SME IPO Consultant
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When an investor applies for an IPO, the funds in the bank account are blocked or a lien is marked in the bank account. On the day of the allotment, the funds required for the allotment of shares are debited and the balance is released.
The release of funds in an IPO is the process by which some or all of the amount blocked for the IPO application is released, depending on the allocation status. Once the funds are released, the investor can use the amount as desired.
As per the rule, IPO refunds must be initiated within 4 working days of the close of the public offer. If the money is not refunded/released within the specified timeframe, the issuer must pay a penalty. The issuer has to return the money to the bidders with interest.
In this chapter, we look at the various aspects of refunding and releasing money in IPOs.
Reasons for returning IPO funds (unblocking funds)
The issuing company is obliged to release the blocked money in the following cases:
- Non-Allotment
If an investor does not receive an allotment or receives only partial allotment, the registrar or the bank must unblock all or the partial amount.
- Non-receipt of minimum subscription
If the issuer does not receive the minimum subscription of 90% of the net offering, the issuer must refund the money/release the subscription amount.
- Failure to obtain listing approval
In some cases, the issuing company does not receive permission to trade from the specified stock exchanges where the securities are to be listed. In such cases, the issuer has to refund/release the IPO application money to the investors.
- Failure to allot to minimum number of Allottees
If the prospective allottees of the company is less than 1,000, the issuer must refund/unblock the IPO subscription money to the bidders.
- Failure to allot 75% of offer to QIB under mandatory book building process
In case of an issue through QIB route, if the issuing company fails to allot at least 75% of the offer to QIB, the entire subscription money must be returned to the investors.
IPO Amount Unblock Time
The below table depicts the IPO initiation refund time as guided by SEBI
|
Reason for Refund |
Timeline |
|---|---|
|
Non-Allotment |
Within four days of issue closure. |
|
Non-receipt of listing permission |
Within four days of receipt of intimation of rejection of listing from stock exchange/s. |
|
Non-receipt of minimum subscription |
Within four days of issue closure. |
|
Minimum number of allottees not achieved |
Within four days of issue closure. |
|
Failure to allot to minimum 75% of QIB under QIB route |
Within four days of issue closure. |
Thus, the date of the initiation of IPO refund is generally four business days after the closing date of the issue. It varies for each IPO and is specified in the Red Herring Prospectus (RHP) for that IPO. Investors can also check for the IPO initiation refund dates/IPO funds unblocking dates and other details about each IPO on the Chittorgarh website.
Initiation of IPO Refund Process
The registrar of the IPO initiates the refund of IPO funds. It is the responsibility of the Registrar to coordinate with the banks/self-certified syndicate banks (SCSB) to unblock the bank accounts and process IPO refunds.
Steps involved in initiation of refunds in IPO
- The registrar in consultation with the stock exchange and lead manager finalize the allotment.
- The registrar notifies the banks to release the funds in case of non/partial allotment.
- SCSB lifts lien on funds blocked for applications submitted through ASBA or UPI.
Modes of Refund Initiation in IPO
The SCSB refunds the IPO amount to investors in various ways. The refund mode depends on the method used in applying for the IPO and the investor category. The table below provides an overview of the different reimbursement methods.
|
Mode of Refund |
Instruction for return of funds |
|
|---|---|---|
|
Unblocking of the amount |
· Retail Individual Investor (RII) · Non-Institutional Investor (NII) · Qualified Institutional Buyer (QIB) |
|
|
Revoke the mandate |
· Retail Individual Investor (RII) |
|
|
Electronic mode |
Dispatch of refund order to credit the Anchor Investor's bank account via NACH, NEFT, Direct Credit, RTGS |
IPO Funds not Unblocked
It often happens that amounts do not get unblocked after an IPO or investors do not receive the credit within the period specified in the offering document. In such cases, investors may do the following:
- As a first step, investors should check with their bank to see if they have received the refund/unblocking instruction.
- If there is no problem with the bank, contact the Registrar.
- Contact the Registrar online by sending an email OR visit the nearest branch of the Registrar.
- If no resolution is found, contact SEBI as a last resort.
- File an IPO refund complaint with SEBI on the SCORES website or send a physical application/complaint request to SEBI.
- Contact SEBI's Toll-free Helpline desk for Investors on 1800 266 7575 or 1800 22 7575 for any guidance/status update/queries.
The Issuer may pay an interest at the rate of 15% p.a. if the refund is not processed or amounts are not unblocked within the specified time limits.
Page Glossary
NACH (National Automated Clearing House)
The National Payments Corporation of India (NPCI) has launched NACH for banks, financial institutions, corporates, and government agencies to facilitate high-volume, regularly recurring interbank electronic transactions.
National Automated Clearing House (NACH) is a centralized system introduced with the objective of consolidating multiple ECS (Electronic Clearance Services) systems operating across the country.
The NACH system allows member banks to develop their own products. It also addresses the specific needs of banks and businesses, including a refined Mandate Management System (MMS) and an online Dispute Management System (DMS) combined with strong information sharing and customized features MIS.
NEFT (National Electronic Fund Transfer)
NEFT is a nationwide payment platform used by many banks. NEFT makes it easy and hassle-free to transfer money from one bank account to another bank account. You no longer have to go to the bank to transfer money, you can transfer the money from home.
There is no minimum or maximum amount for transactions. However, generally the maximum amount per transaction is Rs.50,000 for newly added beneficiaries.
RTGS (Real Time Gross Settlement)
RTGS is a system for high-value transactions where money transfers are settled in real-time, one at a time and on a transaction basis (without netting).
The minimum amount that can be transferred through RTGS is Rs 2,00,000, with no upper or maximum limit.
Direct Credit
Direct Credit is an electronic transfer of funds through the ACH (Automated Clearing House) system.
The payment is initiated by the payer, who transfers the funds directly to the payee's bank account. Settlement takes place within one to two business days.
QIB route
In the QIB route, the IPO must follow the book-building process, and QIBs (Qualified Institutional Buyers) should receive at least 75% of the issue volume.
The QIB route is an alternative route for an IPO if the issuing company does not meet the profitability standards to be eligible for an IPO. The QIB route is also known as a mandatory issue in a book-building process.
A qualified institutional buyer (QIB) is an institutional investor who has the necessary expertise and financial background to carefully evaluate capital markets and invest strategically.