Editor’s note: This is general educational information about how a market mechanism works in India. It is not investment advice, it does not describe any particular company, security or offering, and it is based on the official sources listed at the end.
Analysis: what the block does to the shape of an issue
The design decision worth noticing is that ASBA separates certainty of payment from transfer of payment, and then builds the entire subscription statistic on the first of the two. Demand figures during the bidding period are counts of blocked money, not of collected money, which is why an issue can look many times covered while not a rupee has reached the issuer. The credit exposure that used to sit with the banking system during the refund cycle now sits nowhere, because the money never leaves the applicant. What replaces it is an operational exposure, spread across syndicate banks, sponsor banks, registrars and exchange platforms, and the regulation reflects that by pricing failures in each of those links rather than by policing a flow of funds.
The compensation formula for a lost allotment is the clearest evidence of the shift. It is a probabilistic construct: it pays the listing gain that a bid would have earned, scaled by the chance the bid had of being allotted at all, and it pays nothing when the shares list below the issue price. That is the regulator putting a number on opportunity loss rather than on money lost, which only makes sense in a system where no money was ever handed over. The parallel move to T+3 listing compresses the whole exposure window: the shorter the period between bid and listing, the less time a block ties up funds and the less scope there is for the unblocking failures that the compensation rules address.
What the framework does not do is change the allotment itself. Blocking guarantees that the money is there and that it is retrievable; it says nothing about how many shares an applicant receives, and the registrar’s basis of allotment remains the point where an oversubscribed retail category is settled. A careful reader following a public issue would watch three things in the documents: the categories in which subscription figures are reported, since those are blocked-amount counts, the disclosed T+3 timeline in the offer document and the advertisements, and the disclosure of processing fees and selling commissions payable to the intermediaries, which the merchant banker must set out in the offer document.
What the documents say
Apply for shares in an Indian public issue and the money stays in your bank account. It is marked, fenced off and unavailable, but it is not gone, and if the allotment goes against you it is simply released. The mechanism is called Application Supported by Blocked Amount, or ASBA, and the Securities and Exchange Board of India introduced it on September 01, 2008. Since then it has moved from an option to the only way to pay.
What blocking means in the regulation
The ICDR Regulations define ASBA as an application for subscribing to a public issue or rights issue, along with an authorisation to self-certified syndicate bank to block the application money in a bank account. The bank doing the blocking is a Self-Certified Syndicate Bank, defined as a banker to an issue registered with the Board, which offers the facility of ASBA. Those banks are registered under the SEBI (Bankers to an Issue) Regulations, 1994, must modify their systems to the specifications of the exchanges providing the electronic interface, complete a mock trial run with the exchanges and the registrars, and certify their readiness to SEBI before they can act as one.
Two operational conditions sit behind the block. SEBI requires that application money be blocked only against a funded deposit account with clearly demarcated funds available. A bank applying in an issue on its own account cannot block in its own books: it must hold a separate account in its own name with another registered syndicate bank, used solely for applications in public issues. SEBI’s investor education material states the consequence for the applicant plainly, that the blocked amount continues to earn interest and there is no requirement of refund in case of non-allotment.
Applicability is universal. The master circular for issue of capital and disclosure requirements records that the ASBA process applies to both public issues and rights issues, that all categories of investors including retail, qualified institutional buyers and non-institutional investors are eligible, and that all applicants shall use the facility for making payment, which removes the cheque from the process entirely.
The route an application takes
An application can be handed to the syndicate bank directly or to an intermediary: a syndicate member, a registered stock broker, a depository participant, or a registrar and share transfer agent. Retail individual investors applying through those intermediaries must use the Unified Payments Interface and quote their UPI ID on the application-cum-bid form. UPI is run by the National Payments Corporation of India, described in SEBI’s own circular as a Reserve Bank of India initiative and an umbrella organisation for retail payments, and a designated Sponsor Bank pushes the mandate collect request to the applicant’s payment app.
The sequencing is strict. An application in a public issue is processed only after the money has been blocked. Intermediaries upload the bid to the exchange bidding platform and pass the form to the bank for blocking, and every form is stamped and acknowledged at receipt. Where the application goes straight to the bank, the bank blocks the amount on the authorisation in the form and then uploads the bid data through the exchange’s web interface. Exchanges validate the electronic bid against depository records for the depository participant identifier, client identifier and permanent account number through the bidding day, and mismatches go back to the intermediary for correction. The registrar separately matches the account number held in the demat account against the one linked to the bank account, and a mismatch makes the application invalid for the purpose of allotment.
Money moves only once the basis of allotment is settled. The registrar then instructs the controlling branch of the bank to unblock accounts and to transfer the amount due to the issuer’s designated account. Where an issue is withdrawn or fails, the block is released on information from the pre-issue merchant bankers through the registrar. Applications cancelled, withdrawn or deleted during the bidding period are reported to the banks within 60 minutes of bid closure each day and unblocked by the close of that bank day.
Deadlines and what a delay costs
Since a circular dated August 09, 2023, listing follows the close of a public issue within 3 working days, referred to as T+3, replacing the earlier 6 working day timeline, with T being the issue closing date. The timeline must be disclosed in the offer document and in the pre-issue, issue opening and issue closing advertisements. For applicants who receive nothing or only part of what they bid for, the target is earlier still: sponsor banks execute the mandate revoke file on T+2, and the syndicate banks must complete the unblocking for non-allotted and partially allotted applications by the close of the bank day on T+2.
Failure carries a defined price rather than an apology. Compensation for delayed unblocking runs at Rs.100 per day or 15% per annum of the application amount, whichever is higher, payable by the syndicate bank and, once a complaint has been raised with them, by the post-issue lead managers as well. SEBI’s own worked example uses an application of Rs.15,000 in an issue that closed on November 02, 2020, an effective unblocking date of November 04, 2020, a complaint on November 25, 2020 and an unblock on November 30, 2020, with the two compensation streams running over different windows and added together.
A separate regime covers applicants who lost an allotment because the bank failed to place or process the bid at all. The minimum compensation there is the listing price less the issue price, multiplied by the shares that would have been allotted, multiplied by the probability of allotment, with the listing price taken as the highest opening price across the exchanges. Nothing is payable if the listing price is below the issue price. Complaints can be raised within three months of listing, must be resolved within 15 days, and attract interest at 15% per annum beyond that.
