MUMBAI, MAY 13: In a move that will relieve primary market investors of the anxiety of getting refunds on non-allotment of shares in public and rights offers, the Securities and Exchange Board of India (Sebi) today approved a new method of payment that will let share applicants keep money in banks till allotment of shares and, thus, eliminate the need for refunds. As a result of the Sebi move, the cost of investment in stock markets through initial public offerings (IPOs) and rights issues is expected to become cheaper for retail investors. Sebi has okayed in-principle the idea of making a lien on bank accounts an alternative mode of payment, putting an end to the practice of refunding of investors’ money.

The Sebi board, which met here today, also decided to tighten the net worth criteria for portfolio managers and approved the draft Sebi (Issue and Listing of Debt Securities) Regulations 2008. The concept of creating lien on bank accounts will enable the application money for rights and IPOs to remain in the investors’ bank accounts till the allotment is finalised and, thus, eliminate the refund process. The modalities in this regard would be worked out separately, Sebi said in a statement.

The regulator is already in conversation with at least seven banks and plans to launch a pilot project in three months in select cities where the infrastructure to launch such project is available. Earlier, when an investor applied for shares, the entire application money would be withdrawn from the his bank account in three-four days. The move will eliminate the process of refunding investors’ money as the funds will remain in his account. Investors who apply for new offers have been complaining about their funds being blocked. “Some companies and banks had made good profits just by retaining the excess application money. This practice should have been stopped long ago,” said an investor.

Some investors who invested in the divestment of PSUs four years ago are yet to receive refund of their money as the registrar to the issue collapsed under the severe pressure and investors had to bear the brunt.

Watchdog Acts

•Investors’ money will remain in his account

•To be debited only for allotted shares

•Sebi to launch pilot project in select cities

•Cost of investment will come down