RBI barred JM Financial Products (a subsidiary of JM Financial) from extending loans against shares, including financing subscriptions to IPOs of shares and debentures, with immediate effect over irregularities and corporate governance issues.
An RBI statement said the “action is necessitated due to certain serious deficiencies observed with respect to loans sanctioned by the company for IPO financing as well as NCD (debenture) subscriptions. RBI carried out a limited review of the company’s books on the basis of the information shared by Sebi”.
RBI said there were serious concerns about governance issues in the company, which, in RBI’s assessment, was detrimental to consumer interest. The central bank cited several reasons for the drastic action.
- The regulator said that JM Financial Products repeatedly helped a group of its customers to bid for various IPOs using loaned funds;
- Second, it said the credit underwriting was perfunctory and done against meagre margins.
- Third, it operated customer accounts using a power of attorney and master agreement obtained without their involvement.
- RBI also charged the NFBC with effectively acting as both borrower and lender.
JM Financial Group, however, denied that there have been any violations.
“We believe there have been no material deficiencies in our loan sanctioning process. Further, the company has not violated applicable regulations. We also wish to reaffirm that there have been no governance issues and that we conduct all our business and operational affairs in a bona fide manner. The company shall continue to service its existing customers as advised by RBI,” the company said in a statement.
“The IPO financing product is short-term and self-liquidating in nature. In the context of IPO funding, the power of attorney is taken as a risk containment measure only. The practice of taking POA is prevalent across the industry and is perfectly legal,” JM Financial Products said.
The business restrictions imposed will be reviewed upon the completion of a special audit to be instituted by the RBI and after rectification of the deficiencies to the satisfaction of RBI.
Immediately after RBI’s aforesaid action, SEBI on March 7, 2024, prohibited the parent company JM Financial from acting as the lead manager for any new debt public issue.
JM Financial will have 21 days to file its reply or objections, if any, including the option of a personal hearing. Further, SEBI will undertake an investigation into these issues, to be completed within six months.
Sebi said during its “routine examination” of public NCD issued during 2023, led Sebi to discover discrepancies and inter-Group transactions in a November 2023 issue where JM Financial Ltd (JMFL-MB) was a lead banker, wholly owned subsidiary JM Financial Services was the broker, and another subsidiary JM Financial Products (JMFPL-NBFC) was the funding arm which also accounted for over half the transaction volume on listing day.
“The involvement of JM Group entities were observed at multiple instances starting with JMFL-MB acting as the lead manager to the issue and ending with JMFPL-NBFC playing the role of an ‘exit provider’,” SEBI said, adding that the NBFC not only funded investors but also acquired the entire allotment and later offloaded it on the same day at a loss in a “synchronised manner”.
Data provided by JM Financial in its replies do not match exchange data, the regulator said. It added that the company’s replies were “perplexing” as trading decisions were made without regard for trading loss or gain given that the loss amount is significantly higher than the interest income earned.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/86a61c86-a0ca-4b4d-8773-3f47adeb0235.pdf
Further to the ex parte interim order dated March 7, 2024 (“Interim Order”), SEBI has passed a confirmatory order dated June 20, 2024 (“Order”) whereby, SEBI has inter alia,
(i) in line with the voluntarily undertaking of the Company, directed the Company to not act as a as a lead manager in public issue of debt securities till March 31, 2025, or such other date as SEBI may specify; and
(ii) clarified that that the directions contained in the Order, is limited to the Company’s role as a lead manager to public issue of debt securities and does not relate to other activities of the Company, including acting as a lead manager to public issue of equity instruments.
https://www.bseindia.com/xml-data/corpfiling/AttachLive/4de338d2-2088-405d-b376-9e1d4010846f.pdf