Shares of JM Financial tanked a massive 18% as soon as the market opened on Wednesday hitting an intraday low of ₹77.75.

What Happened: The Reserve Bank of India (RBI) took action against JM Financial on Tuesday, prohibiting the firm from extending loans against shares and debentures, including loans for IPOs, with immediate effect. This decision follows the RBI’s observation of serious deficiencies in the loan processes, coupled with concerns regarding governance issues and violations of regulatory guidelines.

The RBI conducted a limited review of NBFC’s books based on information provided by the Securities and Exchange Board of India (SEBI), which revealed irregularities in the company’s practices. As per the regulator, the company was found to have assisted a group of customers in bidding for various IPOs and Non-Convertible Debenture (NCD) offerings using loaned funds.

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The credit underwriting process was deemed perfunctory, and financing was provided against insufficient margins. Additionally, the company operated customer accounts and bank accounts using Power of Attorney (POA) and Master Agreements obtained without the customers’ involvement.

As a result, the RBI imposed business restrictions on JMFPL, which will be lifted upon completion of a special audit and rectification of the identified deficiencies to the satisfaction of the RBI. However, the company is permitted to continue servicing its existing loan accounts through standard collection and recovery processes.

In response to the RBI’s action, JMFPL stated that it believes there have been no material deficiencies in its loan sanctioning process and denies violating applicable regulations. The company also asserted that it conducts its business and operational affairs in a bona fide manner.

This development follows similar actions taken by the RBI against other financial institutions in recent weeks, including IIFL Finance and Paytm Payments Bank Limited (PPBL), reflecting the regulator’s commitment to ensuring compliance and safeguarding the interests of customers and depositors.

Price Action: JM Financial’s share price was down % to trade at ₹ as the markets opened on Wednesday.

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