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    RBI bars JM Financial from financing against shares & debentures on serious deficiencies

    Synopsis

    The action against the non-bank finance major was taken due to certain serious deficiencies with respect to loans sanctioned by the company for IPO financing as well as NCD subscriptions.

    RBI bars JM Financial from financing against shares & debentures on serious deficienciesIANS
    The Reserve Bank of India has barred JM Financial Products Ltd from doing any form of financing against shares and debentures. This includes sanction and disbursal of loans against initial public offering (IPO) of shares as well as against subscription to debentures.

    The action against the non-bank finance major was taken due to certain serious deficiencies with respect to loans sanctioned by the company for IPO financing as well as NCD subscriptions.

    The company can, however, continue to service its existing loan accounts through the usual collection and recovery process, the central bank said.

    The RBI had carried out a limited review of the books of JM Financial on the basis of the information shared by the Securities and Exchange Board of India (Sebi).

    During the limited review, it was observed that JM Financial repeatedly helped a group of its customers bid for various IPOs and NCDs by using loaned funds.

    The credit underwriting was found to be perfunctory, and financing was done against meagre margins, RBI’s review showed.

    “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,” RBI said.

    As a result, the company was able to effectively act as both lender as well as borrower. 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,” the central bank said.

    RBI is separately examining any regulatory violations and deficiencies on the part of the banks in this regard.

    RBI will review its action against the company after a completion of a special audit to be instituted by the central bank and after rectification of the deficiencies to its satisfaction.

    The action by RBI is set to have a negative impact on the stock and see it extending losses when trade resumes on Wednesday. On Tuesday, shares of JM Financial ended 2% down on BSE at Rs 95.53.

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