After PayTM, the Reserve Bank of India (RBI) has banned JM Financial Products Limited (JMFPL) from providing any form of financing against shares and debentures, including the sanction and renewal of such loans. The ban was imposed due to violations and lapses by JMFPL in its financing activities. Let’s delve into all about the Ban on JMFPL by RBI.
What Violations Were Found?
The Reserve Bank of India (RBI) has imposed a ban on JM Financial Products Limited (JMFPL) due to regulatory violations and lapses in its financing activities. The core issues identified by the RBI include inadequate loan sanctioning processes for IPO financing and subscription to Non-Convertible Debentures (NCDs).
JMFPL has issued a clarification stating that they have not violated any RBI regulations and believe there are no material deficiencies in their product or loan sanctioning process.
This is what JM Financials is saying –
Expect more such action on other NBFCs financing IPOs. Meanwhile, a Business Today news article states that SEBI too is coming out with a report against JM Financials.
Interestingly, only two non-banking financial institutions used to provide IPO funding. Now, that JM Financials is banned, people are wondering if something similar will happen to Bajaj Finserv.
A day before JM Financial, it was IIFL Finance that faced the RBI action. The Reserve Bank of India (RBI) directed IIFL Finance to cease and desist from sanctioning or disbursing gold loans. The decision followed an inspection of the company by the RBI as of March 31, 2023, that revealed discrepancies in the company’s functioning in certain areas.
So, while in February there was PayTM, in the very first week of March there are two – IIFL and JM Financials.
The question is why is RBI banning these NBFCs like PayTM, JM Financial Product Limited, and IIFL Finance?
While the obvious reasons are:
- Depositor protection (ensuring the stability of the financial system)
- Consumer protection (protecting consumers from unethical business practices and ensuring fair treatment)
- Financial stability (safeguarding banks’ balance sheets)
People in the market are linking it with the entry of Jio Finance. Let’s check out what people are saying, predicting, and thinking.
What are the Consequences of this ban on JMFPL? How has the RBI ban affected JM Financial’s financial performance?
Share price decline: Shares of JM Financial plunged nearly 20% after the RBI ban, and it is just the beginning. (From Rs 95.53 yesterday to Rs. 77.10 today)
Restricted business activities: JMFPL is prohibited from undertaking business in shares and bonds funding and also IPO funding
Regulatory violations: The core issues identified by the RBI include inadequate loan sanctioning processes for IPO financing and subscription to Non-Convertible Debentures (NCDs)
Reputational damage: The RBI ban has led to concerns about JM Financial’s compliance with regulatory guidelines and governance issues. The ban has significantly impacted JM Financial’s business operations and share price, highlighting the importance of adhering to regulatory guidelines and maintaining a strong reputation in the financial services industry.
What should Investors do now?
First Paytm, then IIFL, and now JM Financials. Who’s next on RBI radar? The microfinance space seems unsafe for investment now. PSU Banks seem to be clear beneficiaries, and something big might happen for Jio Financials as well.
Meanwhile, SEBI too will impose certain restrictions and put the stock under surveillance. And we all know how stocks in surveillance perform. So should you stay away from NBFCs? Well, that’s what RBI seem to be indicating.
Check out the RBI Press Release on JM Financials here.
