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Last Updated: November 20, 2023, 13:03 IST

The Reserve Bank of India (RBI) last week asked Bajaj Finance to immediately stop sanction and disbursal of loans under two lending products, ‘eCOM’ and ‘Insta EMI Card’ citing non-issuance of key fact statements (KFS) to the borrowers under these two lending products, and deficiencies in the KFS for other digital loans of the company.

“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 the 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,” RBI said.

The central bank added that these supervisory restrictions will be reviewed after the company rectifies the issues to the satisfaction of the RBI.

What is a KFS?

A KFS is a document detailing vital information on a loan like amount, tenure, interest rate, fees and penalties. RBI rules mandate that digital loan customers are given these details in a easy-to-read concise format. These are a part of the RBI’s digital lending guidelines and were not provided for the customers of Bajaj Finance.

What could be the impact of this ban on Bajaj Finance?

Analyst estimates are mixed. A Macquarie report citing the company’s investor presentation said out of the 3,580,000 customers added in the second quarter about 670,000 or 19% were EMI card customers. Digitally-sourced EMI card franchise stood at 4,200,000 or 10% of the EMI card base.

However, Jefferies expects a limited financial impact on the company as it estimates the insta EMI Card base at 4,000,000 or 5% of total clients, that is 0.2% of disbursals, which is less than 1% of fees and less than 0.5% of profit.

How will it impact customers?

The RBI’s ban on Bajaj Finance’s products is aimed at protecting consumer interests and ensuring fair lending practices in the digital lending space.

New customers will not be able to avail of loans under the above-mentioned banned products until Bajaj Finance rectifies the deficiencies identified by the RBI.

Existing loans under the eCOM and Insta EMI Card products will continue to be serviced as per the original terms and conditions. While new customers will not be able to avail loans under these products, existing customers will not be affected.

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By jaghit

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