Market regulator Sebi?s move to make Asba mandatory for all non-retail investors investing in public and rights issues from May 2 will impact the fee income of collecting banks.
?With Asba becoming mandatory for Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs), collecting banks are expected to lose out on the float of money they used to get during an IPO,? said a senior official from a financial services firm who didn?t want to be named.
At least five to seven collecting banks are enlisted for every initial public offering (IPO).
Under the non-Asba facility, investors have to fill the bid application form and submit it to the syndicate or sub-syndicate member (broker) along with the cheque. The bids are then placed on the NSE/BSE platform. At the end of the day, the broker sends the application and cheque to the collecting banker.
Typically, on a collection of around R100 crore, a collecting bank can make around R8 to 10 lakh at an interest rate of around 6% per annum depending on the size of the issue. This is assuming a float of around six days. The collecting banks could now lose out on this fee income.
?Competition among collecting banks will now die out,? said Rajeev Thakkar , of a boutique investment firm. On the other hand, which offer custodial services will stand to benefit. ?Now the game will be to attract more clients to the custodian side of the business,? added Thakkar.
High net worth individuals as well as institutional investors operate through custodians (typically banks), which settle funds and securities on behalf of their clients. Post Asba, these investors will no longer have to write cheques to collecting banks.
In the case of an institutional investor ?X? which wishes to use the Asba route. X will first instruct the custodian that it wishes to apply for the IPO. X will then have the money held with the custodian bank, which will then block the funds. So, custodian banks that also hold the investors? bank account will gain as the money will stay put in the bank account.
Deutsche Bank, ICICI Bank, HSBC and Citibank are some of the major custodians for foreign institutional investors (FIIs).
The objective of Asba is to ensure that investors? funds leave their bank accounts only on allocation of shares. It eliminates needless documentation as well as the cumbersome refund process.