JM Financial Products Ltd (JMFPL) on March 6 issued a clarification about its business a day after the Reserve Bank of India imposed restrictions on the financial services firm after finding that the company indulged in various manipulations, including repeatedly helping a group of its own customers to bid for various IPOs by using loaned funds.
"The net total income from the IPO Financing business for the 9MFY24 is around Rs 7 crore, which constitutes 1.5% of the net total income of JMFPL and 0.3% of the consolidated net total income of the Company. Accordingly, the impact of the above RBI order on the company in monetary terms is not expected to be material," said JM Financial in a stock exchange filing.
On Wednesday, JM Financial's shares fell up to 19% before paring losses to trade 10% lower at Rs 85.
The IPO financing product is short term and self-liquidating in nature, clarified the firm.
"JMFPL has been in the business of funding IPOs over the last two decades. The IPO financing product is short term and self-liquidating in nature. In the context of IPO funding, the Power of Attorney (POA) is taken as a risk containment measure only. The practice of taking POA is prevalent across the industry and is perfectly legal," said the firm.
JMFPL said it will fully cooperate with RBI in their special audit initiative and also explain its position to the central bank.
"We wish to state that after careful and detailed review of the said order which pertains to IPO financing business, JMFPL believes that there have been no material deficiencies in their loan sanctioning process and has not violated the applicable regulations. JMFPL further reaffirms that there have been no governance issues whatsoever and the conduct of all its business and operational affairs are in a bonafide manner and shall continue to service its existing customers as advised by the RBI. JMFPL will fully cooperate with RBI in their special audit initiative and also explain its position to RBI," the firm added.
Besides directing the entity from “cease and desist” from financing activities, RBI said it is separately examining any possible regulatory violations and deficiencies on the part of the banks concerned.
JM Financial Products has been allowed to continue to service its existing loan accounts through the usual collection and recovery process.
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