In intraday trading on Thursday, shares of Bajaj Finance fell 4% to Rs 6,937.15 on the BSE following a directive issued by the Reserve Bank of India (RBI) on Wednesday prohibiting the non-banking finance company (NBFC) from making loans under its two products, Insta EMI and eCOM, effective immediately.
Infractions Unveiled: Lack of Key Fact Statements Triggers Regulatory Action
The directive lists a number of infractions against the digital lending criteria, such as the failure to provide key fact statements (KFS) to customers for these two loan products and incomplete KFS for additional digital loans approved by the business.
Bajaj Finance Shares Continue Downward Spiral: 7% Loss in Three Days
For the third day in a row, Bajaj Finance shares were down, losing 7% during that time. Quotes were at their lowest point since August 21, 2023. The stock was down 1.5% at Rs 6,937.15 at 09:47 AM, while the S&P BSE Sensex was down 0.14 percent.
Bajaj Finance stated in an exchange filing that these supervisory limitations will be in effect until the company makes good on the identified shortcomings to the satisfaction of the RBI by providing Key Fact Statements to the borrowers. For its part, Bajaj Finance explained that it is already providing KFS for the loans that have been scheduled under the two lending programs. “However, based on the concerns raised by the RBI, the company will undertake a detailed review of the KFS and implement requisite corrective actions to the satisfaction of the RBI at the soonest,” the statement continued. ICICI Securities claims that, considering the RBI’s restriction, the impact on loan distribution is minimal.
EMI Cards at Stake: 20% of New Customer Acquisition Affected
But since EMI cards account for about 20% of new customer acquisition, a ban on new customer acquisition is likely to affect client onboarding, which in turn affects fee income and ultimately profitability.
RBI’s Vigilance: A Signal of Close Monitoring and Enforcement in the Industry
“The RBI’s discovered deficiencies (in violation of the digital lending standards) are mostly operational in nature, namely pertaining to KFS. They do not cast doubt on BAF’s procedures or the configurations of the different products offered through these two sourcing channels. According to Motilal Oswal Financial Services (MOFSL), BAF disclosed that it does not anticipate any significant financial effects from this incident. The RBI’s action of imposing penalties or restrictions on new customer/loan acquisitions in certain products or through certain channels clearly demonstrates that it is closely monitoring lending institutions, including banks, and ensuring compliance with its guidelines, according to the brokerage firm.