The Securities and Exchange Board of India (SEBI) has finalised the concept of an alternative mode of payment for public issues that will enable the application money to remain in the applicant's bank account until the basis of allocation is finalised.

The SEBI board had last week proposed to bring in an alternative mode of payment that is less taxing to the retail investor. (See: SEBI eases IPO payment norms for investors).

The new payment system, called Application Supported by Blocked Amount (ASBA), will require retail investors bidding at a cut-off price, to apply through self-certified syndicate banks (SCSBs) in which they have accounts.

Under this system, the application money will remain in the bank account of the applicant till such time the allotment is finalised, thus eliminating the refund process. SEBI has worked out the modalities of the ASBA process and has placed them on its website for public comments.

ASBA will require SCSBs to accept applications from investors, block the required funds for the bid payment and then upload the details in the electronic bidding system. Once the basis of allotment is finalised, the SCSB will release the required amount and release the unblocked amount.

If sufficient balance for blocking the amount is not available in the applicant's account, the application shall be rejected.
 
SEBI will receive comments on the ASBA process till 6 June 2008.

This is only an alternative mode of payment and the present system continue to exist.

''This (ASBA) would co-exist with the current procedure of investors applying through sub syndicate/syndicate members with cheque as a payment instrument,'' the SEBI document said.

ASBA process can only be used by retail investors with a bank account with SCSBs and those who are bidding at the cut-off with only one option. Also, those using the new mechanism will not be able to revise their bids.

Banks will be responsible for resolving investor grievances. In cases of failure of an issue, the bank will have to immediately release the block on receipt of request from the registrar. Registrars will maintain the electronic records relating to the bids received from the SCSB.

Book running lead managers will have to intimate in writing all relevant details like the issue opening date, investor details and non-allotment of shares to the SCSBs.

Banks wishing to be recognised as SCSB must hold a valid registration certificate as a banker to issue under the SEBI (Bankers to an Issue) Regulations, 1994. These banks also need to undertake mock trials with BSE or NSE and some registrars to validate the system and ensure necessary infrastructure.

Such banks must also be able to access the web-enabled interface of BSE or NSE for uploading the bid / application data in their electronic bidding system.

Sebi has directed the stock exchanges to make available a web-enabled access to their electronic bidding system to the SCSBs and the designated branches for uploading of the bid/application data.

For online application through ASBA, the SCSBs should use their own net banking facilities and should not compel investors to apply through brokerage entities that are its subsidiaries or associates.

The modalities are in line with chairman CB Bhave's plans of cutting down the time between a company's public issue and its listing from 21 to seven days.