Bajaj Finance, a prominent Indian non-banking financial company (NBFC), faced headwinds in its recent quarterly report, reflecting the impact of regulatory measures and increased provisions for bad loans. Despite reporting a profit that fell slightly below analysts’ expectations, the company remains resilient and is proactively addressing regulatory concerns.
In November, the Reserve Bank of India imposed a ban on Bajaj Finance’s issuance of loans under eCOM and Insta EMI Cards, citing inadequate disclosure of essential information to borrowers. This regulatory intervention had a notable impact on the company’s financial performance during the quarter ended December 31, 2023.
Bajaj Finance reported a consolidated profit after tax of 36.39 billion rupees, marking a 22.4% increase from the previous year. While this growth is commendable, it fell short of analysts’ average expectation of 37.56 billion rupees, as reported by LSEG data. The consolidated figures encompass the contributions from Bajaj Housing Finance and Bajaj Financial Securities, the subsidiaries of the NBFC.
The company did not specify the proportion of its portfolio associated with loans under the banned eCOM and Insta EMI Cards. However, it acknowledged that the losses incurred and the impact of regulatory restrictions contributed to a 5% to 6% reduction in profit growth. Managing Director Rajeev Jain assured stakeholders during a post-earnings analyst call that Bajaj Finance has undertaken a comprehensive review of the central bank’s guidelines on digital lending and is actively implementing corrective measures to ensure compliance with the regulatory order.
Jain emphasized the company’s commitment to full compliance with the executive order at the earliest opportunity. Simultaneously, Bajaj Finance is engaging with the regulator and RBL Bank, its co-branded credit card partner, to address and rectify any deficiencies in the jointly operated credit card offering.
In addition to regulatory challenges, Bajaj Finance faced an impact on its capital adequacy ratio due to higher risk weights, resulting in a 290 basis points reduction. Jain indicated that future growth in the unsecured segment would be “calibrated,” reflecting a cautious approach in light of increased capital requirements imposed by the central bank in November. The move was prompted by exuberant lending in the personal loan and credit card segments.
The company’s loan provisions, designed to cover potential defaults, witnessed a significant year-on-year increase of over 48%, reaching 12.48 billion rupees. This proactive provisioning indicates Bajaj Finance’s commitment to risk management and ensuring financial stability amid challenging circumstances.
While regulatory headwinds posed challenges in the recent quarter, Bajaj Finance’s strategic approach, comprehensive review of digital lending guidelines, and active engagement with regulators and partners underscore its commitment to resilience and adherence to regulatory standards. The company’s focus on calibrated growth and robust risk management positions it well for navigating the evolving financial landscape.
