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RBI directs Bajaj Finance to stop lending via ‘eCOM’ and ‘Insta EMI Card’ products

RBI MPC Meeting Highlights

The Reserve Bank of India has directed Bajaj Finance to stop sanctioning and disbursing loans under eCOM and Insta EMI Card lending products with immediate effect. The order was issued under Section 45L(1)(b) of the Reserve Bank of India Act, 1934, citing the NBFC's non-adherence to the RBI's digital lending guidelines, particularly regarding the non-issuance of Key Fact Statements (KFS) to the borrowers under the mentioned two lending products and the deficiencies in the Key Fact Statements issued in respect of other digital loans sanctioned by the company. The restriction on the two lending products will be reviewed upon rectification of the deficiencies to the satisfaction of the RBI.

Bajaj Finance claims that there will be no material financial impact due to this RBI action. However, the Insta EMI Card base is 5% of the company’s total clients, and according to analysts, 6% of company profit will be impacted until the ban is in place. According to Motilal Oswal Financial Services, “Bajaj Finance might have to compromise on loan volumes of over 45 days to over 90 days. Assuming average ticket sizes of Rs. 30,000, Rs. 40,000, and Rs. 50,000, it expects an impact on disbursements between Rs. 1360 cr and Rs. 4500 cr, assuming a 45-90 day embargo period. This will mean disbursements could decline by 0.5%–1.6% of Bajaj Finance’s AUM as of September 2023.” As of September 2023, Bajaj Finance had over 4.2 crore EMI cards, an increase of 22% year over year. The company acquired 6.8 lakh EMI cards digitally during Q2 FY24.

Bajaj Finance said that the Key Fact Statements (KFS) were being issued for the loans booked under the two lending products mentioned. However, based on the supervisory concerns raised by the RBI, the company will undertake a detailed review of the KFS and implement the requisite corrective actions to the satisfaction of the RBI as soon as possible.

Many actions were taken by the regulator earlier. For instance, in the latter half of the current year, October, RBI banned Bank of Baroda (BoB) from onboarding new customers onto its 'bob World' mobile application. The restriction was imposed due to concerns over how the bank was taking on customers, following a news network's exposure of the bank linking accounts to unregistered mobile numbers to boost downloads and sign-ups. HDFC Bank, the largest issuer of credit cards in the country, was banned in December 2020 from issuing new cards and introducing digital products after multiple systemic glitches were reported in the preceding two years. The ban was later relaxed on August 18, 2021.

The RBI action comes a few days after Bajaj Finance completed its Qualified Institutional Placement (QIP) issue, raising Rs. 8,800 crore from institutional investors. Bajaj Finance, headquartered in Pune, has emerged as one of the leading NBFCs, reporting a net profit of Rs. 3,550.8 crore in the quarter ending September 2023, a 28% increase from the previous year.

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