JM Financial Share Price Plummets 19% as RBI Bars Company from Giving Loans Against Shares and Debentures
MUMBAI – The share price of JM Financial dropped by over 19% in Wednesday’s opening trade after the Reserve Bank of India (RBI) prohibited JM Financial Products Ltd from providing loans against shares and debentures, citing regulatory and governance lapses. The stock fell as much as 19.29% to ₹77.10 apiece on the Bombay Stock Exchange (BSE). Additionally, the banking regulator has also barred JM Financial Products from sanctioning and disbursing loans against Initial Public Offerings (IPO) of shares with immediate effect.
According to the RBI, its action was necessitated due to serious deficiencies observed in loans sanctioned by JM Financial Products for IPO financing and non-convertible debenture subscriptions. “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,” stated the RBI.
However, JM Financial Group issued a statement refuting any material deficiencies in its loan sanctioning process and denied violating applicable regulations. “After a careful and detailed review of the order issued by the RBI on the action against JM Financial Products Ltd, we strongly believe that 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 whatsoever and we conduct all our business and operational affairs in a bonafide manner. The company shall continue to service its existing customers as advised by the RBI,” said JM Financial.
Regarding the IPO financing issue, JM Financial clarified that it has been providing funds for initial public offerings for the last two decades. “The IPO financing product is short-term and self-liquidating in nature. In the context of IPO funding, the Power of Attorney (POA) is taken as a risk containment measure only. The practice of taking POA is prevalent across the industry and is perfectly legal. We will fully cooperate with RBI in their special audit initiative and explain our position to RBI,” added the company.
The RBI conducted a limited review of JM Financial‘s books based on information shared by the Securities and Exchange Board of India (SEBI). The review revealed that the company had repeatedly assisted a group of customers in bidding for various IPOs and NCD offerings using loaned funds.
At the end of December, JM Financial‘s capital market loan book was valued at ₹978 crore, accounting for approximately 6% of its overall loan book of ₹15,111 crore.
Analyst comment
Negative news. JM Financial’s share price dropped by 19% after RBI barred the company from giving loans against shares and debentures, citing regulatory and governance concerns. The market is likely to experience further decline as investors lose confidence in the company’s operations and financial stability.
