UPI Payment Mechanism approved for Public Issue of Equity Shares and Convertibles

SEBI via circular dated November 01, 2018 (“Circular”), introduced the use of Unified Payments Interface (“UPI”) as a payment mechanism with in public issues by individual investors through intermediaries to streamline the process of public issue of equity shares and convertibles. 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 upto three (3) working days.

However, considering the time required for making necessary changes to the systems and to ensure complete and smooth transition to UPI payment mechanism, the proposed mechanism and consequent reduction in timelines has been proposed to be introduced in phases, described as under:

  • Phase I: From January 01, 2019, the UPI mechanism for individual investors through intermediaries will be made effective along with the existing process and existing timeline. The same will continue, for a period of three (3) months or floating of five (5) main board public issues, whichever is later;
  • Phase II: Thereafter, for applications by individual 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 will continue, for a period of three (3) months or floating of five (5) main board public issues, whichever is later; and
  • Phase III: Subsequently, final reduced timeline will be made effective using the UPI mechanism.

Some of the other relevant provisions of the Circular are as follows:

Channels for making application:

For the purpose of public issues, UPI would allow to block the funds at the time of application. With the introduction of UPI as a payment mechanism, multiple channels for making application in public issue by various categories of investors i.e. Retail Individual Investor; Qualified Institutional Buyer; Non-Institutional Investor, has been given for Phase I, Phase II and Phase III.

Timelines:

The revised indicative timelines for various activities in Phase I & II are specified in the annexures to the Circular. The timelines for Phase III will be notified subsequently.

Process of becoming a Sponsor Bank:

Banks desirous of becoming Sponsor Bank and to be eligible to be appointed as a Sponsor Bank by the Issuer shall complete the certain formalities, as detailed in the Circular.

Validation by Depositories:

The details of investor viz. PAN ID, DP ID / Client ID, entered in the Stock Exchange platform at the time of bidding, shall be validated by the Stock Exchange/s with the Depositories on real time basis.

Number of applications per bank account:

In order to ensure parity across the various channels for submitted applications, it has been decided by SEBI that an investor making application using any of the channel, shall use only his / her own bank account or only his / her own bank account linked UPI ID to make an application in public issues.

Obligations of the Issuer:

The issuer shall appoint one of the SCSBs as Sponsor Bank to act as a conduit between the Stock Exchanges and NPCI in order to push the mandate collect requests and / or payment instructions of the retail investors into the UPI.