Bajaj Finance was trading in the green again after early trades saw the stock fall up to 4 per cent lower at Rs 7,033 on November 16 after brokerages said they don’t see much impact of RBI direction to stop sanctioning and disbursing loans under its two lending products – eCOM and Insta EMI Card.
In its order, RBI said the action was driven by non-adherence to digital lending guidelines. The NBFC expects this embargo to be lifted within the next 6-8 weeks and with no material financial impact.
“While this is negative & speed of correction will be key to reinstating products, we see a limited financial impact as Insta EMI Card base of 4m is 5% of total clients & we estimate it to be 0.2% of disbursals, <1% of fees & <0.5% of profit. We watch out for progress and retain earnings & Buy rating,” Jefferies analysts Prakhar Sharma and Vinayak Agarwal said. The global brokerage firm has a target price of Rs 9,470 on the stock.
Bajaj Finance had 77 million customers as on Sep-23, of which 42 million had EMI cards and of that, 4 million had Insta EMI Cards. This implies that the product is 5% of total customers and 10% of EMI customers.
Jefferies sees a limited financial impact as the Insta EMI card base is just 5 percent of Bajaj Finance’s total clients. The RBI move is surprising but while this is a negative, the speed of correction will be key to reinstating the products, the firm said. Jefferies has a “buy” call on Bajaj Finance and a target price of Rs 9,470.
Morgan Stanley does not see any financial impact. The brokerage said that while the stock could see near-term pressure, the issue could be resolved soon, thus mitigating the EPS impact. Morgan Stanley has an “overweight call” on the stock with a target price of Rs 10,300.
CLSA said the issue should be resolved in one or two quarters but may impact profits by around 6 percent while the ban is in place. The brokerage sees this as more of an operational breach rather than a major violation. CLSA has a “buy” call and target price of Rs 9,500 for the stock.
Why the Ban?
In a separate statement, the RBI said the action was necessitated due to “non-adherence of digital lending guidelines of Reserve Bank of India, particularly non-issuance of key fact statements to the borrowers” under the lending products and deficiencies in the key fact statements issued in respect to other digital loans sanctioned by the company.
Bajaj Finance said that it would “implement requisite corrective actions to the satisfaction of the RBI at the earliest”, and undertake a detailed review. “Key Fact Statement (‘KFS’) are being issued for the loans booked under the above mentioned two lending products,” it added.
Bajaj Finance said that the company was committed to rectifying the observations and the supervisory restrictions would remain in place “till the deficiencies observed are made good by the Company to the satisfaction of RBI”.
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