How does ASBA Work?

In simple words, ASBA is like informing your bank that you desire to buy shares in a company that is going public. You avoid paying all the money at once. Instead, you keep some money aside in your bank account. You give your bank permission to use that money to purchase the shares if you are allotted any. The bank examines everything and makes sure that your approach is appropriate. If you get shares, they pay for them with the money set aside. If you are not allotted the shares, the bank gives you back the money you set away. So, ASBA lets you put money aside to buy shares, and you only pay for them if you get them. Let us look at the entire process :

1. Application: The investor submits an application to their bank or financial intermediary in order to subscribe to an IPO or other securities offering. This application comprises the investor’s personal information, the number of shares they wish to apply for, and their bid price.

2. Blocking of funds: Instead of paying the full application fee upfront, ASBA permits the investor to block the funds that are required in their bank account. The application amount is “blocked” from the investor’s bank account, but the funds remain in the account.

3. Granting Permission: The investor gives the bank or intermediary permission to restrict the funds. This authorization additionally indicates the investor’s intention to submit an application for shares.

4. Verification by Bank:  The bank or intermediary verifies the applicant’s information and the quantity blocked. This helps prevent application mistakes and irregularities.

5. Confirmation of Bid: Once the application has been verified, the investor will receive a bid confirmation indicating that their application has been effectively processed and their funds have been blocked.

6. Allotment of Shares: After the subscription period concludes, the issuing company determines the allocation of shares based on demand and supply. The allocation results are announced.

7. Distribution of Unallocated Funds: If the investor’s application is not completely approved, the remaining funds from the blocked amount are released. The investor gets immediate access to these funds.

8. Deduction of Amount Allocated: If the investor’s application is approved and shares are allotted, the blocked funds will be reduced to the corresponding amount.

9. Refunds: In the event of oversubscription, if an investor is allotted fewer shares than applied for, the excess blocked funds are returned.

10. Completion: The bank account of the investor is adjusted based on the final allocation. Upon receiving shares, the investor becomes a shareholder in the issuing company.