On Tuesday, JM Financial Ltd. shares closed at ₹79.9 per share, up 0.71 percent from the previous close price on the National Stock Exchange. The company has a market capitalization of ₹ 7,631 crore.
JM Financial Ltd. is an integrated and diversified financial services group. Its primary businesses include mortgage lending, distressed credit, and asset management. It is also engaged in investment banking and the management of private equity funds.
The company experienced a 33% annual growth in revenue, rising from ₹928 crores in Q3 FY23 to ₹1,236 crores in Q3 FY24. Concurrently, the net profit surged by 34%, increasing from ₹240 crores to ₹322 crores within the same period.
According to the company’s filing, the loan portfolio amounts to Rs 4,600 crore, and the assets under management stand at Rs 7,197 crore as of the conclusion of the third quarter of FY24.
In contrast, JM Financial Ltd. shares have seen a decrease of approximately 18.5% over the past month, and on a year-to-date basis, the stock has declined by 21%.
On March 5, The Reserve Bank of India (RBI) directed JM Financial, a non-banking financial company, to cease providing loans for shares and loans for subscribing to initial public offerings until further notice.
The RBI’s communication to JM Financial Ltd expressed concerns specifically regarding loans against shares (LAS). In LAS, investors pledge their shares with NBFCs to borrow money, with interest rates ranging from 10.5 to 13 percent depending on the pledged shares and the client’s relationship with the NBFC.
The Reserve Bank of India (RBI) notes that a significant portion of IPO investors consists of high-net-worth individuals (HNIs) engaged in stock and derivatives investments.
These investors leverage funds obtained through the Loan Against Securities (LAS) route to acquire additional shares or trade in derivatives. RBI expresses specific concerns related to the financing of Initial Public Offerings (IPOs) and non-convertible debenture offerings by JM Financial.
The Reserve Bank of India (RBI) believes that the funds obtained through the Loan Against Shares (LAS) method in the overall industry have contributed to the formation of a speculative bubble in the stock market.
So on March 5th, 2024. The RBI explicitly instructed JM Financial Products to “cease and desist” all forms of financing related to shares and debentures, including the approval and disbursement of loans for Initial Public Offerings (IPOs) and debenture subscriptions, effective immediately.
The RBI mentioned that the company consistently assisted a group of customers in bidding for different IPOs and NCD offerings through borrowed funds. The credit underwriting process was deemed perfunctory, and financing was conducted with minimal margins.
The central bank highlighted that the company managed the subscription applications, demat accounts, and bank accounts through a Power of Attorney (POA) and a Master Agreement obtained from customers without their direct participation in the transactions.
The RBI emphasized that this setup allowed the company to function effectively as both a lender and a borrower, while also serving as the arranger for opening bank accounts and operating them with the granted POA.
Consequently, on March 6, JM Financial’s stocks experienced a 19% decline following the RBI’s prohibition of JM Financial products due to regulatory breaches and governance issues.
Following the recent developments, on March 11, the Securities and Exchange Board (SEBI) barred the company from accepting new mandates as a lead manager for any public issue of debt securities due to irregularities uncovered during a routine examination of Non-Convertible Debentures’ public issues.
Consequently, JM Financial witnessed a 10% decline in its shares. However, SEBI clarified that JM Financial is allowed to continue as a lead manager for public issues of debt securities for the next 60 days.
An investigation action has been conducted regarding the functions of the parent company and merchant banker JM Financial’s wholly-owned subsidiary, JM Financial Services, along with its subsidiary, JM Financial Products, a non-banking financial corporation, in debt issuance.
The company stated that it had adhered to all relevant regulations and underscored the absence of any governance issues. JM Financial expressed its dedication to conducting business with integrity and reassured that it would persist in serving current customers following guidance from the RBI.
Written by Omkar Chitnis
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