ICRA maintains AA rating for JM Financial, monitors impact of regulatory orders

ICRA has maintained the rating of JM Financial Products at AA with a stable outlook factoring in the consolidated view of the JM Financial Group, of which JM Financial

The rating agency, in a note issued on Thursday, said that both the Reserve Bank of India and the Securities and Exchange Board of India are yet to commence investigations into the NBFC and the key businesses of the group, such as equity capital markets, advisory (mergers and acquisitions, private equity syndication), mortgage lending (retail and wholesale), institutional and retail broking, asset management, and distressed assets are not directly impacted by their orders.

On March 5, the Reserve Bank of India directed JM Financial Products to cease and desist from any form of financing against shares and debentures, including the sanction and disbursal of loans against the initial public offering (IPO) of shares as well as against subscription to debentures. JMFPL can, however, continue to service its existing loan accounts through the usual collection and recovery process. SEBI issued an order on March 07 barring it from taking any new mandate to act as a lead manager for the public issuance of debt securities. It can, however, continue to function as a lead manager for the public issuance of debt securities for 60 days from the date of the order, with respect to any existing mandates.

JM Financial Products is a material subsidiary of JM Financial and ICRA said that when taking any rating action it would take a consolidated view of the entire group.

“Considering the prohibition on JMFL from accepting a new mandate for acting as a lead manager for the public issuance of debt securities and the restriction on JMFPL from doing any form of financing against shares and debentures, the Group’s incremental business in these segments would be impacted,” ICRA said.

The net total income from the IPO financing business was around Rs. 7 crores in the first nine months of FY24, constituting 1.5 per cent of JMFPL’s net total income and 0.3% of the group’s consolidated net total income.

The revenue contribution for being the lead manager of the public issuance of debt securities was Rs. 9 crores, constituting 1.4 per cent of JMFL’s standalone total income and 0.3 per cent of the group’s total income.

The rating agency said that while the direct contribution of the segments covered under the orders is not substantial for the Group, “pending the outcomes, the impact on its business and borrowing franchise in the near term will remain monitorable.”

It added that the company’s overall loan book may decline, given the short to medium tenor of the loans backed by securities, though these funds can be deployed across other segments.

“Further, any sustained impact on the Group’s financial flexibility and ability to raise funds at competitive rates could have a bearing on the growth in the other segments,” it said. ICRA would continue to monitor the impact of these orders on the group’s operational and financial performance, as well as developments related to concerns raised by the regulators on compliance and processes.

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