RBI clamps down on JM Financial Products Limited’s financing against Shares and Debentures

The directive encompassed the sanction and disbursal of loans against IPO shares as well as against subscription to debentures
RBI - Reserve Bank of India - RBI action on JM Financial - JM Financial Products Limited - RBI regulatory action - taxscan

The Reserve Bank of India ( RBI ) has taken regulatory action against JM Financial Products Limited ( JMFPL ) by directing the company to immediately halt all forms of financing against shares and debentures.

This directive encompassed the sanction and disbursal of loans against Initial Public Offering ( IPO ) shares as well as against subscription to debentures. Despite this restriction, JMFPL is permitted to continue servicing its existing loan accounts through the standard collection and recovery process.

This stringent measure followed the discovery of serious deficiencies in the company’s lending practices, particularly concerning loans extended for IPO financing and Non-Convertible Debenture ( NCD ) subscriptions.

The RBI’s intervention was prompted by a limited review of JMFPL’s books, conducted based on information provided by the Securities and Exchange Board of India ( SEBI ). During this review, significant irregularities came to light.

JMFPL was found to have repeatedly assisted a group of customers in bidding for various IPO and NCD offerings using borrowed funds. Moreover, the credit underwriting process was deemed inadequate, with financing often granted against minimal margins.

Disturbingly, the company operated the application for subscription, demat accounts, and bank accounts on behalf of these customers using a Power of Attorney ( POA ) and a Master Agreement obtained without the customers’ involvement. This arrangement effectively allowed JMFPL to act as both lender and borrower, raising serious concerns about governance issues and customer interests.

The RBI’s enforcement actions extend beyond JMFPL. Regulatory violations and deficiencies on the part of any banks involved in these transactions are also under separate examination.

The imposed business restrictions are not permanent; they will undergo review following a special audit to be conducted by the RBI. These restrictions are contingent upon the satisfactory rectification of identified deficiencies. Additionally, they are issued without prejudice to any further regulatory or supervisory actions that the RBI may initiate against JMFPL.

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