New IPO payment system to start on 10 August: SEBI chief

Mumbai: The Securities and Exchange Board of India (SEBI) will launch the alternate mode of payment for initial public offers that will block payments of investor money till shares are actually allotted, on a pilot basis, from 10 August.

The new scheme, called Applications Supported by Blocked Amount (ASBA), is expected to cut down the refund process in IPOs. 

''We really don't know how the system works. We need to get used to it. We have to sort out glitches if there are any in the beginning," SEBI chairman C B Bhave said, adding, hopefully, by 10 August, ''we will start the pilot project."

Initially, both the existing system of payment for public issues and the new alternate system will co-exist with the current process, wherein cheque is used as a mode of payment.

SEBI had earlier laid down detailed guidelines for a new application process for public issues. The process will be available in all public issues made through the book building route.

Under the ASBA process, banks will block the money corresponding to the value of shares applied for in the the applicant's bank account itself rather than transferring it to the IPO company.

During the allotment period, the money won't leave the account of the investor, but since it is blocked the applicant won't be able to use the money for any other purpose.