JM Financial Shares end 10% lower post RBI restrictions on shares, IPO financing

Shares of JM Financial Ltd. ended 10% lower on Wednesday, recovering from a lower circuit of 20% which it fell to at one point during the trading session.

The company, in a statement to the exchanges late Wednesday afternoon said that the total income from the IPO financing business for the first nine months of financial year 2024 stood at around ₹7 crore, which is nearly 1.5% of the total net income of JM Financial Products and 0.3% of the consolidated net income.

"Accordingly, the impact of the RBI order on the company in monetary terms is not expected to be material," the release said.

India's Central Bank on Wednesday asked the company's unit JM Financial Products to cease and desist with immediate effect from any form of financing against shares and debentures.

The Reserve Bank of India observed that the company repeatedly helped a group of its customers to bid for various IPO and NCD offerings by using loaned funds.

Besides other observations, the RBI also found serious governance issues on part of the company.

JM Financial Products formed 20.7% of the company's consolidated revenue and around 31% of consolidated profit. The book size is at ₹4,600 crore and forms 20.4% of its previous net worth.

Ashu Madan, the company's Managing Director, wrote in a post on "X" that after a careful and detailed review of the RBI order, they believe that there are no material deficiencies in their loan sanctioning process.

"We have 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," he wrote on the microblogging site.

While sharing his views on RBI's action on NBFCs, Aseem Dhru, MD & CEO of SBFC Finance Ltd, in an interview with CNBC-TV18, said, “The messaging from the central bank is very clear that they don't want to take an easy position. Now the message is even stricter to all of us - players that either we fall in line or we would be put in line.”

Shares of JM Financial ended 10.4% lower at ₹85.4.