The share price of Bajaj Finance fell about 4% on Thursday after the Reserve Bank of India (RBI) stopped the non-banking finance company (NBFC) from lending through its two products. On the BSE, Bajaj Finance shares fell as much as 3.97% to 6,937.15.
The central bank has directed the company to halt the sanction and disbursement of loans under its two lending products, namely ‘eCOM’ and ‘Insta EMI Card’, with immediate effect, particularly with regard to the non-issuance of Key Fact Statements (KFS) to borrowers under these two lending products and deficiencies in the Key Fact Statements issued with regard to of other digital loans sanctioned by the Company, according to Bajaj Finance in a regulatory filing.
Furthermore, these supervisory limits will continue in force until the flaws identified are corrected to the satisfaction of the RBI in terms of the issue of Key Fact Statements to borrowers.
According to Bajaj Finance, the KFS was granted for loans booked under the two lending programs stated above. However, in response to the RBI’s supervisory concerns, the business stated that it will conduct a thorough examination of the KFS and execute the necessary remedial steps as soon as possible.
Analysts believe that the RBI’s action will have a limited impact because the Insta EMI Card base accounts for only 5% of Bajaj Finance’s total clientele.
Analysts feel that Bajaj Finance shares will be under pressure in the immediate term, but that the problem will be remedied quickly because it appears to be an operational issue rather than a serious infraction.
CLSA, a brokerage company, estimates that the prohibition will reduce Bajaj Finance’s earnings by 6%.
According to the corporation, the RBI move would have no meaningful financial impact on it.
Bajaj Finance’s eCOM financing on e-commerce platforms like as Amazon, Flipkart, Yatra, MakeMyTrip, and others would be halted immediately. The NBFC provides financing to its current EMI card users for transactions made on e-commerce sites.
“The silver lining is that this RBI restriction comes after the festive season, during which Bajaj Finance makes a monthly run-rate of 350,000-400,000 loans via e-commerce platforms.” The next 45-90 days should be reasonably quiet, with Bajaj Finance generating monthly e-commerce loan volumes of 220,000-230,000. “Over a 45-90-day period, BAF could potentially lose 345,000-690,000 in e-commerce new loan volumes,” Motilal Oswal Financial Services stated.
While there are no technical constraints on the company’s ability to issue Insta EMI Cards, the brokerage anticipates that acquisitions and issuances of Insta EMI Cards may slow over the next 45-90 days due to restrictions on digital loan sanctions and disbursals on the Insta EMI card.
With a monthly run-rate of around 220,000-230,000 loan amounts on e-commerce platforms along with approximately 110,000-120,000 monthly B2B loans originated via the Insta EMI Card, the brokerage house believes that Bajaj Finance may have to settle for loan volumes ranging from 450,000 (over 45 days) to 900,000 (over 90 days).
It predicts an impact on disbursements of between 13.6 billion and 45 billion considering a 45-90 day embargo period, assuming typical ticket sizes of 30,000, 40,000, and 50,000.
This means that disbursements may fall by 0.5%-1.6% of Bajaj Finance’s AUM by September 2023.
Motilal Oswal has not changed its expectations as of yet, although acknowledged that there would be an effect on both AUM growth and fee income in H2FY24.
“However, our long-term thesis for this franchise has not changed.” BAF will take remedial measures, and once satisfied with the RBI, its momentum will only grow with the digital ecosystem – app, online platform, and full-stack payment options – in place,” the brokerage stated.
It retained its ‘Buy’ recommendation on the stock and stated that any major drop in the Bajaj Finance stock price as a result of this occurrence should be viewed as an opportunity to accumulate.
At 9:30 a.m., the BSE share price of Bajaj Finance was trading 2.00% down at 7,079.45 a share.
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