IPO Allotment Process

The bidding window shuts at a fixed hour on the closing day, and from that second the process stops being about investor demand and becomes an exercise in reconciliation arithmetic. Somewhere in that gap between close and listing, a registrar to the issue has to take every bid the exchange recorded, match it against confirmations from banks and the UPI infrastructure, discard the ones that do not stand up, allocate what survives across four or five separate buckets under different rules, and produce a document that the exchange will sign off on. Understanding the sequence explains most of what beginners find mysterious about allotment - including why a perfectly funded application can still fail.

Stage one: the bid file leaves the exchange

Bidding happens on the exchange platform, but allotment does not. Once the window closes, the exchanges hand the consolidated bid file to the registrar to the issue - an independent SEBI-registered intermediary appointed by the company, whose role is covered in the sibling article on the IPO registrar. That file is a raw record of what was uploaded: applicant name, PAN, demat account details, quantity, price, category, and the identifier of the intermediary who entered it.

It is a record of intent, not of money. The subscription figures published while bidding was live were computed from this same file, which is exactly why those figures are always an overstatement of verified demand. Nothing in the bid file proves the applicant had funds, was who they claimed to be, or authorised anything.

Stage two: matching bids against money

Applications in an Indian public issue do not transfer money at the time of bidding. Funds are blocked in the applicant's own bank account, either through the ASBA facility handled by a self-certified syndicate bank or through a UPI mandate that the applicant approves in a payment application. Those two routes have their own explainers in this pack. Either way, the money sits in the applicant's account earning whatever it normally earns, and is debited only if shares are allotted.

That design creates the reconciliation problem. The registrar now holds a list of bids from the exchange and separate confirmation files from the banks and from the sponsor bank that routed UPI mandates. Every bid must find its confirmation. Where a bid has no matching confirmed block for the full bid value, it cannot be allotted, regardless of how sincerely the applicant intended to invest. Registrars also cross-check the demat account against depository records to confirm it exists, is active, and belongs to the same person as the PAN on the application.

Stage three: rejections, and why they happen

A share of applications drops out here. These are usually called technical rejections, and they are the single most avoidable disappointment in the whole process because almost every cause is within the applicant's control at the time of applying.

• The UPI mandate was never approved, or was approved after the cut-off time set by the sponsor bank. The bid exists on the exchange; the block does not exist at the bank.
• The blocked amount is short of the bid value, most often because a bid at the cut-off option is valued at the upper end of the price band and the account was funded only for a lower price.
• The PAN on the application does not match the PAN linked to the demat account, or the name spelling differs from depository records.
• The demat account is closed, frozen, or in the process of being transferred between depository participants.
• More than one application has been submitted under the same PAN, in which case duplicates are generally all rejected rather than one being retained.
• The applicant bid in a category they are not eligible for, such as an employee reservation without the required employment status on the relevant date.
• The application was made from a third party's bank account, which the ASBA framework does not permit.

None of these are judgement calls by the registrar. They are mechanical mismatches between two files, and the registrar has no authority to overlook them. If your application is rejected here, the blocked funds are released and no shares are allotted; the dedicated explainers on UPI mandate failures and on the refund process describe what you should see in the account afterwards.

Stage four: each category is settled separately

Once the valid bid set is fixed, allocation happens bucket by bucket. This is the part beginners most often get wrong, because they imagine one big pool of shares being distributed to one big pool of applicants. There is no such pool. Institutional, non-institutional, retail and reserved portions each have a fixed quantity of shares set out in the offer document, and each is settled against its own applicants under its own rule.

The institutional bucket

The anchor portion within the institutional bucket was already allotted before bidding opened, on a discretionary basis and subject to lock-in conditions. What remains is allotted among qualified institutional buyers on a proportionate basis, with a sub-portion reserved for domestic mutual funds. Proportionate means an applicant asking for a larger quantity receives a proportionally larger allocation - there is no draw of lots, because these are large applications where a fractional entitlement is still a meaningful number of shares.

The non-institutional bucket

Non-institutional applications are split into two sub-buckets by application size, with the proportion between them fixed by regulation. Within each sub-bucket, allocation is proportionate, but with an important qualification: nobody can be allotted less than one lot, and lots are indivisible. Where the proportionate entitlement of applicants in a sub-bucket falls below one lot, a draw of lots decides which applicants receive that minimum and which receive nothing. So a lottery can appear in this bucket too, even though it is usually described as a retail phenomenon.

The retail bucket

Retail is governed by a principle that is deliberately different from proportionality: when the retail portion is oversubscribed, the objective is to give the minimum lot to the maximum possible number of applicants. This is a policy choice about spreading share ownership widely rather than concentrating it in the hands of those who applied for the most. It is also the reason that applying for several lots does not improve your chance of being selected when demand is heavy.

Reserved portions

Employee and eligible-shareholder reservations are settled within their own small quantities, on the same minimum-lot logic. Because these pools are small and the eligible population is limited, they can end undersubscribed even when the main issue is heavily bid, and they can also be oversubscribed enough to need their own draw.

