JM Financial tumbled 13.43% to Rs 82.70 after the Reserve Bank of India (RBI) ordered the company to cease and desist from doing any form of financing against shares and debentures.
The countrys banking regulatory has asked the company to stop sanction and disbursal of loans against Initial Public Offering (IPO) of shares as well as against subscription to debentures.
"The company shall, however, continue to service its existing loan accounts through the usual collection and recovery process, the RBI said.
Offering an explanation of the aforesaid regulatory action, the RBI said that this action was necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing as well as NCD subscriptions.
The RBI had carried out a limited review of the books of the company on the basis of the information shared by the Securities and Exchange Board of India (SEBI).
During the limited review it was observed, that the company had repeatedly helped a group of its customers to bid for various IPO and NCD offerings by using loaned funds. The credit underwriting was found to be perfunctory, and financing was done against meagre margins.
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The application for subscription, the demat accounts and the bank accounts, all were operated by the company using a power of attorney (POA) and a master agreement obtained from these customers without their involvement, whatsoever, in the subsequent operations.
Consequently, the company was able to effectively act as both lender as well as borrower. The company also acted as the arranger of bank account opening as well as operator of the said bank accounts using the POA.
Apart from being in violation of regulatory guidelines, there were serious concerns on governance issues in the company, which in the RBIs assessment are detrimental to the interest of the customers.
"Regulatory violations and deficiencies, if any, on the part of the bank(s) in this regard is being examined separately.
The business restrictions now being imposed, will be reviewed upon the completion of a special audit to be instituted by the RBI and after rectification of the deficiencies to the satisfaction, it added.
JM Financial is an integrated and diversified financial services group. The Group's primary businesses include an investment bank, mortgage lending, alternative and distressed credit and asset management, wealth management and securities business.
The company had reported 46.02% rise in consolidated net profit to Rs 277.68 crore on a 39.39% increase in revenue to Rs 1,224.51 crore in Q3 FY24 over Q3 FY23.
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