JM Fin is asked by RBI to cease lending against shares and debentures

JM Financial Products Ltd. (JMFPL) has been instructed by the Reserve Bank of India to immediately cease providing any kind of financing secured by shares and debentures. The issuance and distribution of loans in opposition to share IPOs and debenture subscriptions are two aspects of this crackdown.

“Today, the RBI has directed JM Financial Products (JMFPL or ‘the company’) to cease and desist, with immediate effect, from doing financing against shares and debentures, including sanction and disbursal of loans against IPO of shares as well as against subscription to debentures,” the RBI said on Tuesday. This directive comes in exercise of the RBI’s powers under section 45L(1)(b) of the Reserve Bank of India Act, 1934.

Nonetheless, JMFPL is permitted to go on with its current loan accounts by using the customary procedures for collection and recovery. According to the RBI, the move was made necessary because of certain significant flaws found in loans approved by the business for IPO funding and NCD subscriptions. Based on information provided by SEBI, the capital market regulator, the RBI conducted a restricted inspection of the company’s records.

During the investigation, the RBI noted that JMFPL had regularly used lent money to assist a group of its clients in placing bids on different IPO and NCD offers.

It was discovered that the credit underwriting was ineffective, and the loan was secured by thin margins. Without their participation at all in later operations, the corporation ran the bank accounts, demat accounts, and subscription application using a master agreement and power of attorney (POA) that it had received from these consumers. As a result, the business might function as both a lender and a borrower. Additionally, it served as the operator of the aforementioned bank accounts utilizing POA and the organizer of bank account establishment, according to RBI.

When approached, JM Financial was unable to provide a response. The problem of misusing money for IPO funding has been brought to light over the last five to seven years. Lately, the RBI has tightened its penalties for any kind of non-compliance. S Ravi, the former chairman of the BSE and the founder and managing partner of Ravi Ranjan and Co LLP, says, “They must have discovered significant shortcomings in the way that JM Financial has operated and acted accordingly.”