Mumbai: Capital markets regulator Securities and Exchange Board of India, or Sebi, is considering a plan to extend the banking channel for subscription to initial public offerings (IPOs) to high net-worth individuals (HNIs) and institutions in addition to retail investors at whom it is targeted.
Sebi discussed the matter at a meeting with registrars last week, said three people who attended the meeting and didn’t want to be named. Registrars are intermediaries responsible for receiving and uploading bids, collection of application money and allotment of shares in an IPO.
The banking channel allows retail investors to directly subscribe to an IPO by putting their money into an online account that is blocked until the final allotment. Sebi recently extended this facility to rights issues as well.
IPO timeline: According to Sebi rules, 30% of an IPO is reserved for retail bidders, 10% for HNIs and the rest for institutional investors. Abhijit Bhatlekar / Mint
Karvy Computershare Ltd, a joint venture (JV) between Hyderabad-based Karvy Consultants Ltd and Australia-based Computershare Ltd, and Link Intime India Pvt. Ltd, a JV between Link Market Services Ltd of Australia and Intime Spectrum Registry Ltd, are leading registrars. While Karvy has handled most high-value IPOs, including the recent Adani Power Ltd and NHPC Ltd issues, Link Intime claims to be the leader in terms of the number of IPOs handled.
Bigshare Services Pvt. Ltd, Sharepro Services (India) Pvt. Ltd and Integrated Enterprises Pvt. Ltd are the other major Sebi-approved registrars.
A Sebi official declined to comment on the matter, saying he needed to check with the relevant department. He did not return subsequent calls. An email questionnaire sent to Sebi remained unanswered.
Currently, only resident retail individual investors are allowed to invest through the direct banking channel. According to Sebi rules, 30% of an IPO is reserved for retail bidders, 10% for HNIs and the rest for institutional investors.
“Bringing the other classes of investors to the banking channel will be key to the Sebi’s goal of bringing down the IPO timeline. Gradually, all the applications will be routed through the banks,” said N.V.K. Mohan, managing director, Bigshare Services.
In a recent Mint interview, Sebi chairman C.B. Bhave had said that the regulator was looking to reduce the time period for an IPO to five working days, and that the so-called Applications Supported by Blocking Process (Asba) would be an important component in achieving this goal.
However, one key issue that emerged during the discussions between Sebi and the registrars was that the banking channel currently only allows investors one bid option to apply which is at the cut-off price. So the bidders agree to bid and purchase shares at the final issue price that is determined by the issuers.
By contrast, investors applying through the traditional mode have the option of applying at any price point within the band allowed in the offer. For example, in the Oil India Ltd IPO, which opens next week, the price band is between Rs950 and Rs1,050. An investor applying through cheques can bid for 100 shares at a price of Rs960. However, an investor applying through the banking channel does not have the choice to express his price view even within this price band.
This will affect the price discovery process, say experts, especially if HNIs and institutions are brought into the banking channel.
“Whereas investors under the conventional cheque models can place multiple bids at different price points, an Asba investor does not have the option. We have suggested that Sebi allow multiple bids for the Asba investor also,” said B. Narasimhan, vice-president, Karvy Computershare.
The option of making multiple bids was not provided in the early days of Asba because it was felt that banks would face a data overload for each bid. Besides, banks also did not have any incentive to provide such a facility.
However, in the first week of August, Sebi said banks would be eligible for commissions as a percentage of the value of bids processed by them.
Not surprisingly, banks have discovered a new enthusiasm for IPO services. In August, at least three banks—Andhra Bank Ltd, Allahabad Bank Ltd and Deutsche Bank AG—registered themselves with Sebi to offer IPO services, bringing the number of banks that offer such a facility to 22. However, that is still less than half the 57 banks that are eligible for Asba.
Mohan of Bigshare Services said Sebi is looking to bring in all 57 banks registered as bankers to an issue to participate in the process by the end of the year.