 "Reserve Bank of India, RBI")
The Reserve Bank of India (RBI) has barred Bajaj Finance from lending under two products — Insta EMI and eCOM — citing violations of certain provisions of the digital lending guidelines. This includes the non-issuance of key fact statements (KFS) to borrowers for these two lending products and deficiencies in KFS issued for other digital loans sanctioned by the company.
“These supervisory restrictions will be reviewed upon the rectification of the said deficiencies to the satisfaction of the RBI,” the regulator said.
The ban comes into effect immediately.
In response to the RBI action, Bajaj Finance stated that it is already issuing KFS for the loans booked under the two lending products.
“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 said.
Commenting on the matter, the company mentioned that it is temporarily suspending the sanction and disbursement of new loans under those products.
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Bajaj Finance said, “We do not expect this action to have a material financial impact on the company.”
The Insta EMI card, a virtual card, enables customers to shop for 1 million products offered by the company at ‘no-cost EMI’. A pre-approved loan of Rs 2 lakh is also available with this card, featuring a repayment tenure of up to 60 months.
Bajaj Finance’s total assets under management (AUM) amounted to Rs 2.9 trillion, including Rs 81,215 crore of Bajaj Housing Finance. Analysts estimate that both products constitute 2-3 per cent of the total book of Bajaj Finance.
In the second quarter (Q2) of the current financial year (2023-24, or FY24), digitally acquired EMI cards numbered 678,000. As of September 30, digital cards in force were 4.2 million, reflecting a 62 per cent increase from a year ago.
The digital lending guidelines of the RBI mandate that all regulated entities provide a KFS to borrowers before executing the contract, in a standardised format for all digital lending products.
The RBI specified that the KFS should, among other necessary information, contain details of the annual percentage rate (APR), the recovery mechanism, details of the grievance redress officer designated specifically to deal with digital lending/financial technology-related matters, and the cooling-off/look-up period.
APR is the effective annualised rate charged to the borrower of a digital loan.
RBI’s digital lending norms came into effect in September 2022.
Bajaj Finance reported a net profit of Rs 3,551 crore in the July-September quarter, reflecting a 28 per cent increase over the same period of the previous year. Profitability was driven by robust growth in AUM, higher net interest income, and improved asset performance.
The net profit of Bajaj Finance included the profit after tax of its 100 per cent mortgage subsidiary, Bajaj Housing Finance, amounting to Rs 451 crore in Q2FY24. AUM as of September 30, 2023, were Rs 2.9 trillion compared to Rs 2.18 trillion as of September 30, 2022, representing an increase of 33 per cent.
Bajaj Finance management expressed confidence to analysts during the post-Q2 earnings, projecting the addition of 13-14 million new customers and robust AUM growth in FY24.
