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JM Financial’s Perspective on Breaking of Regulatory Guidelines and Governance Problems After RBI Orders.

JM Financial Products has been instructed by the Reserve Bank of India (RBI) to stop providing finance against shares and debentures with immediate effect. Consequently, JM Financial conducted a deep study of the RBI’s decree and firmly maintained that its credit approval process had no significant flaws.

Equally important, JM Financial said that it has not violated any relevant laws and showed an absence of governance concerns. It added that it carries out its business and operational activities in a prudent manner and will continue to service its existing customers as per the RBI’s advisory.

A spokesperson for JM Financial pointed out that this company had been involved in IPO financing for 20 years, calling it “short term and self-liquidating”. The Power of Attorney (PoA) acquired from clients was explained by the spokesperson as being purely a risk-mitigating measure common in IPO funding.

However, as a response to the serious deficiencies in loans sanctioned by JM Financial for IPO financing and NCD (Non-Convertible Debenture) subscription, RBI has taken the initiative of ordering for special audit. It is also committed to cooperating fully with a special audit that was initiated by the RBI.

According to RBI, these governance concerns at JM Financial have been disadvantageous to its customers. For example, this organization allows customers under different names but with no or little credit risk on its behalf—JM Financial used borrowed funds for multiple bids for IPOs and NCD offerings with passive credit underwriting plus small margin funding. The bank used PoA and master agreements to manage customers’ demat accounts, bank accounts and application subscriptions.

After the completion of a special audit the restrictions will be reviewed meanwhile the RBI clarified that this is without prejudice to any other regulatory or supervisory action that may be initiated against it. It does not mean any prejudicial actions can be taken against JM Financial because RBI’s action is independent of other regulatory or supervisory actions that could possibly affect this company. Recently, the regulator has been separately examining about any banking violations or defaults concerning this issue.

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