ASBA stands for Application Supported by Blocked Amount. The facility was introduced by SEBI in July 2008 to help retail investors apply in IPOs, FPOs and rights issue of companies, with ease.
Earlier while making an application in an IPO, an investor had to pay full application money at the time of submission of the application form. In ASBA, one can make an application for shares without actually parting with the money immediately.
The amount for application money is only blocked in the account of the applicant. The money is debited from the bank account only when the basis of allotment is finalised and also only for number of shares that are finally allotted to the investor. Money blocked under ASBA is unblocked fully or partly as and when the shares are allotted or the issue is withdrawn.
Thus ASBA eliminates problems associated with delay or non-receipt of refunds. Moreover, banks continue to give interest on account as also the money blocked in the account is considered for calculating the average daily / quarterly balances. Thus, investors are saved of hassles on refund deposits while continuing to earn interest on the application money.