UPI is becoming increasingly popular among individuals applying for IPOs. Retail investors are choosing UPI for about two-thirds of IPO applications, leading to a surge in the value of IPOs executed through UPI, which reached almost ₹6,000 crore in October last year, according to RBI data.
In a report, RBI acknowledged that incorporating UPI in the public issue framework enhances user convenience, streamlines the process, and reduces the time required for public issues to be listed. The transaction limit for UPI was increased from ₹2 lakh to ₹5 lakh in December 2021 to encourage greater participation of retail customers in financial markets, including investments in G-secs through the retail direct scheme and payments for IPOs.
UPI has emerged as the preferred mode for IPO applications among retail investors due to its efficiency. The system improvements have significantly reduced failure rates, making the process more reliable. While ASBA and UPI are both popular, many brokers prefer UPI as it allows them to serve clients with accounts in different banks. On the other hand, ASBA is limited to the bank that brokers are affiliated with.
One downside of UPI is the maximum limit of ₹5 lakh, which restricts clients from applying larger amounts in the HNI segment. However, UPI remains popular in the retail segment. The cut-off time for ASBA IPO applications is earlier in the day compared to UPI, which has a deadline of 5 pm for investors to accept or reject the IPO mandate.
Despite the rise in popularity of UPI in the last year, it still accounts for a small portion of the overall collection. UPI applications make up about 10 per cent of the total issue size, compared to 5-8 per cent a year ago. UPI applications also have a higher rejection rate due to various issues such as invalid UPI IDs, requests declined, technical problems, and PAN mismatches.
Overall, UPI has revolutionized the IPO application process, providing retail investors with a convenient and efficient way to participate in the market. This shift towards UPI in IPO applications reflects the growing trend of digital transactions in the financial sector.
