RBI's ban on Bajaj Finance's eCOM and Insta EMI Card: All you need to know

The Reserve Bank of India (RBI), on Wednesday, barred Bajaj Finance, one of India's largest consumer lenders, from issuing loans under two products with immediate effect due to deficiencies in adhering to digital lending guidelines.

"This action is necessitated due to non-adherence of the company to the extant provisions of Digital lending guidelines of the Reserve Bank of India, particularly non-issuance of Key Fact Statements 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," the RBI said in a statement.

Bajaj Finance, after the RBI's ban, announced that it was temporarily suspending the sanction and disbursal of new loans under two products. It also added the firm will rectify the key fact statement for eCOM and Insta EMI Card as soon as possible.

What are eCOM and Insta EMI Card products?

The Insta EMI card offers consumers pre-approved credit up to Rs 200,000 for small ticket purchases, according to Bajaj Finance's website. No description is available for the eCOM product on the website.

What are RBI's guidelines for digital lenders?

The central bank's digital lending guidelines, enforced last year, require that a lender disclose all fees and charges to borrowers upfront and also detail its recovery practices in the event of a default. These details need to be provided in the KFS document, which, according to RBI, was not issued by Bajaj Finance for the two products.

The guidelines were introduced after complaints of unfair digital lending practices, including inadequate information on charges associated with digital loans.

What did Bajaj Finance say about the ban?

Bajaj Finance said it is temporarily suspending the sanction and disbursal of new loans under the two products. It added that the RBI restrictions on lending via the two products will not have a "material financial impact" on the company.

What can be the possible impact of the ban?

According to Macquarie, as cited in a report by The Economic Times (ET), the RBI's ban may lead to a decline in the company's assets under management (AUM) growth and related growth in profitability.

Jefferies, on the other hand, said it is not a serious issue for the company.

How have Bajaj Finance's shares reacted to the ban?

On Thursday, the ban was announced after the stock markets closed in India. Its shares closed 1.9 per cent in the red.

On Friday, as of 10:50 am, Bajaj Finance's shares were trading 1.7 per cent in the red at Rs 7,240.75 apiece on BSE. 

(With agency inputs)