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Sebi moots UPI as alternative payment option for retail investors in IPOs

New Delhi: Markets regulator Sebi on Wednesday proposed introducing Unified Payments Interface (UPI) as an alternative payment option for retail investors buying shares in an initial public offer.

The new mechanism would increase the efficiency of the existing system and curtail the need for manual intervention, the Securities and Exchange Board of India (Sebi) said.

UPI is an instant payment system developed by the National Payments Corporation of India (NPCI). It allows instant transfer of money between any two person's bank accounts using a payment address which uniquely identifies a person's bank account.

For simplifying the process of investing in public issue for retail investors, Sebi has proposed the use of UPI mechanism which would allow the investor to authorise blocking of funds for making an application, as is done using ASBA (Application Supported by Blocked Amount).

Currently, retail investors either invest in an IPO through bank ASBA or through broker ASBA, where the broker does the bidding and hands over the application form to the investors' bank. With this mechanism, Sebi expects that post issue timelines would reduce from six days to three days and also result in reduction in manpower costs.

The regulator has sought comments from the public till August 15 on the proposal.

Explaining the procedure, Sebi said that an investor would have to create a UPI ID at the bank. Then, the investor would enter the bid details in the form as per current practice and also enter the UPI ID. Subsequently, forms would be submitted to the broker, who in turn would upload the bid details along with the UPI ID on the stock exchange platform.

Further, the exchange would undertake validation of the PAN and Demat account details of investor with the depository.

Post such validation, the exchange would electronically share the bid details along with investors UPI ID, with the escrow or sponsor bank appointed by the issuer.

The sponsor bank would initiate a mandate request on the investor to authorise blocking of funds equivalent to application amount in his/her bank account and subsequent debit of funds in case of allotment. Upon confirmation of receipt of funds in the public issue escrow account, shares would be credited to the investor's account. Sebi said that the existing channel of submission of application forms directly with self-certified syndicate bank (SCSBs) by all category of investors could continue as an alternative to the proposed framework.

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