Mumbai: The Reserve Bank of India (RBI) has barred Bajaj Finance Ltd from lending under its eCOM and Insta EMI Card products.
“This action is necessitated due to non-adherence of the company to the extant provisions of digital lending guidelines of Reserve Bank of India, particularly non-issuance of key fact statements to the borrowers under these two lending products and the deficiencies in the key fact statements issued in respect of other digital loans sanctioned by the company,” the RBI said in a press release on Wednesday.
The regulator said it will review the supervisory restrictions after the company rectifies deficiencies to the RBI’s satisfaction.
According to the RBI’s digital lending guidelines released last year, a lender must issue a ‘key fact statement’ to the borrower at the time of giving a loan. This would have details of the annualised rate charged to the borrower of a digital loan, the recovery mechanism, and details of the grievance redressal officer among other things.
Bajaj Finance’s Insta EMI card allows customers to shop at zero-cost EMIs. With this EMI card, customers get a pre-approved loan limit of up to ₹2 lakh that can be used at 150,000 online and offline partner stores across 4,000 cities.
There are 42 million EMI cards in force currently, according to its investor presentation for the quarter ended September, higher 22% year-on-year. In the second quarter, it acquired over 4.2 million EMI cards through the digital channel.
Bajaj Finance added 3.58 million new customers during the second quarter, with 8% of this new customer addition coming from the EMI card, according to the presentation.
“The Insta EMI card was the first kind of ‘buy now pay later (BNPL)’ card issued by any non banking financial company. The RBI had given permission to Bajaj Finance to offer an EMI card with zero interest,” said a credit card expert on condition of anonymity.
Analysts believe that Bajaj Finance’s growth will take a hit following this ban. The NBFC had seen a 29% year-on-year growth in assets under management under its urban B2C business to ₹58,178 crore at the end of September 2023.
“We believe the Reserve Bank of India’s suspension on Bajaj’s fresh disbursement via Insta EMI Card and Ecom will have an impact on the business, but with festive season largely behind, the impact will be limited.
Separately, we expect the RBI to impose higher risk weight or standard asset provisions on small ticket personal loan, which should impact Fintechs and select NBFCs/Banks,” said Anand Dama, head BFSI, Emkay Global Financial Services.
Shares of Bajaj Finance fell 1.8% to ₹7,223 per share during trade on Wednesday, when Sensex and Nifty jumped more than 1%.
“The company is already issuing key fact statement (‘KFS’) for the loans booked under the above mentioned two lending products. However, based on the concerns raised by the Reserve Bank of India, the company will undertake a detailed review of the key fact statement and implement requisite corrective actions to the satisfaction of the RBI at the soonest. We do not expect this action to have a material financial impact on the company,” Bajaj Finance said in a statement.
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Omprakash Tiwary is a business writer who delves into the intricacies of the corporate world. With a focus on finance and economic landscape. He offers readers valuable insights into market trends, entrepreneurship, and economic developments.
