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Sebi permits debt securities allotment through UPI; industry hopes for larger retail participation

Industry insiders point out that till date the debt securities market has been dominated by institutions and HNIs. Now, with UPI coming into the picture and Sebi keen to make the process digital, more retail traders could enter the business

November 24, 2020 / 11:53 AM IST

After being enabled for equity IPOs, Unified Payments Interface (UPI), the digital payment railroad run by the National Payments Corporation of India, is now set to be used to buy debt IPOs as well. The Securities and Exchange Board of India (Sebi) has enabled UPI payments for online purchase of debt securities issued to the public.

“Introduction of Unified Payments Interface (UPI) mechanism and an additional mode for application through online (app / web) interface in public issues of securities,” was one of the points fleshed out in a note issued by Sebi on its website on November 23.

This move by the regulator has the potential to increase participation of retail investors in debt securities, said stock market traders and broking houses.

Encouraging retail participation

Currently, to buy debt securities, investors have to go through a paper-based process through their banks. The process that was followed to buy these securities is through ASBA (Applications Supported by Blocked Amount), where an amount would get blocked in the investor’s bank account and only get debited once the shares get allotted.


Sebi has now also enabled UPI based transactions for the purchase of these securities.

The regulator has permitted buying of these securities up to the application value of Rs 2 lakh. Also it has allowed securities to be purchased through intermediaries like stockbrokers. The exchange itself is working on building a web and app based platform to encourage online buying and selling of these securities digitally.

“By taking the process digital and bringing in a popular payment mode like UPI, Sebi wants to encourage retail participation in debt markets,” said a top executive at one of the largest stock broking platforms in the country.

Options for investors

Sebi has laid out detailed rules that need to be followed around allotment of these securities through the digital process.

The regulator has enabled four processes through which the bids can be placed. Firstly, investors can go to their bank branches and place the bid through the paper-based process, blocking funds through ASBA.

Second, they can submit the bid to a broker with their bank account details for blocking of funds.

Third, they can submit to their banks their UPI IDs connected to the correct bank account for blocking of funds.

Finally, they can also engage with the exchanges directly to place the order and make the payment through the UPI ID connected with the same bank account.

“The only catch here is that investors need to place their bids through the right UPI ID — connected with the same bank account that has been listed with the exchanges; a different ID will cause the process to drop off,” said a top payments executive aware of the process.

The same process is currently followed for the allotment of equities in the IPO process through UPI. The advancements in UPI-based transactions have made all this smooth, where investors can accomplish a large part of the act digitally.

According to details laid out by Sebi, once the bid is submitted, the fund block will need to be permitted by the investor through his or her UPI pin. Once allotment happens, the amount will be debited from the bank account directly.

“An investor is required to accept the UPI mandate latest by 5 pm on the third working day from the day of bidding on the stock exchange,” said the Sebi note.

The stock market insider quoted above said that till date, company debt was mostly subscribed by high net worth individuals, unlike the case with equity IPOs, which see a much larger retail participation. Through UPI and a digital process, the stock market regulator is aiming to get higher retail participation.

Exchanges are also trying to set up their own digital platforms through which trades can be punched in. While one of the sources mentioned above said that the modalities of the platform are not final and it needs some more work, the long-term goal is to enable the use of app- or web-based platforms for the purchase and sale of securities.
Pratik Bhakta
TAGS: #Startup
first published: Nov 24, 2020 11:53 am

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