RBI removes threshold: What the Bajaj Fin ‘Insta EMI Card’ controversy is about
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 program and its e-commerce platform, eCOM. This action was taken as Bajaj Finance had allegedly violated the RBI’s digital lending guidelines.
What is Insta EMI card?
The Insta EMI card offers consumers pre-approved credit of up to Rs 200,000 for small ticket purchases.
What are RBI’s guidelines for digital lenders?
The central bank’s digital lending guidelines, which came into effect last year, require a lender to disclose all fees and charges to borrowers in advance and also detail its recovery practices in the event of a default. These details are to be provided in the KFS document, which according to RBI has not been issued by Bajaj Finance for the two products. The guidelines were introduced following complaints about unfair digital lending practices, including insufficient information about the costs associated with digital lending.
Specific violations:
The RBI mandates that lenders provide KFS documents to borrowers. These documents are critical because they summarize essential loan information such as interest rates, processing fees, repayment terms, and other charges. According to the RBI, Bajaj Finance has not provided KFS for loans issued through eCOM and Insta EMI Card.
Missing Key Facts (KFS): Bajaj Finance has reportedly failed to provide borrowers with KFS for loans obtained through eCOM and Insta EMI Card.
Defective KFS: The RBI also found issues with KFS documents issued for other digital loans offered by Bajaj Finance. These documents may have lacked complete or accurate information, potentially confusing borrowers about the terms of their loans.
Essentially, the RBI has stopped Bajaj Finance from using these programs for new loans because it was concerned that borrowers were not receiving clear and complete information about the loans they were taking.
Additional context: On November 17, 2023, Bajaj Finance informed the exchanges that they are also temporarily suspending the issuance of new EMI cards to customers.
RBI lifts restrictions
On May 2, 2024, Bajaj Finance announced that the RBI had lifted 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 would like to inform that the RBI, in view of its letter dated May 2, 2024, based on the corrective measures taken by the company, has announced its decision to impose the said restrictions on ‘eCOM’ and digital ‘Insta EMI Card’ with immediate effect.”
Bajaj Finance will now resume sanctions and loan disbursements through both its business segments, including issuance of EMI cards.
What this means for you
The lifting of restrictions is good news for consumers using Bajaj Finance’s Insta EMI Card and eCOM platform. It enables them to:
Access credit: Customers can resume loan applications and use their Insta EMI cards for online and offline purchases through Bajaj Finance’s network of partner merchants.
Wider choice: This move expands the options available to consumers seeking financing for purchases, potentially leading to more competitive interest rates and terms.
First print: May 03, 2024 | 10:05 am IST