Inflating IPO subscription numbers: Sebi may soon issue order on JM Financial, says report

JM Financial Ltd will be in focus on Wednesday after a media report suggested the market regulator Sebi will soon come out with an order on the NBFC for its alleged role in inflating IPO subscription numbers. The report came a day after the Reserve Bank of India (RBI) banned JM Financial Products from offering fresh loans against shares and debentures and that the NBFC denied any wrongdoing and said it would fully cooperate with the apex bank in its special audit initiative.

Sebi observed certain malpractices being adopted in primary market activities in relation to IPO subscription numbers, said ET quoting a person close to the development. Business Today could not independently verify the report.

As per ET, a JM Financial spokesperson said that Sebi sought some information as part of fact-gathering exercise. He categorically denied his company's alleged role in inflation of IPO subscription numbers.

Sebi, as per the report, found three merchant bankers, including JM Financial, indulging in inflating the application numbers during IPOs. To recall, Sebi chief Madhabi Puri Buch had raised concerns about select merchant bankers of IPOs being involved in wrongdoings at an industry event on January 19. She, though, did not name the bankers then.

Earlier, the RBI barred JM Financial Products from financing against shares and debentures with immediate effect. JM Financial insisted there was no material deficiencies in its loan sanctioning process.

JM Financial 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," it 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."

He said JM Financial would fully cooperate with the apex bank in its special audit initiative and explain its position.