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Business News/ Industry / Banking/  JM Financial in RBI's crosshairs after Paytm Payments Bank, IIFL Finance
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JM Financial in RBI's crosshairs after Paytm Payments Bank, IIFL Finance

In its latest crackdown, the regulator has barred JM Financial from advancing loans against shares and debentures citing regulatory lapses

This is the third such crackdown by RBI in recent weeks, following its actions on Paytm Payments Bank and IIFL Finance. (Mint)Premium
This is the third such crackdown by RBI in recent weeks, following its actions on Paytm Payments Bank and IIFL Finance. (Mint)

MUMBAI : The Reserve bank of India has barred JM Financial Products Ltd from advancing loans against shares and debentures citing regulatory and governance lapses, following its recent crackdowns on Paytm Payments Bank Ltd and IIFL Finance Ltd.

“This action is necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing as well as (non-convertible debenture) subscriptions," the regulator said. 

“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," RBI said.

The regulator said it had conducted a limited review of JM Financial’s books on the basis of information shared by the Securities and Exchange Board of India, and found the company had repeatedly helped a group of customers bid for various IPOs and NCD offerings by using loaned funds.

Credit underwriting was found to be perfunctory, and financing was done against meagre margins, the regulator said.

“The RBI has taken a series of steps which when viewed in toto seem to suggest a crackdown on relentless  money flow being routed to stock markets, leading to excessive froth building up in micro-, small- and certain midcap stocks," said a fund manager on condition of anonymity, citing increase in the risk weight of unsecured retail loans disbursed by banks and non-banking financial companies.

According to RBI, JM Financial operated applications for subscription as well as demat and bank accounts by using power of attorney and master agreements obtained from customers without their involvement in subsequent operations.

“Consequently, the company was able to effectively act as both lender as well as borrower. The company also acted as the arranger of bank account opening as well as operator of the said bank accounts using the POA," RBI said.

The regulator said it will review its business restrictions on JM Financial following a special audit and after the company rectifies lapses in its operations. JM Financial, meanwhile, can continue to service its existing loan accounts through the usual collection and recovery process.

JM Financial’s capital market loan book was worth 978 crore at the end of December, which is about 6% of its overall loan book that’s worth 15,111 crore.

On 4 March, the central bank asked IIFL Finance to stop sanctioning or disbursing gold loans after observing certain material supervisory concerns in the company’s gold loan portfolio. 

On Tuesday, the NBFC sought to assure investors that there were no governance or ethical lapses and that the company was taking “immediate and comprehensive steps" to address RBI’s concerns.

On 31 January, RBI imposed business restrictions on Paytm Payments Bank, including a ban on accepting fresh deposits and undertaking credit transactions after 29 February. On 16 February, it extended the deadline to 15 March.

On Tuesday, shares of JM Financial closed 2% lower on BSE at 95.53 apiece.

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Published: 05 Mar 2024, 06:13 PM IST
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