Last updated: Nov 20, 2023 1:03 PM IST
The Reserve Bank of India (RBI) last week asked Bajaj Finance to immediately stop sanctions and disbursements of loans under two loan products, ‘eCOM’ and ‘Insta EMI Card’, citing non-issuance of Key Fact Statements ( KFS) to the borrowers under these two lending products, and shortcomings in the KFS for the company’s other digital loans.
“This action is necessitated by the company’s non-compliance with the existing provisions of the Reserve Bank of India’s digital credit guidelines, particularly the non-issuance of Key Fact Statements to the borrowers under these two credit products and the shortcomings in the Key Fact Statements issued in respect of other digital loans approved by the company,” RBI said.
The central bank added that these supervisory restrictions will be reviewed after the company resolves the issues to the satisfaction of the RBI.
What is a KFS?
A KFS is a document containing essential information about a loan, such as the amount, term, interest rate, costs and penalties. The RBI rules mandate that digital loan customers get these details in an easy-to-read, concise format. These are part of the RBI’s digital lending guidelines and are not intended for Bajaj Finance customers.
What could be the impact of this ban on Bajaj Finance?
Analyst estimates are mixed. A Macquarie report citing the company’s investor presentation said that of the 3,580,000 customers added in the second quarter, about 670,000 or 19% were EMI card customers. The franchise of digitally produced EMI cards was 4,200,000 or 10% of the EMI card base.
However, Jefferies expects limited financial impact on the business as it estimates the insta EMI Card base at 4,000,000 or 5% of total customers, which is 0.2% of payouts, which is less than 1% of the fees and less than 0.5% of the profits. .
What impact will this have on customers?
The RBI’s ban on Bajaj Finance’s products is aimed at protecting consumer interests and ensuring fair lending practices in the digital lending space.
New customers will not be able to avail loans under the above-mentioned prohibited products until Bajaj Finance rectifies the deficiencies identified by the RBI.
Existing loans under the eCOM and Insta EMI Card products will continue to be processed as per the original terms and conditions. Although new customers cannot take advantage of loans under these products, existing customers will not be affected by this.