The Reserve Bank of India (RBI) has ordered Bajaj Finance to stop granting and distributing loans under its two lending products, eCOM and Insta EMI Card, with immediate effect.
This decision was made as a result of the NBFC’s failure to adhere to the RBI’s digital lending rules, particularly the failure to provide Key Fact Statements (KFS) to borrowers under these two lending products and the flaws in the Key Fact Statements issued for other digital loans granted by the company.
The action has been taken in accordance with Section 45L(1)(b) of the Reserve Bank of India Act, 1934, which grants the RBI the authority to issue instructions to regulated entities (REs) concerning their conduct of business as a financial institution if it deems such action to be necessary for the regulation of the country’s credit system.
“These supervisory restrictions will be reevaluated upon the successful resolution of the aforementioned deficiencies to the RBI’s satisfaction,” the central bank stated.
Digital Lending Guidelines
The RBI implemented the Digital Lending Guidelines in September 2022 with the goal of limiting the uncontrolled growth of instant digital personal loans and bolstering customer and data protection.
One of the framework’s major requirements was for regulated lenders to provide borrowers with a “key fact statement” in a standardized format before the loan is approved. The statement must include the necessary information, such as the APR (annual percentage rate), the recovery process, information about a grievance redressal officer designated specifically for digital lending, and information about the applicable cooling-off or “look-up” period.
“Any fees, charges, etc., which are not mentioned in the KFS, cannot be charged by the REs to the borrower at any stage during the term of the loan,” the regulations stated.
As of September 2023, Bajaj Finance had over 4.2 crore EMI cards in circulation, a 22% increase from the previous year. During Q2 FY24, it digitally acquired 6.8 lakh EMI cards. The Insta EMI card enables users to make purchases of up to ₹2 lakh at zero cost across both online and offline stores, with a repayment period of up to 60 months.
Bajaj Finance raised around ₹8,800 crore last week through the largest QIP by an NBFC in India. It issued over 1.21 crore shares at ₹7,270 per share to sovereign wealth funds, foreign long-only funds, large domestic mutual funds, and insurance companies.