RBI imposes curbs on JM Financial Products; finds lapses in funding for IPOs

The Reserve Bank on Tuesday imposed restrictions on JM Financial Products Ltd after finding that the company indulged in various manipulations, including repeatedly helping a group of its own customers to bid for various IPOs by using loaned funds.

In a major regulatory action, the central bank has barred the systemically important non-deposit-taking NBFC from providing any kind of financing against shares and debentures, including sanction and disbursal of loans against Initial Public Offering (IPO) of shares as well as against subscription to debentures.

The restrictions are with immediate effect.

Besides directing the entity from "cease and desist" from financing activities, Reserve Bank of India (RBI) said it is separately examining any possible regulatory violations and deficiencies on the part of the banks concerned.

JM Financial Products has been allowed to continue to service its existing loan accounts through the usual collection and recovery process.

In a statement, the RBI said the actions were "necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing as well as NCD (Non-Convertible Debentures) subscriptions".

The regulator's latest move also comes a day after it slapped several curbs on IIFL Finance Ltd, including barring it from disbursing gold loans, following supervisory concerns.

Based on information provided by markets regulator Sebi, the RBI had carried out a limited review of the books of the JM Financial Products.

"During the limited review, it was observed, inter alia, that the company repeatedly helped a group of its customers to bid for various IPO and NCD offerings by using loaned funds. The credit underwriting was found to be perfunctory, and financing was done against meagre margins," the RBI said.

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.

"Consequently, the company was able to effectively act as both lender as well as borrower," the RBI said.

Further, the central bank said JM Financial Products also acted as the arranger of bank account opening as well as the 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," it said in the statement.

According to the statement, the business restrictions will be reviewed upon the completion of a special audit and after rectification of the deficiencies to the satisfaction of the RBI.

These business restrictions are without prejudice to any other regulatory or supervisory action that may be initiated by the RBI, against the company, it added.

JM Financial Products offers a broad suite of loan products. Broadly, it operates under five verticals -- capital market financing, retail mortgage financing, bespoke financing, financial institution financing, and real estate financing, as per its website.