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Arka Mookerjee

Partner at J. Sagar Associates

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Increase In UPI Limits

The limits are in line with a recent increase in transaction limit for UPI prescribed by the National Payments Corporation of India (“NPCI”), through its circular dated December 9, 2021 writes Arka Mookerjee, Partner, J. Sagar Associates

Securities and Exchange Board of India (“SEBI”) has issued a circular dated April 5, 2022 (“April 5 Circular”), increasing the limits for applications in public offerings through the use of the Unified Payment Interface (“UPI”) mechanism from ₹ 2,00,000/- to ₹ 5,00,000/-. The revised limits are applicable for all public issues opening after May 1, 2022. The limits are in line with a recent increase in transaction limit for UPI prescribed by the National Payments Corporation of India (“NPCI”), through its circular dated December 9, 2021.

This move is being seen as one more attempt by SEBI to clear potential hurdles for the upcoming initial offer of LIC. Along with the directive to utilise four sponsor banks (in place of the previously mandated one) and the amendments to the Securities Contracts (Regulation) Rules, 1957, this move is a positive development to help ease potential issues with the large volumes of applications that the LIC public issue is being expected to generate. The April 5 Circular clarifies that NPCI “has reviewed the systemic readiness required at various intermediaries to facilitate the processing of applications with increased UPI limit and confirmed that as on March 30, 2022, more than 80% of SCSBs/Sponsor Banks/UPI Apps have conducted the system changes and have complied with the NPCI provisions.” Additionally, in the long run, this move may beneficially impact the ability of investors to receive quicker refunds through unblocking of funds and is generally a welcome move towards the smoothening of the payments processes involved in a public issue process. Given the large volumes of UPI transactions that are conducted each month (5,405.64 million transactions worth ₹ 9,60,581.66 crores were recorded in the month of March 2022 alone, systemic readiness and stress testing of the UPI mechanism in the public issue context will be vital.

The UPI mechanism was introduced in a phased manner as an additional payment mechanism under the overall bucket of Applications Supported by Blocked Amount (“ASBA”) for retail individual investors (investors applying for a total bid amount of up to ₹ 2,00,000/-) applying in public issues by SEBI through a circular dated November 1, 2018 (“2018 UPI Circular”). For investors applying under the other categories, namely, Qualified Institutional Buyer category or Non-Institutional Category, the UPI mechanism was not applicable. Employees bidding under a reserved category were also not permitted to utilise the UPI mechanism for bids exceeding ₹ 2,00,000/- as employees are permitted to bid for an amount of up to ₹ 5,00,000/- thereby exceeded the ₹ 2,00,000/- limit.

Pursuant to the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2018, SEBI has bifurcated the non-institutional category into those investors making a bid between ₹ 2,00,000/- and ₹ 10,00,000/- (“Category I NII”) and those making a bid in excess of ₹ 10,00,000/- (“Category II NII”).

Pursuant to the April 5 Circular, SEBI has now permitted “Individual Investors” to utilise the UPI mechanism for making a bid for up to ₹ 5,00,000/- in public issues. This will potentially allow all investors applying in the category of retail individual investors, the employee reserved category and Category I NIIs to apply through the UPI mechanism. 

For Category I NIIs, the April 5 circular wording suggests that the UPI mechanism could be restricted to individual investors (broadly termed as high-net worth individuals or HNIs) applying for up to ₹ 5,00,000/- in a public issue. However, the application of the April 5 Circular to Category I NIIs may require some modification to the 2018 UPI Circular to bring NIIs within the ambit of categories permitted to utilise the UPI mechanism. However, the extension of the April 5 Circular to Category I NIIs remains subject to further directions from SEBI.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house


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