The Reserve Bank of India (RBI) has prohibited Bajaj Finance, A leading consumer finance company in India, from approving and distributing loans through two of its lending products, namely ‘eCOM’ and ‘Insta EMI Card.’ The directive stems from the company’s failure to provide essential Key Fact Statements (KFS) to borrowers associated with these specific lending products. Additionally, the RBI identified shortcomings in the KFS for Bajaj Finance’s other digital loan offerings. This regulatory action underscores the significance of proper disclosure practices and adherence to documentation standards within the digital lending landscape.
What is a KFS? (Highlight)
The Key Fact Statement (KFS) is a document that contains essential information about a financial product or loan offered by a lending institution. It provides details such as interest rates, terms and conditions, fees, charges, repayment schedules, and other critical information that borrowers need to know before availing themself of the loan. The KFS’s meaning is to ensure transparency and help borrowers make informed decisions about taking on a loan or a financial product.
What led to the RBI’s restriction on two of Bajaj Finance’s lending products? (Highlight)
The Reserve Bank of India (RBI) announced on November 15 that Bajaj Finance, a prominent consumer finance company, faced regulatory action due to non-compliance with the Digital Lending guidelines set forth by the RBI. The primary issue highlighted in the release was the company’s failure to fulfill the obligation of issuing Key Fact Statements (KFS) to borrowers for two of its lending products, namely ‘eCOM’ and ‘Insta EMI Card.
The RBI emphasized that the absence of Key Fact Statements for the specified lending products was a violation of the existing provisions within the Digital Lending guidelines. This failure to provide borrowers with essential information raised concerns about transparency and adherence to regulatory standards in the digital lending sector.
The withdrawal of Bajaj Finance’s EMI option from online marketplaces like Amazon and MakeMyTrip has already taken effect. (Highlight)
Amazon, for instance, conveyed a notice stating, “Following instructions from Bajaj Finance Limited, Bajaj Finserv EMI card (BFL) will not be available on Amazon from 16th November 2023. BFL should be back soon.
This move signifies an immediate response to directives from Bajaj Finance itself. The absence of the Bajaj Finserv EMI card option on these platforms indicates a temporary suspension of this payment method. The notice implies that customers seeking to use Bajaj Finance’s EMI services on Amazon will need to await further updates and reinstatement of the service, encouraging them to stay updated by periodically checking Amazon for the latest status regarding Bajaj Finance’s EMI card availability.
In the past six to eight months, there has been a notable surge in the appeal of the Bajaj Finserv Insta EMI Card. This popularity can be attributed to the card’s provision of a flexible repayment schedule and the availability of no-cost EMI options, according to statements from retailers. Anirban Chakraborti, overseeing omni-channel business at mobile phone retailer Sangeetha Mobiles, noted that in a period marked by rising inflation impacting household finances, an increasing number of consumers have embraced and taken advantage of the benefits offered by this lending product.
Mobile phone retailers attribute almost 50% of their sales to financing products. Among the non-banking finance companies, Bajaj Finance holds the position of being the largest provider in this sector.
