RBI Bars JM Financial from Financing Against Shares, Debentures

Mumbai: The Reserve Bank of India (RBI) on Tuesday barred JM Financial Products Limited from giving loans against shares and debentures, including sanction and disbursal of loans against Initial Public Offering (IPO) of shares, with immediate effect. The company shall however continue to service its existing loan accounts through the usual collection and recovery process. Announcing the decision, the RBI said that the action has been taken after observing certain serious deficiencies in the financial services firm's loan process. 

More importantly, the central bank highlighted that there are serious concerns on the governance issues in the company, apart from violation of regulatory guidelines.

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). During the review, it was found out 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 RBI further said that 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,” said the RBI. This is the third such action on financial services companies. On Monday the RBI barred IIFL Finance Ltd from sanctioning or disbursing new gold loans immediately, citing serious supervisory concerns. The central bank in January banned Paytm Payments Bank from accepting fresh deposits and undertaking credit transactions.