The Reserve Bank of India (RBI) has lifted restrictions placed on JM Financial Products Ltd, the company said in a stock exchange filing late on Friday.
“With this communication, the company is permitted to provide, with immediate effect, the financing against shares and debentures in compliance with all applicable laws and regulations,” JM Financial said in a short notice to the stock exchanges.
In March the RBI had banned the company from providing finance against shares and debentures including sanction and disbursal of loans against Initial Public Offering (IPO) of shares and against subscription to debentures, which are the main businesses for the brokerage led NBFC.
RBI had said that the ban was imposed after it observed certain serious deficiencies regarding loans sanctioned by the company for IPO financing and non convertible debenture subscriptions.
In its press release RBI had stated 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, in the subsequent operations.
Thus, the company had acted as both lender and borrower in many cases. It also acted as the arranger of bank account opening and operator of the said bank accounts using the POA. The violation of regulatory guidelines raised serious concerns on governance issues, which are detrimental for customers.
The restrictions which lasted more than ten months were to be reviewed upon the completion of a special audit to be instituted by the RBI and after rectification of the deficiencies to the satisfaction of the central bank.
“The company is committed to upholding the highest standards of compliance and will continue to ensure that the remediations carried out by it are sustained,” JM Financial said.
