JM Financial: RBI concerned about KYC, AML rule violations, wide sharing of customers' details, says report

JM Financial: A day after the Reserve Bank of India (RBI) banned JM Financial Products Ltd (JMFPL) from giving loans against shares and debentures, official sources said that the central bank was concerned about serious irregularities within the company. Irregularities ranged from Know Your Customer (KYC) violations to anti-money laundering (AML) norms to wide sharing and usage of customer data across its entities, Moneycontrol reported on Wednesday. 

An official quoted in the report said that the banking regulator found significant deviations in the loan sanctioning process of the company during its review, following which the step was taken. “There are serious violations of KYC and AML guidelines, deviations in the loan sanction process and also sharing and usage of customer data across the group entities,” the official told Moneycontrol.

On Tuesday, the RBI said the action was taken after observing certain serious deficiencies in the financial services firm's loan process. More importantly, the central bank highlighted that there are serious concerns on the governance issues in the company, apart from violation of regulatory guidelines.

"This action is necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing as well as NCD subscriptions," RBI said.

JM Financial Products has been allowed to continue to service its existing loan accounts through the usual collection and recovery process.

JM Financial, on its part, said it has not violated applicable regulations. "We also wish to reaffirm that there have been no governance issues whatsoever and we conduct all our business and operational affairs in a bonafide manner. The company shall continue to service its existing customers as advised by the RBI," a company statement said.

A JM Financial spokesperson said that his company has been in the business of funding IPOs over the last two decades. The IPO financing product is short-term and self-liquidating in nature, he noted adding that: "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."

Earlier on Wednesday, it was reported that after RBI, market regulator Sebi may come out with an order on JM Financial for its alleged role in inflating IPO subscription numbers.

Official sources said Sebi has noted certain malpractices being adopted in primary market activities in relation to IPO subscription numbers. It has found three merchant bankers, including JM Financial, indulging in inflating the application numbers during IPOs.

On Wednesday, JM Financial shares closed at Rs 85.28,  down by 10.73%.

As per its website, JM Financial Products offers a broad suite of loan products. Broadly, it operates under five verticals -- capital market financing, retail mortgage financing, bespoke financing, financial institution financing, and real estate financing.