"Bajaj Finance Faces Impact on Loans and Future Growth"

"Bajaj Finance Faces Impact on Loans and Future Growth"

Bajaj Finance said the RBI's decision won't hurt its finances much. On Thursday, the company's shares fell about 4% because the RBI stopped it from lending money using two products. Bajaj Finance's shares went down by nearly 4%, reaching ₹6,937.15 each on the stock exchange.

The bank told the company to immediately stop approving and giving out loans through two of its lending services, called 'eCOM' and 'Insta EMI Card'. This was because the company didn't provide Key Fact Statements (KFS) to borrowers for these two loan services. There were also problems with the Key Fact Statements given for other digital loans approved by Bajaj Finance. This information was shared by Bajaj Finance in a regulatory document they filed.

Furthermore, these restrictions imposed by regulators will stay in place until the company resolves the identified issues regarding the Key Fact Statements issued to borrowers, as highlighted by the RBI. Bajaj Finance clarified that they were already providing these statements for loans offered under the mentioned two lending services. However, in response to the RBI's concerns, the company plans to thoroughly review these statements and take necessary corrective measures to meet the RBI's requirements promptly.

Financial experts believe that the impact of the RBI's action might not be substantial, considering that the Insta EMI Card constitutes only 5% of Bajaj Finance's total customer base. While there might be short-term pressure on Bajaj Finance's shares, analysts view this more as an operational issue rather than a severe violation. CLSA, a brokerage firm, estimates a 6% decline in Bajaj Finance's profits during the ban period.

As per Bajaj Finance, this RBI action is not expected to significantly affect its financial status.

Bajaj Finance will immediately cease providing eCOM loans on various e-commerce platforms like Amazon, Flipkart, Yatra, MakeMyTrip, among others. Typically, the company finances its existing EMI cardholders for their purchases on these platforms.

An optimistic aspect is that this RBI restriction came after the festive season when Bajaj Finance usually processes around 350,000-400,000 loans monthly on e-commerce platforms. In the following 45-90 days, they typically generate around 220,000-230,000 e-commerce loans. Over this period, Bajaj Finance might potentially miss providing new e-commerce loans ranging from 345,000 to 690,000, as mentioned by Motilal Oswal Financial Services.

Profit and Loses in 2 years 

Bajaj Finance's financial performance over the past two years showed varying results in terms of profits and losses.

In the first year, the company experienced strong profitability, recording significant profits due to its successful lending and financial services. However, in the subsequent year, there were challenges that led to a decline in profits. The company faced certain issues, resulting in a decrease in its earnings compared to the previous year.

Overall, in the first year, Bajaj Finance saw robust profits, while in the following year, there was a drop in profitability due to specific difficulties encountered by the company.

The brokerage thinks that even though there's no direct restriction on Bajaj Finance for issuing Insta EMI Cards, the process of getting these cards and giving them out might slow down in the next 45-90 days. This could happen because of the limitations on providing digital loans and giving out money through the Insta EMI Card.

Considering that Bajaj Finance usually handles about 220,000-230,000 loans every month on e-commerce platforms and around 110,000-120,000 loans monthly through the Insta EMI Card for business purposes, the brokerage believes the company might face a decrease in the number of loans given out. They estimate this reduction could be somewhere between 450,000 (over 45 days) to 900,000 (over 90 days).

The brokerage predicts that if the average amount of these loans is around ₹30,000, ₹40,000, and ₹50,000, the total money given out could decrease between ₹13.6 billion to ₹45 billion during a period of 45-90 days, assuming there are restrictions for that time.

This could mean that the money given out by Bajaj Finance might decrease by about 0.5% to 1.6% of what the company managed in September 2023.

Motilal Oswal hasn't changed its predictions yet, although it recognizes that there will be an impact on both how much money they manage (AUM growth) and the fees they earn in the second half of the financial year 2023-24.

However, Motilal Oswal still believes in the company's long-term potential. They think that Bajaj Finance will fix the issues and once they satisfy the RBI, the company will grow stronger. They have recommended buying the company's stock and say that if the Bajaj Finance stock price falls significantly because of this event, people should consider buying more of it.