BENGALURU, March 5 (Reuters) – India’s central bank on Tuesday barred JM Financial Products from giving out loans against shares and debentures due to regulatory violations and governance concerns.
The action against the unit of investment banking firm JM Financial (JMSH.NS), is the latest in the regulator’s crackdown on non-bank lenders.
The financial services firm has been barred from giving out loans against initial public offering of shares and subscription to debentures, but it can continue to service existing loan accounts through the usual collection and recovery process, the Reserve Bank of India (RBI) said.
“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 (non-convertible debenture) subscriptions,” the RBI said.
The central bank reviewed the company’s books, which showed it had repeatedly helped a group of its customers to bid for various IPO and NCD offerings by using loaned funds.
However, the credit underwriting was found to be “perfunctory”, and financing was done against meagre margins, the RBI said.
“Apart from being in violation of regulatory guidelines, there are serious concerns on governance issues in the company,” the RBI said.
JM Financial Products had total assets worth 71.97 billion rupees (about $868 million) as of Dec. 31.
JM Financial did not immediately respond to a Reuters’ request for comment.
India’s central bank has stepped up oversight of banks and non-bank finance companies over the last few years to ensure compliance of its norms and protect customer interest.
“The increased supervisory actions against regulated entities are largely because the RBI wants to curb any kind of unnatural growth and/or any non-compliance to their norms,” Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, said on Tuesday.
The RBI on Monday ordered non-bank finance company IIFL Finance (IIFL.NS), to stop giving out gold loans, citing “material supervisory concerns” in its gold loan portfolio, sending its shares down 20% on Tuesday.
