This is a major departure from the current practice of retail investors paying upfront the full amount for the shares they have bid for, while large institutional investors need to put up only 10% of the money. The system in vogue now is seen as discriminating against retail investors and the regulator's move is aimed at ensuring parity between retail and institutional investors.

SEBI'S move implies that a retail investor can participate in a public or rights issue, without the application money actually leaving his bank account, thus eliminating the refund process. The bank will mark a lien on the customer's account to ensure that the requisite sum is locked in until the allotment process is finalised. The money will be transferred to the company only when the actual allotment takes place. In case the allotment does not take place, the money gets automatically unlocked and is at the investor's disposal.

In May this year, the SEBI board had approved the concept of providing an alternative mode of payment in issues whereby the application money remains in the investors' account till finalisation of basis of allotment in the issue.