May 30, 2024

JM Financial share price crashes 19% after RBI bans lending against shares, debentures

JM Financial share price declined over 19% in the opening trade on Wednesday after the Reserve Bank of India (RBI) barred JM Financial Products Ltd from giving loans against shares and debentures citing regulatory and governance lapses. JM Financial share fell as much as 19.29% to 77.10 apiece on the BSE.

The banking regulator has also barred JM Financial Products from sanctioning and disbursing loans against Initial Public Offering (IPO) of shares with immediate effect.

RBI said its action was necessitated due to certain serious deficiencies observed with respect to loans sanctioned by the company for IPO financing as well as (non-convertible debenture) subscriptions.

“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,” RBI said.

Read here: JM Financial in RBI’s crosshairs after Paytm Payments Bank, IIFL Finance

However, JM Financial Group issued a statement denying any material deficiencies in its loan sanctioning process and said that it had not violated applicable regulations.

“After careful and detailed review of the order issued by the RBI on the action against JM Financial Products Ltd, we strongly believe that there have been no material deficiencies in our loan sanctioning process. Further, the Company has not violated applicable regulations. We also wish to reaffirm that there have been no governance issues whatsoever and we conduct all our business and operational affairs in a bonafide manner. The company shall continue to service its existing customers as advised by the RBI,” JM Financial said.

On the IPO financing issue, JM Financial said it has been in the business of funding IPOs over the last two decades.

“The IPO financing product is short-term and self-liquidating in nature. In the context of IPO funding, the Power of Attorney (POA) is taken as a risk containment measure only. The practice of taking POA is prevalent across the industry and is perfectly legal. We will fully cooperate with RBI in their special audit initiative and explain our position to RBI,” said the company.

RBI had conducted a limited review of JM Financial’s books on the basis of information shared by the Securities and Exchange Board of India (SEBI), and found the company had repeatedly helped a group of customers bid for various IPOs and NCD offerings by using loaned funds.

Meanwhile, JM Financial’s capital market loan book at the end of December was worth 978 crore, which is about 6% of its overall loan book of 15,111 crore.

At 9:20 am, JM Financial shares were trading 14.61% lower at 81.57 apiece on the BSE.

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