The new system, called Applications Supported by Blocked Amount (ASBA), is based on the system of Self Certified Syndicate Banks (SCSBs).
In this regard, the market regulator has also designated Corporation Bank, HDFC bank and Union Bank of India as SCSBs.
These banks will be acting as an SCSB in public issues which open on or after September 1 onwards.
The application forms for this payment mode will be submitted to banks which have been selected as SCSBs, the regulator said.
Both the current system of payment through cheques and the alternative system would co-exist, the Sebi chairman has said earlier this month.
The alternative payment system called the additional mode of payment through applications supported by blocked amount will exempt retail investors from paying advance fees and instead let the amount to be retained in bank accounts till allotment is completed.
Under the new payment process, self-certified syndicate banks would accept applications of retail investors and block the fund to the extent of the bid amount and upload the details in the electronic bidding system of the bourses.
They would then unblock the funds once allotments are finalised and transfer the amounts for allotted shares to the issuer.
This mode of payment will apply only to public issues offered under the book-building route and only to those retail investors who bid at the cut-off price as the single option and agree not to revise their bids.
The new system is expected to eliminate the process of refunds by companies to the applicants in case of non-allotment of shares.