IIFL Finance, JM Financial shares tank up to 5% amid RBI probe

Shares of Mumbai-headquartered IIFL Finance and JM Financial were under selling pressure on Tuesday amid reports that the duo will undergo an audit by the Reserve Bank of India (RBI) amid regulatory breaches.

The RBI has floated two separate tenders for the appointment of auditors to audit the two companies. Audit firms empanelled by the Securities and Exchange Board of India (SEBI) for forensic audit can participate in the tendering process, and the last date for submission of bids is April 8, according to the tender document published by the RBI.

Shares of IIFL Finance fell as much as 5% in opening trade to hit a low of ₹315.80 on the BSE. The stock crashed 47% in 2024, taking its market cap down to around ₹12,000 crore.

The JM Financial stock dropped 4% in opening trade to ₹70.95 on the BSE. Shares of the company have wiped off 28% this year.

This comes three weeks after the central bank imposed restrictions on the two companies for alleged non-compliance with regulations.

The RBI had ordered IIFL Finance to immediately stop sanctioning and disbursing gold loans citing material supervisory concerns in IIFL Finance's gold loan portfolio. The issues included serious "deviations in assaying and certifying purity", and the "net weight of the gold at the time of sanction of loans and at the time of auction upon default; breaches in loan-to-value ratio; significant disbursal and collection of loan amount in cash far in excess of the statutory limit; non-adherence to the standard auction process; and lack of transparency in charges being levied to customer accounts, etc". The central bank engaged with the senior management and the statutory auditors of the company on these deficiencies. However, no meaningful corrective action has been evidenced so far, the RBI had said.

The banking regulator also ordered mortgage lender JM Financial Products Ltd to “cease and desist” from doing any form of financing against shares and debentures, including sanction and disbursal of loans against Initial Public Offering (IPO) of shares as well as against subscription to debentures. The RBI said that apart from being in violation of regulatory guidelines, there are serious concerns on governance issues in JM Financial Products, which are detrimental to the interest of the customers. The banking regulator said 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 (non-convertible debentures) subscriptions. The RBI had carried out a limited review of the books of the company on the basis of the information shared by SEBI. JM Financial, however, has been allowed to continue to service its existing loan accounts through the usual collection and recovery process.