Bajaj Finance witnessed a decline of over 3% in its share price as the Reserve Bank of India (RBI) imposed restrictions on lending through two of its digital products. Analysts anticipate short-term pressure on Bajaj Finance shares, attributing the issue to an operational breach rather than a significant violation. The share price dropped nearly 4% on Thursday ( 16 November 2023 ) after the RBI prohibited the non-banking finance company (NBFC) from lending under its ‘eCOM’ and ‘Insta EMI Card’ products.
The central bank directed Bajaj Finance to immediately halt the sanction and disbursal of loans under these two products. This action was prompted by concerns about the non-issuance of Key Fact Statements (KFS) to borrowers and deficiencies in KFS for other digital loans. In a regulatory filing, Bajaj Finance stated that it would address these issues promptly, and supervisory restrictions would remain until the RBI is satisfied with the rectifications.
Analysts believe the impact of the RBI’s move will be limited, as the Insta EMI Card constitutes only 5% of Bajaj Finance’s total clients. CLSA, a brokerage firm, expects a 6% impact on Bajaj Finance’s profits during the ban but asserts that there will be no significant financial impact overall. The ban affects eCOM lending on e-commerce platforms like Amazon and Flipkart, resulting in an immediate discontinuation.
Motilal Oswal Financial Services notes a potential loss in e-commerce loan volumes due to the ban, estimating a decrease of 345,000-690,000 over the next 45-90 days. However, they maintain a ‘Buy’ recommendation on Bajaj Finance, viewing any substantial correction in the stock price as an opportunity to accumulate.
Despite the 4% share decline, Motilal Oswal Securities expects the RBI embargo to be lifted within 6-8 weeks. The management believes that rectifications can be made within 2-3 weeks, with an additional 4-5 weeks for the RBI to review and lift the restrictions. They acknowledge the possibility of the RBI observing compliance with digital lending guidelines for longer.
Various brokerages offer differing perspectives on the impact of the RBI ban. CLSA sees it as an operational breach, Jefferies considers it a negative surprise, and Morgan Stanley expects a short-term impact but foresees a swift resolution. Macquarie expresses surprise at Bajaj Finance’s minimal operational impact claims, maintaining an ‘outperform’ rating.
Out of 34 analysts tracking Bajaj Finance, 26 have a ‘buy’ rating, while four each have a ‘hold’ and ‘sell’ rating. Despite the short-term challenges, the consensus among analysts appears optimistic on Bajaj Finance’s long-term prospects.