After the Reserve Bank of India (RBI) imposed curbs on financing business, JM Financial responded on Wednesday, asserting that there were no significant deficiencies in its loan sanctioning process. In a statement, a spokesperson for JM Financial expressed confidence in the company's procedures and compliance with regulations. They said that JM Financial conducts its business operations in a legitimate manner and affirmed there were no governance issues.
RBI Action
The RBI imposed restrictions on JM Financial Products Ltd on Tuesday, citing various manipulations, including facilitating a group of customers to bid for multiple initial public offerings (IPOs) using loaned funds.
JM Financial Clarification
JM Financial clarified that its IPO financing product is short-term and self-liquidating, and defended the practice of taking Power of Attorney (POA) as a risk containment measure, stating it is common across the industry and legal.
The central bank prohibited JM Financial from providing financing against shares and debentures, including loans against IPO shares and subscription to debentures. However, the company is permitted to continue servicing its existing loan accounts.
The RBI's action followed a limited review based on information provided by the Securities and Exchange Board of India (SEBI), during which it observed deficiencies in credit underwriting and financing practices.
RBI Concerns
The central bank highlighted concerns over governance issues within JM Financial, indicating potential risks to customer interests. It stated that the business restrictions would be reconsidered after a special audit and rectification of deficiencies to the satisfaction of the RBI.
Following the news, JM Financial's shares plummeted over 19 per cent on leading stock exchanges. The stock price dropped to Rs 77.10 on the BSE and Rs 77.55 on the NSE, resulting in a decline in the company's market capitalization by Rs 1,484.53 crore to Rs 7,643.63 crore.
JM Financial Products offers various loan products across five verticals, including capital market financing, retail mortgage financing, bespoke financing, financial institution financing, and real estate financing.