JM Financial faces RBI heat over loan deficiencies
It was noted that the co. repeatedly assisted a group of customers in bidding for various IPO and NCD offerings using loaned funds
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Hyderabad: The Reserve Bank of India, utilizing its authority under section 45L(1)(b) of the Reserve Bank of India Act, 1934, has issued a directive to JM Financial Products Limited (JMFPL) to immediately cease all forms of financing against shares and debentures.
This includes the sanction and disbursal of loans against the Initial Public Offering (IPO) of shares and subscription to debentures. However, the company is permitted to continue servicing its existing loan accounts through the standard collection and recovery procedures.
This action follows the identification of significant deficiencies related to loans sanctioned by the company for IPO financing and NCD subscriptions. The Reserve Bank of India conducted a limited review of the company's books based on information provided by the Securities and Exchange Board of India (SEBI).
During the review, it was noted that the company repeatedly assisted a group of customers in bidding for various IPO and NCD offerings using loaned funds. Credit underwriting was found to be minimal, with financing against narrow margins.
Applications for subscription, demat accounts, and bank accounts were managed by the company using a Power of Attorney (POA) and a Master Agreement obtained from these customers, without their direct involvement in subsequent operations. This effectively allowed the company to act as both lender and borrower.
Additionally, the company arranged for the opening of bank accounts and operated these accounts using the POA. These actions not only violate regulatory guidelines but also raise serious governance concerns, which the RBI believes are against the interests of customers. Any regulatory violations or deficiencies on the part of the bank(s) in this matter are being examined separately.
The imposed business restrictions will undergo review once a special audit, to be conducted by the RBI, is completed and the identified deficiencies are rectified to the RBI's satisfaction. These restrictions do not preclude any other Regulatory or Supervisory actions that may be taken by the RBI against the company.