The retail draw, mechanically

Work through the arithmetic with illustrative numbers. Suppose the retail portion is 24 lakh shares and the lot size is 80 shares. The portion therefore contains 30,000 lots, and 30,000 is the absolute ceiling on how many retail applicants can receive anything at all.

If 90,000 valid retail applications arrive, the arithmetic is straightforward: 30,000 of them can be served with one lot each, and a computerised draw of lots selects which 30,000. Roughly one application in three succeeds, and how many lots each applicant bid for makes no difference to their odds. If instead only 20,000 valid applications arrive but each asked for several lots, every applicant can be given one lot first, and the remaining 10,000 lots are then distributed proportionately among those who asked for more.

The draw itself is not run informally. It is a computerised randomisation performed by the registrar, and the finalisation is done in consultation with the designated stock exchange, with the exchange's officials involved in overseeing the process. The output is not a private spreadsheet either - it becomes the basis of allotment document, which is published and which the sibling article on that document explains column by column.

What happens when a category is undersubscribed

Categories are not sealed containers in every direction. If a non-retail category is undersubscribed, the unsubscribed shares may be reallocated to other categories, subject to conditions set out in regulation and restated in the offer document. The rules are asymmetric: the institutional portion carries its own minimum subscription requirement in a book-built issue, and a shortfall there cannot simply be filled with demand from elsewhere. Because these conditions have specific thresholds that are subject to change, the offer document for the particular issue is the place to confirm them rather than any general article.

There is also a floor for the offer as a whole. If the issue does not achieve the minimum level of subscription prescribed in regulation, it is withdrawn. In that case nobody is allotted anything, every blocked amount is released, and the company must go through the process again if it still wants to list.

Finalisation, credit and listing

Once the basis of allotment is approved, three things happen in quick succession. Successful applicants have their blocked funds debited for the value of shares actually allotted, with any excess released. Unsuccessful applicants have their full blocked amount released. Allotted shares are then credited to demat accounts through the depositories, and only after the credit and the exchange's listing approval does trading begin.

The overall timeline from issue close to listing is compressed and is set by regulation rather than by the company or the registrar, and it has been shortened over the years as the payment and depository infrastructure improved. Do not memorise a number of days from an article, including this one - the current requirement is stated by SEBI and reflected in the offer document and the exchange notices for each issue. What is worth internalising is the structure: reconciliation, then allocation, then approval, then unblocking and credit, then listing, in that order and with no step skippable.

Why the process is built this way

Each stage exists because an earlier arrangement failed in some visible way. Money once travelled with the application: applicants wrote cheques, funds left their accounts on the day of applying, and refunds for unsuccessful applications took weeks to find their way back. The blocked-funds design removed that float entirely, which is precisely why reconciliation against bank confirmations now sits at the centre of the process. The registrar has to prove the money exists before allotting anything, because the money has not actually moved anywhere.

The minimum-lot-to-maximum-applicants rule in retail is a distribution choice rather than an efficiency one. Strict proportionality in a heavily oversubscribed issue would hand nearly all retail shares to the largest retail applicants and leave everyone else with fractional entitlements too small to round up into a single lot. Spreading one lot as widely as possible produces a broader shareholder base on listing day, which supports liquidity in early trading and keeps price discovery from depending on a handful of holders.

The involvement of the designated stock exchange in finalisation, and the publication of the basis of allotment afterwards, exist for the same reason that a draw of lots is conducted openly rather than privately. When an allocation is random by design, the only thing that can make it credible is that the method and the resulting ratios are visible to anyone who cares to check. That is why the document is filed and published rather than communicated only to successful applicants.

None of this makes allotment quick in the way an ordinary secondary-market trade is quick. Several institutions are involved - the exchanges, the applicant's bank, the sponsor bank, both depositories, the registrar and the company - and each holds a different piece of the record. Every piece has to agree before a single share moves. The compression of the timeline over the years came from automating the handoffs between them, not from removing any of the checks.

“Allotment is not a decision about who deserves shares. It is arithmetic run over a verified file, and the file is verified before the arithmetic begins.”

Where investors go wrong in this window

1. Assuming a bid visible in the broker application means the money was successfully blocked. Check the bank or UPI application for the block itself, not the broker's confirmation screen.
2. Cancelling or ignoring a UPI mandate request because it looked unfamiliar, then wondering why the application failed.
3. Withdrawing or spending the blocked balance before allotment, leaving the bank unable to honour the block.
4. Applying for the maximum permitted lots in a heavily oversubscribed retail category in the belief that quantity improves selection odds.
5. Treating unofficial allotment lists circulating on social media as authoritative. Only the registrar and the exchanges publish verified status.
6. Panicking when funds are still blocked a day after the expected date. Releases move through the banking system and can lag the allotment announcement slightly.

The single most useful habit during this window is to do nothing hurried. There is no action available to an applicant between close and allotment that improves the outcome, and several that can damage it. The one thing worth doing is confirming, on the day you apply, that the block actually appears in your bank account for the full bid value at the upper end of the price band - because that single check eliminates the largest category of avoidable rejection before the registrar ever sees your file.