Sebi looks to broaden IPO reach, plans to rope in payment banks

Considers allowing payments banks, SFBs to handle application process; decision likely in Tuesday's meeting

The Securities and Exchange Board of India (Sebi) plans to rope in payment banks to handle the application process for initial public offerings (IPOs) in order to broaden the reach of capital markets.

The regulator also plans to allow small finance banks (SFBs) to provide the so-called application supported by blocked authorisation (ASBA) for IPOs. The ASBA facility blocks the IPO application money in the bank account till the time of allotment. However, Sebi has reservations in permitting mobile wallets to be part of the IPO process, said two regulatory sources.

An announcement in this regard is expected at the Sebi board’s meeting on June 29.

At present, the IPO payment process is handled largely by scheduled commercial banks (SCBs). That too not all SCBs are equipped to provide the ASBA facility.

Once implemented, payments banks such as Paytm, Airtel Money and India Post will need to seek registration from the markets regulator to be part of the IPO process.

Sebi’s proposed move will help bring more people into the capital market. It will also give a boost to Sebi’s endeavour to bring down the time between closing of an IPO and listing of the security from six working days at present to three days.

Sources said people, especially millennials, who have an account with only a payment bank will benefit by Sebi’s move.

“There are a lot of new generation banks that have been set up, which are not SCBs but have a unique reach. Allowing more such banks in the IPO process will help cover investors from smaller cities,” said a regulatory source privy to the development.

 “Sebi will bring amendments to the ‘Bankers to an Issue’ regulations to allow these banks. Currently, there are over 40 banks which offer the ASBA facility,” added the regulatory source.

The market regulator is of the view that securities markets need to adopt digital trends and technology with new business models to improve efficiency and reduce cost for small investors. That is the reason Sebi, in 2018, introduced an alternate payment mechanism using UPI for retail investors for making IPO applications.

Recently, Sebi allowed more unified payments interface (UPI) handles for IPO applications. Initially, only BHIM UPI was permitted.

“Previously, Sebi had permitted retail investors to apply in IPOs through regular banking channels or through brokers. From the beginning of 2019, the UPI mechanism for making applications in IPOs by retail investors began to apply in phases. We believe that introduction of this facility has provided retail investors with an instant payment system to make applications in an IPO,” said Yash J Ashar, partner and head – capital markets, Cyril Amarchand Mangaldas.

Sources said these banks won’t need to approach RBI for further approvals as Sebi has done this in consultation with the central bank.

RBI had introduced the payments bank category to further the financial inclusion, by offering savings account and remittance services to migrant labour workforce, low income households, small businesses, and others entities in the unorganised sector.

The Sebi board is also likely to introduce a new framework for independent directors to reduce the influence of promoters on them. The market regulator could also ease ownership norms for market infrastructure. Institutions, such as stock exchanges, depositories and clearing corporations.