JM Financial Shares Sink 20% As Denial After RBI Crackdown Fails To Allay Fears

Shares of JM Financial Ltd. plunged to hit the 20% lower circuit as the group's clarification after Reserve Bank of India's crackdown on lending against shares failed to allay investor fears.

After a careful and detailed review of the order issued by the RBI, "we strongly believe that there have been no material deficiencies in our loan-sanctioning process", the company said in a statement.

"Further, the company 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," it said.

The central bank barred the firm from lending against shares and debentures, with immediate effect, citing serious deficiencies regarding loans sanctioned by JM Financial Products Ltd. for IPO financing, as well as subscriptions to non-convertible debentures. JM Financial will continue to service its existing loan accounts.

"We will fully cooperate with (the) RBI in their special-audit initiative and explain our position to (the) RBI," JM Financial said. "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, and in the context of IPO funding, the power of attorney is taken as a risk-containment measure only, according to the spokesperson. "The practice of taking POA is prevalent across the industry and is perfectly legal."

In the short run, the RBI crackdown can impact the entire NBFC sector, except housing finance companies, Gurmeet Chadha, managing partner at Complete Circle, told NDTV Profit in an interview. "Financial Sector could have a short-term overhang on regulatory action."

There will be opportunities in well-managed financial companies from some time, according to Chadha.

Shares of JM Financial fell as much as 19.96% during the day to hit the lower circuit at Rs 76.4 apiece on the NSE. The previous low was on Aug. 31, 2023. They were trading 12.72% lower at Rs 83.3 apiece, compared to a 0.4% advance in the benchmark Nifty 50 as of 2:39 p.m.

The stock has risen 29.09% in the last 12 months. The total traded volume so far in the day stood at 18 times its 30-day average. The relative strength index was at 25.9.

The one analyst tracking the company has a 'buy' rating on the stock, according to Bloomberg data.