The Reserve Bank of India on Wednesday barred JM Financial Products from doing any form of financing against shares and debentures after it found ‘serious deficiencies’ that are detrimental to the interest of the customers, during a review of its books.
With immediate effect, JM Financial Products has been asked to cease and desist from doing any form of financing against shares and debentures. This includes sanctioning and disbursing loans against IPO of shares and subscription to debentures.
RBI has allowed the company to service its existing loan accounts through the usual collection and recovery process.
RBI’s action on JM Financial
RBI said it found certain ‘serious deficiencies’ with respect to the loans JM Financial sanctioned for IPO financing and NCD subscriptions. This limited review of JM Financial’s books was carried out by RBI based on the information shared by markets regulator Securities and Exchange Board of India (SEBI).
RBI said that during the limited review, JM Financial Products ‘repeatedly helped a group of its customers to bid for various IPO and NCD offerings by using loaned funds. RBI found the credit underwriting to be perfunctory, while 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,” RBI has found.
This helped JM Financial act as the lender and the borrower, both.
RBI found these actions to be in violation of its regulatory guidelines. Additionally, it also found ‘serious concerns’ on governance issues in the company that it says is detrimental to the interest of the customers.
It is examining any regulatory violations and deficiencies on the part of banks in this regard separately.
These restrictions will be reviewed once the RBI’s special audit is completed and after the rectification of deficiencies.
