JM Financial Stocks Fall 20% After RBI Bans Debentures And Financial Services
A significant decline in the value of JM Financial’s shares occurred on Wednesday, March 6, 2024, during morning trading on the Bombay Stock Exchange (BSE). JM Financial is a well-known participant in the financial services industry. The Reserve Bank of India’s (RBI) decision to prohibit the corporation from making loans secured by shares and debentures was the cause of this sharp decrease.
On Wednesday at 9:46 am, JM Financial’s shares were trading at Rs 81.93, down Rs 13.60, or 14.24%, from the closing of Rs 95.53 the day before. The company’s low for the day was reached by the stock, which began the trading session at Rs 77.10, indicating a 19.29% total decline.
JM Financial Products Limited (JMFPL) was directed by the Reserve Bank of India (RBI) to immediately stop all financing against shares and debentures, as per Section 45L(1)(b) of the Reserve Bank of India Act, 1934. This includes the debenture purchase as well as the issuing and distribution of loans backed by initial public offerings (IPOs).
“We are certain that there have been no significant errors in the manner in which we have approved loans. In addition, the company has complied with all applicable regulations,” a JM Financial representative said in reaction to the RBI’s decision.
The major flaws in JM Financial’s loan approval procedure for IPO funding and Non-Convertible Debenture (NCD) subscriptions led to the central bank’s prohibition. Unsettling activities were uncovered by the RBI after a cursory examination, including the company’s use of borrowed money to enable a group of clients to bid on several IPOs and NCD issues.
“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” according to the statement issued by the RBI.
The RBI emphasized that JM Financial’s dual function as a lender and borrower, enabled by POA arrangements, breached regulatory requirements and raised severe concerns about client interests. The RBI also highlighted governance difficulties inside JM Financial.
The RBI’s business limitations will stay in place until a special audit is finished and any shortcomings are fixed to the central bank’s satisfaction. Any further regulatory or supervisory measures that may be taken against the firm are not related to these limits.
As JM Financial works to resolve the regulatory issues expressed by the RBI and navigates the fallout from the RBI’s prohibition, the market is waiting for further developments.
