RBI action against JM Financial, ban on granting loans for share-debentures and IPO applications

Banking sector regulator Reserve Bank of India has taken major action against JM Financial Products Limited. RBI has banned the company from giving loans against shares and debentures. RBI has also decided to ban lending for IPOs. This order of RBI has been implemented with immediate effect.

RBI has informed this decision by issuing a press release on 5 March 2024. The RBI has said that it has taken this action under the powers conferred on it under Section 45L(1)(b) of the Reserve Bank of India Act, 1934. RBI has restricted JM Financial Products Limited from giving loans against shares and debentures. Apart from this, it has also decided to stop providing loans for subscription of shares or debentures in IPOs. However, the Company will continue to service its existing loan accounts through the collection and recovery process.

The RBI has taken this action after finding serious irregularities in the loans given by the company for IPO financing with non-convertible debentures. The RBI reviewed the documents of JM Financial Products Limited after the information was shared by SEBI. After which this order has come from RBI.

The RBI in its statement said that in its review against the company, it found that the company provided funds to a specific group of customers by providing loans to apply for IPOs and NCD offerings. These loans were being given on a very low margin. The company managed subscription applications, demat accounts and bank accounts by taking power of attorney from these customers. The company acted as both lender and borrower simultaneously. The company also acted as arranger and operator through power of attorney for opening bank accounts.

The RBI said that several types of defects have been observed in the loan disbursement process of JM Financial Products. Along with the breach of regulatory rules, there is also a serious issue of governance. The RBI said that along with the imposition of these restrictions, a special audit will be conducted followed by a review.