The Reserve Bank of India (RBI) has ordered JM Financial Products Ltd. (JMFPL) to immediately cease and desist from engaging in any form of financing against shares and debentures. This directive includes the sanction and disbursal of loans against Initial Public Offering (IPO) of shares and subscription to debentures. The regulatory action follows violations observed by the RBI during a limited review of the company’s books based on information provided by the Securities & Exchange Board of India (SEBI).
The RBI’s move is a response to serious deficiencies in the company’s practices, particularly regarding loans sanctioned for IPO financing and Non-Convertible Debenture (NCD) subscriptions. According to the RBI order, JM Financial Products Ltd. assisted a group of customers in bidding for various IPOs and NCD offerings using loaned funds. The credit underwriting process was found to be lacking, and financing was conducted against meager margins.
The RBI’s investigation revealed that the company operated demat accounts, bank accounts, and IPO subscription applications using a Power of Attorney (POA) and a Master Agreement obtained from customers without their subsequent involvement in the operations. While JM Financial Products Ltd. is allowed to continue servicing existing loan accounts, the regulatory action emphasizes the need for adherence to guidelines and proper credit underwriting in financing against shares and debentures.
