JM Financial shares price fell more than 19% in early trade on Wednesday after the Reserve Bank of India (RBI) prohibited JM Financial Products Ltd from making loans against shares and debentures due to regulatory and governance issues.
JM Financial shares slumped 19.29% to ₹77.10 on the BSE.
JM Financial Products has also been forbidden by the banking regulator from sanctioning and disbursing loans for initial public offerings (IPOs) of shares, effective immediately.
The RBI stated that its action was necessary due to substantial inadequacies discovered in loans sanctioned by the company for IPO funding as well as non-convertible debenture subscriptions.
The RBI stated that aside from breaching regulatory guidelines, there are significant governance concerns within the company. These issues, according to their assessment, pose risks to the interests of customers.
However, JM Financial Group issued a statement rejecting any substantial faults in its loan-approving procedure and claiming that the company had not broken any applicable legislation.
“After carefully reviewing the ruling issued by the RBI regarding the action against JM Financial Products Ltd, we are certain that there were no major errors in our loan approval process. Furthermore, the Company has not breached any relevant regulations. We also want to reiterate that there have been no governance difficulties and that we conduct all of our business and operational matters legitimately. “The company will continue to service its existing customers as advised by the RBI,” JM Financial stated.
On the IPO financing issue, JM Financial stated that it has been funding IPOs for the past two decades.
The company clarified that its IPO financing product is inherently short-term and designed to self-liquidate. Regarding the Power of Attorney (POA), it’s obtained solely as a risk mitigation measure within the context of IPO funding. They emphasized that this practice is widespread across the industry and completely lawful. The company assured full cooperation with the RBI’s special audit initiative and expressed its intention to elaborate on its stance on the RBI.
RBI conducted a limited review of JM Financial’s records, utilizing information provided by the Securities and Exchange Board of India (SEBI). The review revealed that the company had assisted a specific group of customers in bidding for numerous IPOs and NCD offerings by leveraging borrowed funds on multiple occasions.
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At the end of December, JM Financial’s capital market loan book was valued at ₹978 crore, or roughly 6% of its total loan book of ₹15,111 crore.
JM Financial shares were down 14.61% at ₹81.57 a share on the BSE at 9:20 a.m.
