The Reserve Bank of India (RBI) on Tuesday directed mortgage lender JM Financial Products Ltd (JMFPL) to stop all forms of equity and debenture financing, including sanctioning and disbursement of loans through an initial public offering (IPO). of shares and against subscription to bonds.
The banking regulator says that “apart from a breach of regulatory guidelines,” there are serious concerns about governance issues at JM Financial Products that are detrimental to the interests of customers.
The banking regulator explains that this action is necessary due to certain serious deficiencies found in loans approved by the company for IPO financing as well as NCD (non-convertible debenture) subscriptions.
The RBI conducted a limited review of the company's books based on the information provided by the Securities and Exchange Board of India (SEBI).
“During the limited audit, it was found, among other things, that the company has repeatedly helped a group of its clients to apply for various IPO and NCD offerings by using borrowed funds. The underwriting of the loan turned out to be superficial and the financing was carried out against poor conditions “margins,” says the central bank’s order to the mortgage lender.
“The subscription application, demat accounts and bank accounts were all managed by the company using a Power of Attorney (POA) and master agreement obtained from these customers without their involvement in any way in the subsequent operations. Consequently, the “The company was able to effectively act as both a lender and a borrower,” the RBI order said.
The RBI found that the company also acted as the organizer of the bank account opening as well as the operator of the said bank accounts with power of attorney.
Any related violations and deficiencies on the part of the bank would be examined separately, the central bank said.
“The business restrictions now imposed will be reviewed after a special audit to be carried out by the RBI has been completed and the deficiencies have been remedied to the satisfaction of the RBI. Furthermore, these business restrictions are without prejudice to any other governmental or regulatory action that may be taken by the RBI against the company,” the RBI says.
However, JM Financial has been permitted to continue servicing its existing credit accounts through the usual collections and collections process.
Founded by investment banking veteran Nimesh Kampani, JM Financial specializes in mortgage lending, asset management, distressed debt and private equity.
