Capital markets use different mechanisms to raise funds efficiently while protecting investors and ensuring transparency. ASBA and QIP are two important concepts related to issue of securities, especially in the primary market.
Applications Supported by Blocked Amount (ASBA)
Meaning of ASBA
ASBA stands for Applications Supported by Blocked Amount. It is a process developed by SEBI in which an investor applies for shares in an Initial Public Offering (IPO) or other public issues, but the application money remains blocked in the investor’s bank account instead of being debited immediately.
The amount is only debited when shares are actually allotted. If shares are not allotted or partly allotted, the unutilised amount is automatically unblocked. This system improves investor safety and efficiency.
Objective of ASBA
The main purpose of ASBA is to:
- Prevent unnecessary movement of funds
- Protect investors’ money
- Reduce refund-related delays
- Increase transparency in public issues
Earlier, investors had to wait for refunds if shares were not allotted. ASBA removed this inconvenience.
How ASBA Works (Process Explanation)
When an investor applies for shares through ASBA, the bank blocks the application amount in the investor’s account. The investor continues to earn interest on the blocked amount, if applicable. After the allotment process is completed, only the amount required for allotted shares is debited, and the balance is released automatically.
This process is carried out through Self Certified Syndicate Banks (SCSBs), which are authorised by SEBI.
Role of Banks in ASBA
Banks play a crucial role in ASBA, especially SCSBs. Their responsibilities include:
- Accepting ASBA applications
- Blocking the required amount in the customer’s account
- Uploading application details to the stock exchange
- Unblocking or debiting funds after allotment
ASBA is an important operational function and is often tested in CAIIB exams.
Issues Covered Under ASBA
ASBA facility is used for:
- Initial Public Offerings (IPOs)
- Follow-on Public Offers (FPOs)
- Rights Issues
- Offer for Sale (OFS)
SEBI has made ASBA mandatory for most public issues.
Advantages of ASBA
ASBA offers several advantages:
- No loss of interest on application money
- Faster allotment process
- Elimination of refund delays
- Better investor protection
- Reduced operational risk for banks and issuers
Importance of ASBA for Banking System
ASBA has strengthened the Indian capital market by improving efficiency and trust. For banks, it has:
- Increased customer participation in IPOs
- Improved process automation
- Reduced complaints related to refunds
- Strengthened compliance with SEBI norms
Qualified Institutional Placement (QIP)
Meaning of QIP
Qualified Institutional Placement (QIP) is a method by which listed companies raise capital by issuing shares or convertible securities only to Qualified Institutional Buyers (QIBs), without going through a public issue.
QIP was introduced by SEBI in 2006 to enable Indian companies to raise funds quickly and to reduce their dependence on foreign capital such as ADRs and GDRs.
Who are Qualified Institutional Buyers (QIBs)
Qualified Institutional Buyers are large, financially strong institutions that have expertise in evaluating investment risks. They include:
- Mutual Funds
- Banks
- Insurance Companies
- Pension Funds
- Foreign Portfolio Investors (FPIs)
Retail investors are not allowed to participate in QIPs.
Features of QIP
QIP has the following important features:
- Issued only to QIBs
- Faster fund-raising compared to IPOs
- No requirement of filing a prospectus with SEBI
- Pricing based on SEBI’s formula linked to market price
- Shares are listed on stock exchanges
Purpose of QIP
The main objectives of QIP are:
- Quick capital raising
- Lower cost of issuance
- Minimum regulatory delays
- Strengthening capital base of companies, especially banks
Public sector banks frequently use QIP to meet capital adequacy norms under Basel regulations.
Pricing of QIP (Exam Focus Area)
The issue price under QIP cannot be less than the average of weekly high and low closing prices of the shares during the preceding specified period, as prescribed by SEBI.
This ensures fairness and protects existing shareholders.
Lock-in Period under QIP
Securities allotted under QIP are subject to a lock-in period, meaning they cannot be sold immediately. This ensures market stability and prevents speculative selling.
Lock-in requirements are important from an exam perspective.
Role of Banks in QIP
Banks act as:
- Issuers, especially public sector banks raising capital
- Investors, as QIBs
- Intermediaries, such as merchant bankers and custodians
Thus, QIP has a strong link with banking operations and financial management.
Difference Between ASBA and QIP (Conceptual Understanding)
ASBA is a process related to applying for public issues, mainly protecting investor funds. QIP is a capital-raising method used by listed companies to raise funds from institutional investors.
ASBA focuses on how money is paid, while QIP focuses on who can invest and how funds are raised.
Conclusion
ASBA and Qualified Institutional Placement are key mechanisms in India’s capital market framework. ASBA ensures safe and efficient handling of investor funds during public issues, while QIP provides a fast and cost-effective route for listed companies to raise capital from institutional investors.