Bajaj Finance shares plunge 5% as RBI draft norms target revolving credit

Bajaj Finance, India's largest shadow bank by market value, saw its shares crash 5% on Friday, eroding roughly ₹33,000 crore from its market capitalisation. The sharp sell-off came after the Reserve Bank of India (RBI) released draft norms that propose to bar non-banking financial companies (NBFCs) from offering revolving credit facilities, such as credit cards and overdraft lines, restricting them to term loans only.

The proposed rules, if implemented, would fundamentally alter the business model of consumer-focused NBFCs, which have increasingly relied on revolving credit products to drive growth. Bajaj Finance, in particular, has built a large portfolio of digital credit products, including its popular 'EMI Card' and instant loans, which could be directly impacted.

Market reaction: A broad-based sell-off

The impact was not limited to Bajaj Finance. The entire BFSI (banking, financial services, and insurance) sector came under pressure, with the Sensex and Nifty ending the day in the red. Analysts said the RBI's move signals a tightening of the regulatory environment for shadow banks, which have grown rapidly in recent years, often outpacing traditional banks in consumer lending.

Investors were quick to price in the potential hit to earnings. Bajaj Finance's stock, which had been a market favourite, saw its worst single-day decline in months. The company's market capitalisation fell to a level not seen in recent weeks, underscoring the scale of investor concern.

What the RBI draft norms propose

The RBI's draft guidelines, released late Thursday, aim to curb the proliferation of revolving credit products offered by NBFCs. Revolving credit allows borrowers to draw, repay, and redraw funds up to a sanctioned limit, often with flexible repayment terms. The central bank's proposal would restrict NBFCs to offering term loans, which have fixed repayment schedules.

The draft norms are part of a broader regulatory push to ensure financial stability and protect consumers from over-leveraging. The RBI has been concerned about the rapid growth of unsecured lending, particularly in the digital lending space, where credit limits can be accessed with a few clicks on a smartphone.

Broader implications for the sector

The proposed rules could have far-reaching implications for the NBFC sector, which has become a critical source of credit for retail and small-business borrowers. Many NBFCs have built their business models around revolving products, such as credit cards, personal lines of credit, and buy-now-pay-later (BNPL) schemes.

If the norms are finalised in their current form, NBFCs may need to redesign their product offerings, shift to term loans, and potentially face higher compliance costs. This could slow credit growth in the near term and impact profitability, especially for companies with a heavy reliance on revolving credit.

Bajaj Finance, which has a significant share of the consumer finance market, is likely to be among the most affected. The company has not yet issued an official statement on the draft norms, but its stock performance reflects investor anxiety.

What happens next

The RBI has invited comments from stakeholders on the draft norms, and the final regulations could be modified after the consultation process. Industry bodies and individual NBFCs are expected to lobby for changes, arguing that revolving credit is essential for financial inclusion and consumer choice.

For now, investors are bracing for more volatility in the BFSI space. The market will be watching closely for any clarification from the RBI and for Bajaj Finance's response, as the company navigates what could be a pivotal regulatory shift.