Shares of JM Financial witnessed a significant drop on Wednesday, falling over 19% after the Reserve Bank of India (RBI) imposed restrictions on its subsidiary, JM Financial Products Ltd. The stock price plummeted on both the BSE and NSE, with declines exceeding 18%. This resulted in a market capitalization decrease of over Rs 1,484 crore for JM Financial.

RBI Action Against JM Financial Products

The RBI’s decision stemmed from various alleged manipulations discovered at JM Financial Products. These included facilitating bids for Initial Public Offerings (IPOs) by a specific group of customers using loaned funds. As a consequence, the central bank prohibited the company from offering any financing against shares and debentures, including IPOs and Non-Convertible Debentures (NCDs). This restriction was implemented with immediate effect.

Further Examination and Existing Accounts

While stopping JM Financial Products from engaging in new financing activities, the RBI also announced a separate investigation into potential regulatory violations by involved banks. However, the company is permitted to continue servicing its existing loan accounts through the established collection and recovery process.

Reasoning Behind the Action

The RBI cited “serious deficiencies observed” in the company’s loan practices related to IPO financing and NCD subscriptions as the justification for its actions. JM Financial Products offers a diverse range of loan products across various sectors, including capital market financing, retail mortgages, and real estate financing.

JM Financial Respond To RBI

In response to the RBI’s actions, JM Financial issued a statement on Wednesday, asserting their compliance with all RBI regulations. They firmly maintain that their loan approval procedures are sound and haven’t committed any significant breaches. (Source: Reuters)