New Delhi, Mar 5 (UNI) The Central Bank on Tuesday barred JM Financial Products Limited to cease and desist, with immediate effect, from doing any form of financing against shares and debentures, including sanction and disbursal of loans against initial public offering (IPO) of shares as well as against subscription to debentures.

The company shall, however, continue to service its existing loan accounts through the usual collection and recovery process, the Reserve Bank of India said in a press release posted on its website.

“This action is necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing as well as NCD subscriptions. The RBI carried out a limited review of the books of the company on the basis of the information shared by the Market Regulator, Securities and Exchange Board of India (SEBI).

During the limited review, it was observed, inter alia, that the company repeatedly helped a group of its customers bid for various IPO and NCD offerings by using loaned funds.

“The credit underwriting was found to be perfunctory, and financing was done against meager margins. The application for subscription, the demat accounts, and the bank accounts were all operated by the company using a Power of Attorney (POA) and a Master Agreement obtained from these customers without their involvement, whatsoever, in the subsequent operations,” the RBI said.

Consequently, the company was able to effectively act as both a lender and a borrower. The company also acted as the arranger of bank account openings as well as the operator of the said bank accounts using the POA.

Apart from being in violation of regulatory guidelines, there are serious concerns about governance issues in the company, which, in our assessment, are detrimental to the interests of the customers. Regulatory violations and deficiencies, if any, on the part of the bank(s) in this regard are being examined separately.

The business restrictions now being 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 the RBI. Further, these business restrictions are without prejudice to any other regulatory or supervisory action that may be initiated by the RBI against the company.

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