Bajaj Finance, a leading Non-Banking Financial Company (NBFC) in India, recently faced a hurdle with its popular Insta EMI Card. In November 2023, the Reserve Bank of India (RBI) imposed restrictions on the issuance of new loans and EMI cards under the Insta EMI programme and its e-commerce platform, eCOM. This action was taken because Bajaj Finance allegedly violated the RBI’s digital lending guidelines.
What is Insta EMI Card?
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The Insta EMI card offers consumers pre-approved credit up to Rs 200,000 for small ticket purchases.
What are RBI’s guidelines for digital lenders?
The central bank’s digital lending guidelines, enforced last year, require that a lender disclose all fees and charges to borrowers upfront and also detail its recovery practices in the event of a default. These details need to be provided in the KFS document, which, according to RBI, was not issued by Bajaj Finance for the two products.The guidelines were introduced after complaints of unfair digital lending practices, including inadequate information on charges associated with digital loans.
Specific Violations:
The RBI mandates that lenders provide borrowers with KFS documents. These documents are crucial as they summarize essential loan details like interest rates, processing fees, repayment terms, and other charges. According to the RBI, Bajaj Finance failed to provide KFS for loans issued through eCOM and Insta EMI Card.
Missing Key Fact Statements (KFS): Bajaj Finance reportedly failed to provide borrowers with KFS for loans obtained through eCOM and Insta EMI Card.
Deficient KFS: The RBI also found issues with KFS documents provided for other digital loans offered by Bajaj Finance. These documents might have lacked complete or accurate information, potentially leaving borrowers confused about the terms of their loans.
Essentially, the RBI stopped Bajaj Finance from using these programmes for new loans because of concerns that borrowers weren’t receiving clear and complete information about the loans they were taking out.
Additional Context: On November 17, 2023, Bajaj Finance informed the stock exchanges that they were also temporarily suspending the issuance of new EMI cards to customers.
RBI lifts the restrictions
On May 2nd, 2024, Bajaj Finance announced that the RBI had lifted the restrictions on their Insta EMI Card and eCOM platform. This suggests that Bajaj Finance has addressed the concerns raised by the RBI. According to the exchange filing, “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.”
Bajaj Finance will now resume sanction and disbursal of loans through both these business segments, including issuance of EMI cards.
What this means for you
The lifting of restrictions is good news for consumers who utilize Bajaj Finance’s Insta EMI Card and eCOM platform. It allows them to:
Access Credit: Customers can resume applying for loans and using their Insta EMI cards for online and offline purchases through Bajaj Finance’s network of partnered merchants.
Wider Choice: This move increases the options available to consumers seeking financing for purchases, potentially leading to more competitive interest rates and terms.
As per industry sources, RBI lifting the ban would mean that the company will now resume sanctioning and disbursing loans in these business segments, including the issuance of EMI cards that would help consumers who need these products for their financial needs. This action aligns with the anticipated move by the RBI, and while expected, it reflects positively on the swift course correction undertaken.
“With the RBI lifting the ban, consumers can rest assured that all compliance measures are now in place, enabling them to confidently engage with these products. Moreover, this decision sends a positive signal to the industry as well, highlighting the RBI’s commitment to transparency and ensuring consumer rights and safety through regulatory measures as necessary,” said an industry insider, who did not want to be quoted.
