Bajaj Finance saw a 4% drop in its share price
Bajaj Finance saw a 4% drop in its share price on Thursday following the Reserve Bank of India’s (RBI) directive that barred the non-banking finance company (NBFC) from extending loans under two of its products. The shares of Bajaj Finance fell by approximately 3.97% to ₹6,937.15 each on the BSE.
The RBI instructed the company to halt the approval and distribution of loans under its ‘eCOM’ and ‘Insta EMI Card’ offerings immediately. This action was prompted by the absence of Key Fact Statements (KFS) provided to borrowers for these two loan products and deficiencies found in the KFS issued for other digital loans sanctioned by Bajaj Finance, as reported in the company’s regulatory filing.
The regulatory restrictions will persist until the identified shortcomings are rectified to the RBI’s satisfaction, particularly concerning the issuance of Key Fact Statements to borrowers. Bajaj Finance confirmed that KFS had been issued for loans availed under the aforementioned products.
However, in response to the RBI’s concerns, the company pledged to conduct an extensive review of the KFS and implement necessary corrective measures promptly to meet the RBI’s requirements. Despite this RBI action, analysts anticipate a limited impact since the Insta EMI Card user base constitutes only 5% of Bajaj Finance’s total clientele.
They view this issue as more of an operational breach than a major violation and believe that while Bajaj Finance shares might face near-term pressure, the matter can likely be resolved swiftly. CLSA, a brokerage firm, predicts a 6% dent in Bajaj Finance’s profits during the ban period.
However, the company itself states that there will be no significant financial repercussions due to the RBI’s action.Bajaj Finance’s eCOM lending through e-commerce platforms like Amazon, Flipkart, Yatra, MakeMyTrip, etc., will be immediately discontinued. The NBFC provided financing to its existing EMI cardholders for purchases made on these platforms.
The timing of the RBI ban post the festive period is seen as somewhat positive, given that Bajaj Finance typically registers a monthly loan volume of 350,000-400,000 during this period on e-commerce platforms. Over the next 45-90 days, this volume is expected to decrease to 220,000-230,000 loans monthly.
During this period, the potential loss of e-commerce loan volumes for Bajaj Finance is estimated between 345,000 and 690,000 loans. Motilal Oswal Financial Services anticipates a slowdown in the acquisition and issuance of Insta EMI Cards over the next 45-90 days due to the restrictions on digital loan approvals and disbursements linked to the Insta EMI card.
Considering a monthly volume of around 220,000-230,000 loans on e-commerce platforms and approximately 110,000-120,000 monthly B2B loans through the Insta EMI Card, the brokerage estimates a possible compromise on loan volumes ranging from 450,000 (over 45 days) to 900,000 (over 90 days).
Taking into account average ticket sizes of ₹30,000, ₹40,000, and ₹50,000, Motilal Oswal Financial Services foresees an impact on disbursements in the range of ₹13.6 billion to ₹45 billion during the 45-90 day embargo. This decrease could result in disbursements declining by 0.5%-1.6% of Bajaj Finance’s Assets Under Management (AUM) as of September 2023.
While acknowledging the impact on both AUM growth and fee income in H2FY24, Motilal Oswal has not yet revised its estimates. The brokerage maintains its long-term positive outlook on Bajaj Finance, affirming that corrective measures will be taken. Once the RBI’s requirements are met successfully, the momentum for Bajaj Finance is expected to strengthen further with a fully operational digital ecosystem encompassing the app, web platform, and comprehensive payment offerings.
The brokerage reiterates its ‘Buy’ rating on the stock, advising investors to consider any significant correction in Bajaj Finance’s stock price stemming purely from this event as an opportunity to accumulate shares. As of 9:30 am, Bajaj Finance’s share price was trading 2.00% lower at ₹7,079.45 each on the BSE.
