While applying for an IPO, one has to mention bank details. This allows the bank to block the amount applied for in the account. However, this process can be time consuming. Sebi has now allowed investors to use their UPI (Unified Payment Interface) ID as a payment option for IPO issues.
Obtaining UPI ID
An applicant can use an existing UPI ID, which is linked to his or her bank account or can create an ID by downloading the BHIM app. One can also use the UPI-enabled app of the bank where one has an account, to create a UPI ID.
Applying using UPI
One has to fill up bid details in the IPO application form. The UPI ID needs to be mentioned at the place indicated in the form. The form can be submitted to the broker, syndicate member, R&T agent or depository participant.
Once an application is received, the intermediary uploads bid details in the stock exchange bidding platform. The exchange shares the bid details along with applicant’s UPI ID, with the escrow/sponsor bank.
Blocking of amount
The bank will request the authority to block funds equivalent to amount applied for and subsequent debit of funds in case of allotment. Intimation of this request will be sent to applicant as a message on mobile number linked to bank. The applicant has to validate the request.
After the bidding process, if any shares are allotted to the applicant, an instruction is sent to sponsor bank to unblock the excess money (if any) in the investor’s account.
Points to note
1. UPI as a payment mechanism for IPOs is applicable to all IPOs for which Red Herring Prospectus is filed after 1 January 2019. 2. Over time, UPI ID could be made a mandatory payment mechanism for IPOs.
(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)