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RBI Prohibits JM Financial from Providing Loans Against Shares and Debentures

The Reserve Bank of India (RBI) issued a directive to JM Financial Products Limited, instructing the immediate cessation of all types of financing against shares and debentures, including loans against initial public offerings (IPOs) of shares and debenture subscriptions.

The company must continue servicing its existing loan accounts through regular collection and recovery processes. This action was prompted by significant shortcomings observed in loans provided by the company for IPO financing and NCD subscriptions.

 

Following a brief examination of the company’s records based on information from the Securities and Exchange Board of India (SEBI), it was found that the company facilitated a group of customers in bidding for multiple IPO and NCD offerings using borrowed funds. The credit underwriting process was deemed insufficient, and financing was granted against minimal margins.

 

Moreover, the company managed subscription applications, demat accounts, and bank accounts using a power of attorney (PoA) and a master agreement obtained from customers, without their direct involvement in subsequent operations. Consequently, the company functioned as both a lender and borrower, while also arranging the opening of bank accounts and operating them using the PoA.