National Payments Corporation of India (NPCI) announced today (July 29) that retail investors now have to mandatorily invest in the initial public offering (IPO) via Unified Payments Interface (UPI) based Applications Supported by Blocked Amount (ASBA). The plan is applicable to retail investors who invest via syndicate member, registered stock brokers, registrar and transfer agents or depository participants.
The phase-wise implementation of UPI as a payment option started on January 1, 2019. In Phase I, the UPI mechanism was made available to retail investors but the existing process of submitting physical applications from intermediaries to banks also continued.
Now in Phase II, which started from July 1, 2019, UPI payment for IPO has been made mandatory for retail investors applying through brokers, DPs and RTAs. The existing timeline of T+6 days post issue closure will continue till the final phase is implemented.
What Is ASBA And ASBA Through UPI?
Applications Supported by Blocked Amount i.e ASBA is a process developed by the stock market regulator SEBI for applying to IPO.
In ASBA, an IPO applicant’s account doesn’t get debited until shares are allotted to them. Earlier, qualified institutional buyers were not allowed to participate in IPOs through ASBA facility.
ASBA in simple terms is an escrow-like mechanism, where the user enables the bank to restrict the payment till the allotment. The UPI mechanism in ASBA will allow the investor to permit a debit from bank account through BHIM UPI app or other support bank applications. Then the payment will be restricted to the issuer and be credited only when the securities are allotted. At present, the time being given for allotment of securities is 6 days, after which the amount will be refunded to the investor.
How To Invest Via UPI?
When an investor wants to subscribe to an IPO on National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), they can use UPI as a payment option.
The UPI ID can be used for blocking of funds and making payments in the IPO process. The investor can accept the request for the amount you have bid by entering your UPI PIN. The money shall be earmarked for settlement once the allocation process is completed and shall be automatically remitted to the escrow bank.
“The new process shall increase efficiency, eliminate the need for manual intervention and logistics at various stages. The UPI 2.0 mandate feature of one time blocking shall ensure that the amount remains blocked (and not debited) in the customer’s account till allotment is done, as currently happening in the ASBA process,” said Praveena Rai, COO, NPCI.
In the final stage, Phase III, the gap between IPO closing and listing will be reduced to three days. UPI as a payment mechanism for IPOs is applicable in all IPOs for which Red Herring Prospectus is filed after January 1, 2019.
In June 2019, UPI clocked in 754.54 Mn transactions worth INR 146566.35 Cr. However, the growth has been on a lower side and the government had been exploring use cases for the service.