In a significant move, the bank OF INDIA' target='_blank' title='reserve bank of india-Latest Updates, Photos, Videos are a click away, CLICK NOW'>reserve bank of india (RBI) has taken substantial action against JM Financial Products Limited, prohibiting the company from extending loans against shares and debentures, as well as from offering loans for Initial Public Offerings (IPOs).
The RBI's order, effective immediately, was communicated through a press release issued on march 5, 2024, citing the exercise of its powers under Section 45L(1)(b) of the bank OF INDIA' target='_blank' title='reserve bank of india-Latest Updates, Photos, Videos are a click away, CLICK NOW'>reserve bank of india Act 1934. The regulatory action comes in response to the discovery of serious irregularities in loans provided by JM Financial Products Limited for IPO financing, coupled with non-convertible debentures.
Following information sharing by the Securities and Exchange Board of india (SEBI), the RBI conducted a review of the company's books, leading to the imposition of these restrictions. According to the RBI statement, the review uncovered instances where the company was financing a specific group of customers for IPO and Non-Convertible Debenture (NCD) subscriptions. Notably, these loans were extended at very low margins.
Additionally, the company, by obtaining power of attorney from these customers, was actively involved in managing subscription applications, demat accounts, and bank accounts. In effect, JM Financial Products Limited was simultaneously serving as both a lender and borrower, as well as acting as an arranger and operator for opening bank accounts through power of attorney.
The RBI highlighted various flaws in JM Financial Products' loan approval processes, citing regulatory rule violations and governance issues. Alongside the imposed restrictions, the RBI announced plans for a special audit to be conducted, followed by a comprehensive review. This regulatory action underscores the central bank's commitment to maintaining the integrity of financial systems and enforcing compliance within the banking sector.
