A method approved by SEBI is the statutory regulator of India's securities market, with the legal duty to protect investors and to promote and regulate that market. Read the full meaning of SEBI for paying for shares in a public issue, in which the bid amount is only blocked in the applicant's own savings or current account, not in an overdraft or loan account. The bank debits only the amount for the shares actually allotted, and the rest is released.
Individuals checking what ASBA in an IPO means will find that the full form is Application Supported by Blocked Amount. At the time of bidding, the bank marks a lien, which is a hold, on the total amount at the highest price bid.
The lien is removed once the basis of allotment is finalised. Funds in an interest bearing account will keep earning interest during this period.
Steps for an IPO application
The applicant bids through a broker or a Self-Certified Syndicate Bank (SCSB), which is a bank approved by SEBI to block application money.
In the UPI route, a mandate request reaches the investor's UPI app, and the amount is blocked once the investor accepts it. ASBA through UPI is permitted up to Rs 5 lakh per application, and it runs on the UPI infrastructure of the National Payments Corporation of India (NPCI) under the Issue of Capital and Disclosure Requirements (ICDR) Regulations.
For an individual who bids for shares worth Rs 20,000 and is allotted shares worth Rs 15,000, the bank will debit the allotted amount and release the remaining Rs 5,000. Only the bid value is blocked, not the whole account.
Why it matters and blocked vs paid
Before ASBA, investors in fixed price IPOs paid by cheque, and the money left their accounts at the time of application. The locked money earned no interest in that period.
SEBI introduced ASBA by a circular in July 2008, made it compulsory for all applications in public issues from January 2016, and added UPI as a route by a circular in November 2018.
A block is different from a debit. While the amount is blocked, the money stays in the investor's own account, and only the portion for allotted shares is debited after allotment.
The UPI limit per application is separate from the retail investor category threshold which is set by the issue rules.