RBI bars JM Financial: The Reserve Bank of India (RBI) has ordered JM Financial Products Limited to stop all forms of financing with immediate effect. Invoking section 45L(1)(b) of the RBI Act, 1934 the central bank directed JMFPL to halt all forms of financing related to shares and debentures, including loans against Initial Public Offerings (IPO) of shares and subscription to debentures.

The business restrictions imposed will remain in effect until the completion of a special audit instituted by the RBI and the satisfactory rectification of identified deficiencies. The RBI retains the prerogative to initiate further regulatory or supervisory actions against JMFPL, irrespective of the current restrictions. The regulatory intervention underlines the commitment to maintaining integrity and adherence to guidelines within the financial sector.

However, the company retains the ability to service existing loan accounts through standard collection and recovery processes.

The stern measure by the RBI was taken following the substantial deficiencies in JMFPL's practices, particularly concerning loans extended for IPO financing and Non-Convertible Debenture (NCD) subscriptions. Triggered by information from the Securities and Exchange Board of India (SEBI), the RBI conducted a limited review of JMFPL's books.

The review revealed critical lapses like company's recurrent facilitation of a group of customers to bid for various IPOs and NCD offerings using loaned funds. The credit underwriting process was found to be inadequate, with financing conducted against meagre margins.

JMFPL operated key processes using a Power of Attorney (POA) obtained from customers without their subsequent involvement. This dual role, acting as both lender and borrower, violated regulatory guidelines and raised governance concerns detrimental to customer interests.

The move by RBI comes a day after it stopped IIFL Finance from disbursing gold loans that led to 20 per cent fall in IIFL Finance shares.