JM Financial Products barred by RBI from lending against shares, bonds

The Reserve Bank of India (RBI) directed JM Financial Products Limited (the company) on Tuesday to discontinue all forms of financing against shares and debentures, including the sanction and disbursement of loans against initial public offerings (IPOs) of shares and debenture subscriptions.

The company will, however, continue to service its existing loan accounts using the usual collection and recovery procedures. The central bank order has taken immediate effect.

According to the central bank, this action was required due to serious deficiencies found in loans sanctioned by the company for IPO financing and NCD subscriptions.

The RBI conducted a limited review of the company's books based on information provided by the Securities and Exchange Board of India (SEBI).

During the limited review, the RBI said it discovered that the company repeatedly assisted a group of its customers in bidding for various IPO and NCD offerings using loaned funds.

RBI said in a release, "Apart from being in violation of regulatory guidelines, there are serious concerns on governance issues in the company, which in our assessment are detrimental to the interest of the customers. Regulatory violations and deficiencies, if any, on the part of the bank(s) in this regard is being examined separately."

The business restrictions that are currently in place will be reviewed once a special audit conducted by the RBI is completed and the deficiencies have been corrected to the satisfaction of the RBI.