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JM Financial has denied any wrongdoing in its loan-sanctioning process after the Reserve Bank of India barred the firm from financing against shares and debentures with immediate effect.

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 observed serious deficiencies regarding loans sanctioned by JM Financial Products Ltd. for IPO financing, as well as subscriptions to non-convertible debentures, according to a release by the RBI. However, the regulator clarified that JM Financial will “continue to service its existing loan accounts through the usual collection and recovery process”.

“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 short-term overhang on regulatory action.”

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

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