RBI bars JM Financial from lending against shares

Days after imposing restrictions on online payments banks Paytm and IIFL Finance, Reserve Bank of India (RBI) on Tuesday directed investment banker JM Financial from advancing loans against shares and debentures citing regulatory lapses.

RBI said it has directed JM Financial Products Limited (JMFPL) “to cease and desist, with immediate effect, from doing any form of financing against shares and debentures, including sanction and disbursal of loans against initial public offering (IPO) of shares as well as against subscription to debentures.”

RBI said the action followed detection of certain serious deficiencies in the sanctioning of loans by the company for IPO financing as well as NCD subscriptions. 

RBI had also carried out an inspection of the books of account of the company on the basis of the information shared by the Securities and Exchange Board of India (Sebi).

RBI noted that JM Financial had, inter alia, repeatedly helped a group of customers to bid for various IPO and NCD offerings by using loaned funds. 

The company carried out credit underwriting in a perfunctory manner and the lending was made against meagre margins, RBI said.

Besides, the company directly operated the demat accounts and the bank accounts needed for subscription to IPOS and NCDs using a power of attorney and a master agreement from the customers.

In effect, JM Financial was a lender, a borrower,  arranger of bank account as well as operator of these bank accounts, says the regulator.