JM Financial falls 19% after RBI bars arm from all sorts financing

JM Financial shares: JM Financial shares dropped as much as 19 per cent to hit an intraday low of Rs 77.10 following the Reserve Bank of India's (RBI) decision to stop its subsidiary, JM Financial Products, from extending loans against shares and debentures.

The RBI's action restricts JM Financial Products from offering loans against initial public offerings (IPOs) and subscription to debentures. However, the company is permitted to manage existing loan accounts through regular collection and recovery procedures, as stated by the central bank.

The regulatory intervention comes in light of deficiencies identified in the loan sanctioning process of JM Financial Products, particularly concerning IPO financing and non-convertible debenture subscriptions. The RBI's scrutiny revealed instances where the company facilitated a group of clients in participating in various IPO and NCD offerings through borrowed funds, with credit underwriting practices deemed inadequate and financing arrangements based on minimal margins.

The RBI stressed that these practices not only contravene regulatory guidelines but also raise serious governance concerns within the company. JM Financial Products, boasting total assets worth Rs 7,197 crore as of December 31, finds itself in the middle of regulatory and governance scrutiny.

Responding to the RBI's actions, JM Financial expressed confidence in its loan sanctioning processes, refuting claims of material deficiencies and regulatory breaches. The company's spokesperson stressed on their commitment to conducting business operations in a bona fide manner, dismissing any governance issues alleged by the central bank.

The RBI's decision underlines the growing regulatory oversight in financial landscape, particularly concerning non-bank lending institutions.

As of 11:38 am, JM Financial shares traded 17 per cent lower at Rs 78.94, underperforming the Sensex which was down 0.3 per cent.