Bajaj Finance soars over 7.50% after RBI lifts lending restrictions on finance firm

Bajaj Finance rose over 7.50 per cent on BSE on Friday (May 3, 2024) after the Reserve Bank of India lifted lending restrictions on the company about stopping it from sanctioning and disbursing loans under its lending products eCOM and Insta EMI Card. The ban on the NBFC was imposed in November. 

After closing at Rs 6,881.00 a day ago, the stock of Bajaj Finance rose to Friday's high of Rs 7,400.

The stock that started its journey at Rs 7,350.00 on Friday was trading up by 2.95 per cent, or Rs 203.25, at Rs 7,084.25 at 11:58 am.  

After lifting restrictions, Bajaj Finance can now sanction and disburse loans under the two segments.

The regulator had imposed the restrictions citing non-adherence to the extant provisions of digital lending guidelines.

In a regulatory statement on Thursday, Bajaj Finance said, "the company informed about the restriction by the Reserve Bank of India (RBI) on the sanction and disbursal of new loans under “eCOM” and online/digitally on ‘Insta EMI Card’. Further, vide its letter dated 17 November 2023, the Company, informed temporary suspension of issuance of Existing Member Identification cards (‘EMI cards’) to new customers."

The finance company further said, "Now, we wish to inform that the RBI, vide its letter dated 2 May 2024, based on the remedial actions taken by the company, has conveyed its decision of lifting the said restrictions on eCOM and online digital ‘Insta EMI Card’, with immediate effect.

"The company would now resume sanction and disbursal of loans in the above two business segments including issuance of EMI cards," the statement said. 

What can be the Impact? 

Loans reduced by 8 lakh in Q4 and 12 lakh in FY24 due to the ban on Bajaj Finance's eCOM and Insta EMI cards.

The ban had a 10 per cent impact on new loans and 4 per cent impact on profits in Q4.

Due to ban on EMI cards, there has been no increase in the number of cards in the last two quarters.

Cards No Force 42.2 mn

Before the ban, the company had a tie-up with Flipkart and Snapdeal for EMI cards.

EMI card growth was 42X in 10 years till FY23.

The market may lose confidence in the future of the company's co-branded cards.

The validity of the company's co-branded card will end in December 2024.

What does brokerage say?

The lifting of restrictions in six months is very positive for the company.

Growth will be better in the future due to the removal of ban.

Estimated 24 per cent CAGR from FY24 to 27.

Jefferies on Bajaj Finance 

Jefferies has maintained ' buy' stance on the firm with a target of Rs 9,260.

It says that the lifting of the RBI’s restrictions will aid business and improve growth visibility.

The brokerage views the development positively, as resolution has come within just six months of imposition.

The brokerage saw an impact of +10 per cent on new loans booked and 4 four on Cons PBTin Q4

It hasn't changed its estimates for Bajaj Finance,but this improves visibility of gowth-see 24 per cent profit CAGR over FY24-27.
 

Morgan Stanley on Bajaj Finance 

Morgan Stanley has maintained 'overweight' rating on the firm with a target of Rs 9,000.

Citi on Bajaj Finance 

Citi has maintained a 'buy' call on the firm with a target of Rs 8,675.

The brokerage says that it believes that the rectification of deficiencies and ensuring lifting of restriction in a span of five months in commendable on the company's part.

The Bajaj Finance managemmnt remains committed to avoiding recurrence of regulatory restrictions.

The management has assumed lifting of restrictions in the near future in its guidance.