What is ASBA?
ASBA stands for Applications Supported by Blocked Amount.
Whenever you hear about IPO's application process, you will encounter the term ASBA.
Applications Supported by Blocked Amount is a process that is developed by the Securities and Exchange Board of India (SEBI). It is a process of applying in Initial Public Offers (IPO) and Follow-On Public Offers (FPO).
ASBA makes sure that investors’ money is safe. It aids in ensuring that the investor’s account doesn’t get debited unless the shares are allotted. With ASBA, the money does not leave your bank until an allotment is confirmed, instead, it is just kept aside (blocked) inside your own bank account. If the shares are not allotted, the blocked amount is released. If the numbers of shares allotted are less, then the amount left is refunded.
Earlier Qualified Institutional Buyers (QIBs) were the only category that was allowed to use the ASBA process. Now, all three categories of investors, i.e., Retail Investors, Qualified Institutional Buyers, and Non-Institutional Investors can use the ASBA application.
Once the investor has paid for the number of lots he wants to buy, the amount gets blocked. That means, the investor cannot take it out until an action comes from the company. Thus, ASBA not only protects an investor's interest but also the company's interest. If the shares allotted are less than what is demanded, the leftover amount is unblocked.