MUMBAI - Bajaj Finance Ltd. faced a regulatory hurdle this week when the Reserve Bank of India (RBI) imposed a ban on two of its loan products, leading to a noticeable decline in its share price on the Bombay Stock Exchange (BSE). The central bank's decision came after it found that Bajaj Finance failed to adhere to the digital lending guidelines, specifically regarding the issuance of a Key Fact Statement (KFS) upfront, which is mandatory for disclosing all fees, charges, and recovery practices.
On Friday, Bajaj Finance's shares were trading down by 1.7% at Rs 7,240.75 each. This drop followed a 1.9% fall on Thursday after markets closed and the ban became public knowledge. The company responded to the RBI's concerns by suspending new loans under the affected products, eCOM and Insta EMI Card, which offered pre-approved credit up to Rs 200,000 for small purchases.
Despite the initial adverse market reaction, Bajaj Finance reassured investors and customers that the restrictions imposed by the RBI would not materially affect its financial standing. Moreover, the company added 3,580,000 customers in the second quarter of the fiscal year, with 19% being EMI card users, indicating a strong customer base that could mitigate the impact of the ban.
Analysts have provided mixed views on the situation. Macquarie projected that Bajaj Finance could see a potential decline in asset growth and fee income due to the ban. In contrast, Jefferies suggested that the implications for Bajaj's financials would be limited. The divergent analyst reports reflect uncertainty about the long-term effects of RBI's enforcement action on Bajaj Finance's profitability.
As Bajaj Finance works to comply promptly with RBI's directives to rectify its KFS issuance process, new competition looms on the horizon. Jio Financial Services, backed by industry giant Reliance Industries, is preparing to enter the market. A prolonged ban could potentially erode Bajaj's profitability and market share, offering an advantage to new entrants like Jio Financial.
The situation highlights the increasing scrutiny of digital lending practices in India and emphasizes the importance for financial institutions to fully comply with central bank regulations to maintain their competitive edge in a rapidly evolving market.
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