UPI system payments glitch: Sebi knocks on RBI-regulated NPCI's door

Topics NPCI | Sebi | Reserve Bank of India

The Securities and Exchange Board of India (Sebi) has come across lacunae in its newly introduced payment mechanism for retail investors applying in public issues and it is in talks with the Reserve Bank of India (RBI)-regulated National Payment Corporation (NPCI), seeking to resolve the matter. 

According to Sebi sources, the market regulator has received hundreds of complaints from investors who failed to participate in the recent share sales by Indian Railway Catering and Tourism Corporation (IRCTC) and Affle India. “It is more of a conceptual than a technical issue and registered banks are required to take steps for the smooth functioning,” said a regulatory source privy to the development.

Earlier this year, Sebi mandated all retail investors to make payments through the Unified Payments Interface (UPI) route. The move was to cut the time of an IPO process to three days, from six days at present. The UPI system allows the instant transfer of funds between two banks.

Until recently, the investor could invest in a public issue through the application supported through blocked amount (ASBA) facility, which usually takes at least six days to process the IPO application. 

Under the new payment system, an investor will have to enter his/her UPI ID on the application form of a public issue. When the form is processed by the concerned bank and the registered transfer agent, an investor receives a notification on the BHIM UPI App, or the bank’s native application, allowing him/her to use UPI. While providing the pin, this approves the blocking of the amount. 

After the bidding process, the remaining amount over and above the shares that were allotted will be unblocked. This cycle gets completed in three days. People in the know said there are still several banks which have not geared up to process UPI-based applications for IPOs. This is resulting in the rejection of several applications.

Several investors were irked for failing to get allotment in the hugely successful IRCTC issue. The state-run company’s IPO had garnered 112 times subscription and the stock nearly tripled since listing. 

“This is undoubtedly an efficient mechanism for raising funds and eventually this will streamline the whole fundraising process. But at this point, there are teething problems and those will remain for some months. Investors are not yet aware of this route and its benefits; the same had happened with the ASBA facility. Switching to another mode of payment will have collateral damage and that is bound to happen. However, after the IRCTC IPO success, the market will see a spate of public issues and this may force investors to explore the digital mode, said Alok Churiwala, a Mumbai-based broker. 

Sebi’s new payment window provides a way out to face a technical error, incorrect entry of pin, and declining of request. In that case, an investor can re-initiate the request by approaching the intermediary through which he/she will apply for the IPO. For revocation and modification of the application until the IPO’s closure, one has to initiate the process through the intermediary in the prescribed format. 

The UPI option in the IPO process ensures minimal rejections on account of signature mismatch and other such glitches. In the earlier ASBA system, the signature on the IPO form needed to match with that on the bank’s records.

Public issue: Losing connection
  • Sebi has received multiple complaints from investors who failed to participate in IRCTC, Affle India share sales 
  • UPI as a mechanism was made available for IPOs filed after January 1, 2019
  • Move was to cut time of an IPO process to three days from six days earlier

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