Bajaj Finance will launch new term loan products on November 1 to replace revolving credit facilities, impacting 15% of its assets. The lender is also tightening credit standards in rural and microfinance segments to manage macro-economic risks. Investors should monitor how these changes affect profit margins and asset quality in the coming quarters.
Bajaj Finance is updating its product offerings to align with anticipated Reserve Bank of India (RBI) guidelines regarding revolving credit facilities. Starting November 1, the lender will roll out new term-loan products to replace its existing flexi-loan and overdraft models. These revolving credit options allow borrowers to withdraw and repay funds as needed, but the regulator is looking to restrict these products for non-bank financial companies to improve systemic stability.
Approximately 15 percent of Bajaj Finance’s total assets under management are linked to these revolving loan products. Transitioning this portion of the business to fixed-term loans—where repayments occur in scheduled installments—often results in lower interest margins. Management has indicated that this shift may cause a temporary dip in profitability. However, the company views this as a necessary step to ensure compliance and improve the long-term resilience of its portfolio.
Alongside the regulatory transition, the company is actively de-risking its balance sheet in response to economic pressures. Following reports of poor weather conditions and drought in three states, Bajaj Finance has decided to scale back its lending in specific rural and microfinance segments. The lender is also applying stricter credit standards in select urban areas where data shows higher repayment vulnerabilities.
To further manage risk, the company is curbing exposure to borrowers who are already carrying multiple personal loans. The share of new loans issued to these high-leverage segments has been reduced to 7 percent, with plans to cut this further. By focusing on higher-quality borrowers and tightening its underwriting standards, the lender aims to maintain its asset quality amid ongoing macro-economic volatility.
Despite these operational changes, Bajaj Finance maintains its long-term financial targets. The company continues to project profit growth in the range of 22 to 25 percent, along with a return on equity target of 19 to 21 percent. For investors, the key monitorables over the next few quarters will be the speed at which the company migrates its revolving portfolio to the new term-loan structure, the stabilization of net interest margins, and the credit cost trends as the company executes its more cautious lending strategy in rural and high-risk pockets.