RBI bars JM Financial arm from funding against shares, NCDs
Nonbanking finance companies (NBFCs) seem to be in the regulator’s crosshairs.
A day after the Reserve Bank of India took action against IIFL Finance Ltd, it cracked the whip on JM Financial Products Ltd (JMFPL) after finding serious deficiencies in respect of loans sanctioned by the company for IPO financing and NCD subscriptions.
The RBI on Tuesday directed JMFPL to cease and desist, with immediate effect, from doing any form of financing against shares and debentures, including sanction and disbursal of loans against IPOs (initial public offerings) or against subscription to nonconvertible debentures (NCDs). An RBI statement underscored that its action has been necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing and NCD subscriptions.
SERIOUS DEFICIENCIES
Further, regulatory violations and deficiencies, if any, on the part of the bank(s) in this regard is being examined separately.
The central bank observed that it carried out a limited review of the books of the company on the basis of the information shared by the Securities and Exchange Board of India. JM Financial owns 99.71 per cent in JMFPL.
The RBI’s limited review found that the company repeatedly helped a group of customers to bid for various IPO and NCD offerings by using loaned funds, per the statement.
“The credit underwriting was found to be perfunctory, and financing was done against meagre margins. The application for subscription, the demat accounts and the bank accounts, all were operated by the company using a Power of Attorney 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 and borrower. The company also acted as the arranger of bank account opening as well as operator of the said bank accounts using the POA,” the RBI review showed. The RBI said there are also serious concerns on governance issues “detrimental to the interest of the customers”.
The RBI said the business restrictions will be reviewed on the completion of a special audit to be instituted by it and after rectification of the deficiencies to its satisfaction.
Further, these business restrictions are without prejudice to any other regulatory or supervisory action that may be initiated by RBI, against the company, it added.
RBI found serious deficiencies in loans sanctioned by JM Financial Products for IPO financing, NCD subscriptions