RBI’s recent decision to prohibit JM Financial Products Ltd (JMFPL) from extending loans against shares and debentures, including those related to Initial Public Offerings (IPOs), comes amidst serious deficiencies and governance concerns in the financial services firm’s loan processes. This action, effective immediately, follows a limited review by RBI, prompted by information shared by the Securities and Exchange Board of India (SEBI).
During the review, it was discovered that JMFPL facilitated a group of customers to bid for various IPOs and Non-Convertible Debenture (NCD) offerings using loaned funds, with credit underwriting procedures found to be inadequate. Additionally, the company operated customer demat and bank accounts using Power of Attorney (POA) and Master Agreements obtained without customer involvement, enabling the company to act as both lender and borrower.
RBI has imposed business restrictions on JMFPL, pending a special audit by the central bank and the rectification of identified deficiencies. However, existing loan accounts can continue to be serviced through standard collection and recovery processes.
This development follows similar actions by RBI against other financial institutions, including IIFL Finance and Paytm Payments Bank Ltd (PPBL), indicating a concerted effort by the regulator to address systemic issues and safeguard the interests of stakeholders.
Following the announcement, JM Financial’s stock on the Bombay Stock Exchange (BSE) closed trading down by 2% at Rs 95.53.
