RBI asks JM Financial Products to stop financing against shares, debentures
Upstox
2 min read • Updated: March 5, 2024, 7:16 PM
Summary
The RBI said that the action was necessitated due to "certain serious deficiencies" in loans sanctioned by the company for the IPO financing and non-convertible debenture (NCD) subscriptions.
The Reserve Bank of India (RBI) on Tuesday barred JM Financial Products Limited 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.
RBI said that the action was necessitated due to "certain serious deficiencies" in loans sanctioned by the company for the IPO financing and non-convertible debentures (NCD) subscriptions.
"The RBI 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)," the regulator said.
According to the RBI, during the limited review, it was found 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," it said.
The central bank added, "The company also acted as the arranger of bank account opening as well as operator of the said bank accounts using the POA. Apart from being in violation of regulatory guidelines, there are serious concerns on governance issues in the company, which in our assessment are detrimental to the interest of the customers. Regulatory violations and deficiencies, if any, on the part of the bank(s) in this regard, is being examined separately.”
However, JM Financial Products can continue to service its existing loan accounts through the usual collection and recovery process, the RBI said.
The regulator said that business restrictions that have been imposed will 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 RBI.