IPO subscription to be made easy for HNIs & firms

From January 2010, HNIs and firms will be eligible to use the banking channel called Application Supported by Blocked Amount (ASBA) to buy stocks in the primary (IPO) market.

Under this channel, when an investor applies to an IPO, the funds do not immediately flow out from his account. The bank blocks the value of the shares applied for and the funds are not disbursed till the shares are allotted. Customers cannot use this money, since it is blocked.

Earlier in July 2008, SEBI allowed only retail investors to subscribe to IPOs through this channel, but capped the maximum amount of bid at Rs 1 lakh.

As a second phase, the channel will now be thrown open to a wider group of investors who will be able to make multiple applications at different prices within the price band of an IPO.

SEBI has asked banks to be ready with their software and to make necessary changes in their software.

We believe that the move will reduce the time taken between the public issue and listing. This will be in the interest of investors as it will make IPO subscriptions easy and ensure hassle-free transactions. Investors will no longer have to wait for the receipt of refund cheques.