the amount is debited from the account of the Individual and kept in an ESCROW Account. Once the allotment process is over the amount is adjusted against the shares allotted and the balance is refunded by way of a banker’s cheque/demand draft through courier.
With the computerization of the banking sector the scenario has changed over a period of time and core banking is the norm for all banks including private, public, and co-operative banks. This helps a user to access any account from any branch of the bank anywhere in the country.
This technology revolution in banks has helped SEBI (Stock Exchange Board of India) to come out with new innovations to facilitate people who invest in stock markets by introducing ASBA facility. In this process the payment for the shares applied for is not done immediately, but the amount is held blocked in the applicator’s account and as and when the shares are allotted the required amount is debited from it and the blockage is removed. This facility saves time and energy and also saves on Printing, Stationary and labor costs. This contributes in reducing the carbon emission.
With this kind of an arrangement the public is getting benefitted as the amount is debited only when the shares are allotted and the interest loss during the process which generally takes a month can be saved. The possibility of the cheque being lost in transit can also be avoided. The banks are also benefitted from this process as the deposit remains with the bank till the time the shares are finally allotted and thus helping it in CRR and SLR maintenance.
Despite having so many advantages it is yet to become popular among the common people and the primary reason of it is ‘lack of awareness’.
I have myself faced a situation when I wanted to apply for some shares of a company using ASBA and went to Worli North branch of State Bank of India (SBI). When I requested for ASBA form there, I found people were not aware of the new system despite the bank’s website showing the branch among the designated 1061 branches which can issue and accept ASBA form.
After explaining the system to them I was advised to visit their Capital Services branch where I found the situation was no different. This time I was also carrying the newspaper advertisement of ASBA but still the officials there could not help me and instead directed me to go to the Main branch of SBI at Mumbai Samachar Marg. After these two incidents I lost interest in using the new ASBA system and applied in the old system.
My above experience gives food for thought to SEBI who has introduced the system but the stakeholders of the system are not fully aware of it right in the city of Mumbai forget the rural areas. It is also a responsibility of the banks to educate its officials about any new service that it has started so that the common people do not suffer due to lack of proper knowledge of the bank officials.
Contributed By:
Mr. KRS Mani
SWIFT Consultant
