Analysts believe that Bajaj Finance shares will be under pressure in the near term, but the issue can be resolved soon as it seems more of an operational breach rather than a major violation.
According to Bajaj Finance, there will be no material financial impact on it due to this RBI action.
Click Here To Join Our WhatsApp Channel
Bajaj Finance share price declined nearly 4% on Thursday after the Reserve Bank of India (RBI) barred the non-banking finance company (NBFC) from lending under its two products. Bajaj Finance shares declined as much as 3.97% to ₹6,937.15 apiece on the BSE.
The central bank has directed the company to stop sanction and disbursal of loans under its two lending products namely, ‘eCOM’ and ‘Insta EMI Card’, with immediate effect, particularly with respect to non-issuance of Key Fact Statements (KFS) to the borrowers under these two lending products and the deficiencies in the Key Fact Statements issued in respect of other digital loans sanctioned by the Company, Bajaj Finance said in a regulatory filing.
Click Here To Join Our WhatsApp Channel
Further, these supervisory restrictions will remain in place till the deficiencies observed are made good by the company to the satisfaction of RBI, in terms of issuance of Key Fact Statements to the borrowers.
Bajaj Finance said that the KFS were being issued for the loans booked under the above mentioned two lending products. However, based on the supervisory concerns raised by the RBI, the company said it will undertake a detailed review of the KFS and implement requisite corrective actions to the satisfaction of the RBI at the earliest.
However, analysts see a limited impact of this RBI’s move as Insta EMI Card base is 5% of Bajaj Finance’s total clients.
Analysts believe that Bajaj Finance shares will be under pressure in the near term, but the issue can be resolved soon as it seems more of an operational breach rather than a major violation.
Brokerage firm CLSA expects Bajaj Finance’s profits to be impacted by 6% while ban is in effect.
Click Here To Join Our WhatsApp Channel
According to the company, there will be no material financial impact on it due to this RBI action.
eCOM lending by Bajaj Finance on e-commerce platforms, such as Amazon, Flipkart, Yatra, MakeMyTrip, etc., will be discontinued with immediate effect. The NBFC finances its existing EMI card customers for their purchases through ecommerce platforms.
“The silver lining is that this RBI ban has come after the festive period, wherein Bajaj Finance generates a monthly run-rate of 350,000-400,000 loans on ecommerce platforms. The next 45-90 days are relatively lull where we would expect Bajaj Finance to be generating monthly e-commerce loan volumes of 220,000-230,000. Over a 45-90 day period, BAF could potentially lose out on e-commerce new loan volumes of 345,000-690,000,” Motilal Oswal Financial Services said.
Click Here To Join Our WhatsApp Channel
The brokerage believes while technically there is no restriction on the company to issue Insta EMI Cards, it believes that Insta EMI Card acquisitions and issuances could decelerate over the next 45-90 days because of the restrictions on digital loan sanctions and disbursals on the Insta EMI card.
With a monthly run-rate of around 220,000-230,000 loan volumes on e-commerce platforms and around 110,000-120,000 monthly B2B loans originated through the Insta EMI Card, the brokerage house believes that Bajaj Finance might have to compromise on loan volumes of around 450,000 (over 45 days) to 900,000 (over 90 days).
Assuming average ticket sizes of ₹30,000, ₹40,000 and ₹50,000, it expects an impact on disbursements between ₹13.6 billion and ₹45 billion assuming a 45-90 day embargo period.
Click Here To Join Our WhatsApp Channel
This will mean disbursements could decline by 0.5%-1.6% of Bajaj Finance’s AUM as of September 2023.
Motilal Oswal has not made any changes in its estimates as yet, even though it acknowledges that there will be an impact on both AUM growth as well as fee income in H2FY24.
“However, our long-term thesis for this franchise remains intact. BAF will take corrective action, and once successful in satisfying the RBI, its momentum will only get stronger ahead with the digital ecosystem – app, web platform and full-stack payment offerings – in place,” said the brokerage.
It reiterated its ‘Buy’ rating on the stock and said any significant correction in Bajaj Finance stock price purely because of this event should be used as an opportunity to accumulate.
Click Here To Join Our WhatsApp Channel
At 9:30 am, Bajaj Finance share price was trading 2.00% lower at ₹7,079.45 apiece on the BSE.
(This story is not edited by Press Exclusive but published from a syndicated feed.)
