RBI bars JM financial from providing any financing against shares, debentures; cites serious deficiencies

RBI has taken firm action against JM Financial by barring it from doing any form of financing against shares and debentures as it found lags during a review of its books.

RBI said it has observed 'serious deficiencies' in the records and has asked the company to stop and desist from doing any form of financing against shares including sanctioning and distributing loans against IPO of shares and subscription for debentures.

Currently, RBI has allowed the company to give services to existing loan accounts through their usual collection and recovery process.

RBI pointed out that during the limited review, it was found that the company assisted a group of its customers in participating in various IPO and NCD offerings by providing them with borrowed funds. However, the credit assessment process was inadequate, and the financing was conducted with minimal margins.

The company managed the application process, demat accounts, and bank accounts on behalf of these customers using a Power of Attorney and Master Agreement without their involvement in subsequent operations. Consequently, the company acted as both lender and borrower.

Additionally, the company facilitated the opening and operation of bank accounts using the Power of Attorney. These actions not only violate regulatory guidelines but also raise significant governance concerns that could harm customer interests.

RBI said that any regulatory violations or deficiencies by the involved bank(s) are being investigated separately.

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