The Reserve Bank of India (RBI) has barred JM Financial Products Ltd from providing any form of financing against shares and debentures, including sanction and disbursal of loans against initial public offering (IPO), with immediate effect.

The banking regulator took this action after it observed certain “serious deficiencies’’ in loans sanctioned by the company for IPO financing and non-convertible debenture (NCD) subscriptions.

RBI said in a statement that it carried out a limited review of the books of the company based on the information shared by the Securities and Exchange Board of India (Sebi).

During its limited review, the RBI saw that the company repeatedly helped a group of its customers 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. 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’’, the RBI said.

Further, the company also acted as the arranger of bank account opening as well as the operator of the particular bank accounts using the power of attorney.

The RBI, however, clarified that the company can, continue to service its existing loan accounts through the usual collection and recovery process.

Kotak caveat

Veteran banker Uday Kotak said that too many regulatory guardrails could impede economic growth and halt India’s journey towards a developed nation.

Speaking at a two-day event organised by the National Financial Reporting Authority (NFRA), Kotak said that regulators should not be too conservative and cautious but must respond fast to “accidents” in the respective sectors.

Meanwhile, corporate affairs secretary Manoj Govil said on Tuesday the government has brought in many significant reforms and many more reforms are planned.

He also said the corporate affairs ministry has started a comprehensive review of various rules and regulations.

The ministry implements the companies law, insolvency law and competition law, among other legislations.