RBI Orders JM Financial Products To Stop Financing Against Shares, Debentures

The Reserve Bank of India (RBI) today directed JM Financial Products Ltd. to stop doing financing against shares and debentures with immediate effect after finding serious deficiencies.

The central bank’s order bars the non-bank lender from doing any form of financing against shares and debentures, including sanction and disbursal of loans against initial public offering (IPO) of shares and subscription to debentures, the RBI said in a statement.

“This action is necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing as well as NCD (non-convertible debentures) subscriptions,” Chief General Manager Yogesh Dayal said.

The RBI said it carried out a limited review of the books of the company on the basis of the information shared by the Securities and Exchange Board of India (SEBI).

During the limited review, the central bank observed that:

• The company repeatedly helped a group of its customers to bid for various IPO and NCD offerings by using loaned funds.

• The credit underwriting was found to be perfunctory, and financing was done against meagre margins.

• The application for subscription, the demat accounts and the bank accounts, all were operated by the company using a Power of Attorney (POA) and a master agreement obtained from these customers without their involvement, whatsoever, in the subsequent operations.

• Consequently, the company was able to effectively act as both lender as well as borrower.

• The company also acted as the arranger of bank account opening as well as operator of the said bank accounts using the POA.

The central bank said that apart from being in violation of regulatory guidelines, there are serious concerns on governance issues in JM Financial, which are detrimental to the interest of the customers.

Regulatory violations and deficiencies, if any, on the part of the banks related to this are being examined separately, it added.

The RBI said the imposed business restrictions will be reviewed upon the completion of a special audit to be instituted by the RBI and after rectification of the deficiencies to its satisfaction.

The central bank also said these business restrictions are without prejudice to any other regulatory or supervisory action that may be initiated by RBI against the company.

JM Financial offers a broad suite of loan products, which are customized to suit the needs of the corporates, SMEs and individuals, according to its website. The company broadly operates under five verticals, namely capital market financing, retail mortgage financing, bespoke financing, financial institution financing and real estate financing.

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