Sebi on Thursday said it will launch Unified Payments Interface as an alternative payment option for retail investors, buying shares in a public issue, in a phased manner from January 1 next year, which will cut listing time for an IPO to three days from six at present.
The new mechanism will increase the efficiency of the existing system and curtail the need for manual intervention.
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.
As a part of the continuing efforts to further streamline the process, Sebi has decided, in consultation with the stake holders to introduce the use of UPI as a payment mechanism with Application Supported by Block Amount (ASBA) for applications in public issues by retail investors through intermediaries.
"The proposed process would increase efficiency, eliminate the need for manual intervention at various stages, and will reduce the time duration from issue closure to listing by up to 3 working days," the Securities and Exchange Board of India (Sebi) said in a circular.
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.
Considering the time required for making necessary changes to the systems and to ensure complete and smooth transition to UPI payment mechanism, the regulator said that the new mechanism and consequent reduction in timelines will be introduced in a phased manner.
"From January 1, 2019, the UPI mechanism for retail investors through intermediaries will be made effective along with the existing process and existing timeline of T+6 days. The same will continue, for a period of 3 months or floating of 5 main board public issues, whichever is later," it added.
Thereafter, for applications by retail investors through intermediaries, the existing process of physical movement of forms from intermediaries to self-certified syndicate banks (SCSBs) for blocking of funds will be discontinued and only the UPI mechanism with existing timeline of T+6 days will continue, for 3 months or floating of 5 main board public issues, whichever is later, Sebi noted.
Subsequently, final reduced timeline will be made effective using the UPI mechanism, it added.
Sebi has asked "all entities involved in the process shall co-ordinate with one another to ensure completion of listing of shares and commencement of trading in phase I by T+6. In Phase II, such entities shall aim to expeditiously complete the process of listing of shares and commencement of trading, in any case, not later than T+6".
Explaining the procedure, Sebi said that an investor will have to create 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 will 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 investors account.