JM Financial shares surge 6% to hit 52-week high as RBI lifts curbs on arm

Private lender JM Financial shares hit a 52-week high after recording a 6.5% surge during early trade on Monday after the holding company was informed about the Reserve Bank of India's (RBI) decision to lift the restrictions imposed by it on JM Financial Products, a material subsidiary of the company.

"We wish to inform you that the RBI, vide its letter dated October 18, 2024, has, with immediate effect, lifted the restrictions imposed by it on JM Financial Products Limited (the “JM Financial Products”), a material subsidiary of the Company," says JM Financial.

JM Financial shares opened a gap up today and rose to a 52-week high of ₹168.85 on the BSE, taking the company's m-cap down to ₹15,454 crore. At the current share price of ₹160, JM Financial's shares are trading 56% up from its 52-week low of ₹69 touched on June 4, 2024.

In March, the RBI ordered the mortgage lender JM Financial Products Ltd (JMFPL) to "cease and desist" from financing shares and debentures, including sanctioning and disbursing loans against initial public offering (IPO) of shares and subscription to debentures.

The RBI probe found the lender in violation of "regulatory guidelines", and serious concerns were raised about governance issues in the company. The banking regulator had observed serious deficiencies regarding loans sanctioned by the company for IPO financing as well as NCD (non-convertible debentures) subscriptions.

"The company repeatedly helped a group of its customers to 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 RBI said.

Additionally, the RBI said the application for subscription, the demat accounts and the bank accounts, were all operated by the company using a Power of Attorney (POA) and a Master Agreement obtained from these customers without their involvement. "The company was able to effectively act as both lender and borrower," the RBI said, adding that the company had acted as the arranger of bank account opening and operator of the said bank accounts using the power of attorney.

In June this year, capital market regulator SEBI (Securities and Exchange Board of India) also barred JM Financial from taking any new mandate for acting as a lead manager for any public issue of debt securities till March 31, 2025. The SEBI's order followed after it found out in March 2024 that JM group entities were incentivising certain investors to apply for securities in issues managed by JMFL.

SEBI's directions were limited to the functioning of JM Financial as a lead manager to the “public issue of debt securities”, and did not relate to other activities, including acting as a lead manager to the “public issue of equity instruments”.