The Securities and Exchange Board of India (Sebi) has directed companies planning initial public offerings (IPOs) and their merchant bankers to pay commission to self-certified syndicate bankers (SCSBs) who process IPO applications for subscribers.
In a recent review of “applications supported by blocked amount (ASBA),” the regulator noticed that the reason for the poor response was lack of incentives to SCSBs for accepting such applications.
Sebi had introduced ASBA with an objective to ensure that an investor’s fund left his bank account only upon allocation of shares in IPO. The ASBA process ensures that only the requisite amount is debited from the investor’s bank account on allotment of shares and there is no need for refund.
Even though it has been nearly six months since Sebi introduced this process, it has failed to gain popularity among investors, who are still subscribing to IPOs by attaching cheques to their applications.
It was noticed by the regulator that while commission was being paid for non-ASBA applications, no commission was being paid for ASBA applications. “Both ASBA as well as non-ASBA applications should be treated on a par and commission should also be paid to SCSBs for processing applications,” Sebi said in a circular today.
ASBA was Sebi’s pilot project and one of the first steps towards IPO reforms initiated by Chairman CB Bhave. The regulator wanted to ensure that companies get the IPO money only after allotment of shares to retail and other investors.
Once the system stabilises, Sebi plans to make institutional investors pay 100 per cent amount with their applications. They currently pay only 10 per cent. Apart from IPOs, ASBA is also applicable for rights issues.
