Despite Posting Strong Q1 FY27 Earnings, India's Largest NBFC Faces Selling Pressure as Markets React to Proposed Restrictions on Revolving Credit Products

Shares of Bajaj Finance Ltd. witnessed one of their sharpest single-day declines in recent months after the Reserve Bank of India (RBI) proposed draft lending guidelines that could significantly alter the business model of non-banking financial companies (NBFCs). The stock fell more than 5% during intraday trading, wiping out nearly ₹33,500 crore from the company's market capitalisation and making it the worst-performing constituent of the Sensex.

The sell-off came despite Bajaj Finance reporting another quarter of strong operational performance, highlighting how regulatory developments can quickly overshadow robust financial results. Investors expressed concerns that the RBI's proposed norms restricting NBFCs from offering revolving credit facilities could affect the company's high-growth lending products, particularly its popular flexi-loan portfolio.

The sharp correction also spilled over into the broader financial services sector, with several NBFC stocks witnessing declines as investors reassessed the earnings outlook for retail-focused lenders.

Sharp Market Correction Erodes Over ₹33,000 Crore in Value

Bajaj Finance shares declined more than 5% during Friday's trading session, reducing the company's market capitalisation from approximately ₹7.15 lakh crore to around ₹6.82 lakh crore within a few hours.

The steep decline erased nearly ₹33,500 crore in shareholder wealth and dragged down the broader financial services index.

The weakness was visible across the NBFC space, with stocks such as:

• Bajaj Finserv

• Tata Capital

• Poonawalla Fincorp

• Edelweiss Financial Services

also trading lower as concerns over the RBI's regulatory proposals spread across the sector.

RBI Draft Norms Trigger Investor Concerns

The primary trigger behind the sharp fall was the Reserve Bank of India's draft framework proposing significant changes to the lending practices of NBFCs.

According to the draft proposal, NBFCs would primarily be permitted to offer term loans, while the issuance of revolving credit products would be restricted except for entities specifically authorised to issue credit cards.

The proposal forms part of the RBI's broader effort to strengthen risk management, improve lending discipline, and ensure greater transparency within the fast-growing NBFC industry.

Although the guidelines are still under consultation and have not yet been implemented, investors reacted swiftly to the potential long-term implications.

Why Bajaj Finance Faces Greater Impact

Among India's retail-focused NBFCs, Bajaj Finance has built one of the country's largest portfolios of flexible lending products.

Its widely used Flexi Loan products allow customers to:

• Borrow within an approved limit

• Repay partially

• Withdraw funds again without applying for a fresh loan

• Manage cash flows more efficiently

These revolving credit products have become particularly popular among:

• Salaried professionals

• Self-employed individuals

• Small business owners

• Retail consumers

Industry estimates suggest that flexi loans account for a meaningful portion of Bajaj Finance's overall Assets Under Management (AUM).

If the RBI's proposal is implemented without major changes, the company may need to redesign several of its lending products.

Understanding the Difference Between Term Loans and Revolving Credit

The proposed regulations distinguish between two different forms of credit.

Term Loans

A term loan generally involves:

• Fixed sanctioned amount

• Defined repayment schedule

• Monthly instalments

• Declining outstanding balance

• No restoration of available credit after repayment

Revolving Credit Facilities

Revolving credit products allow borrowers to:

• Access funds repeatedly

• Reuse available limits after repayment

• Withdraw money whenever required within approved limits

Examples include:

• Flexi loans

• Credit cards

• Overdraft facilities

The RBI believes restricting such products among NBFCs could improve lending discipline and reduce financial risks.

Analysts See Pressure on Future Growth

Market experts believe the proposed norms could influence Bajaj Finance's long-term growth trajectory.

Possible consequences include:

Slower Loan Book Expansion

Restrictions on revolving products may reduce the pace of customer acquisition and repeat borrowing.

Lower Fee-Based Income

Flexible lending products generate additional processing and servicing income that could moderate under the new framework.

Product Strategy Changes

The company may need to introduce alternative lending solutions that comply with revised regulations.

Earnings Growth Moderation

Reduced product flexibility could gradually impact profitability if customer demand shifts.

These concerns prompted investors to reduce exposure despite the company's otherwise strong operating performance.

Strong Quarterly Results Fail to Support Sentiment

Ironically, the market correction followed another robust financial quarter for Bajaj Finance.

For the first quarter of FY27, the company reported:

• 27% year-on-year growth in net profit

• 23% increase in Net Interest Income (NII)

• 24% growth in Assets Under Management (AUM)

• 20% rise in new loan bookings

The company also maintained healthy asset quality with:

• Gross Non-Performing Assets (GNPA) below 1%

• Net Non-Performing Assets (NNPA) below 0.5%

• Strong capital adequacy ratio exceeding regulatory requirements

These numbers indicate that the company's core lending franchise remains fundamentally strong.

However, investors chose to focus on future regulatory uncertainty rather than current financial performance.

RBI Aims to Strengthen Lending Standards

The RBI's consultation paper reflects the regulator's ongoing efforts to improve governance and risk management within the NBFC sector.

The proposed framework seeks to:

• Improve responsible lending

• Enhance customer transparency

• Reduce excessive leverage

• Strengthen financial stability

• Standardise lending practices

Over the past few years, the central bank has increasingly tightened oversight of retail lending amid rapid growth in unsecured credit.

The consultation process allows industry participants to provide feedback before the regulations are finalised.

Wider Impact on NBFC Industry

Although Bajaj Finance experienced the steepest decline, analysts believe the proposed norms could influence several retail-focused NBFCs.

Companies with meaningful exposure to:

• Consumer finance

• Personal loans

• Digital lending

• Flexible credit products

may need to reassess their business strategies if the draft guidelines are implemented substantially in their current form.

Traditional lenders focused primarily on secured term loans are expected to face relatively lower regulatory disruption.

Investors Watching Final RBI Decision

The eventual impact on Bajaj Finance will depend on the final version of the RBI's regulations.

Key developments investors are expected to monitor include:

• Final regulatory framework

• Industry feedback

• Management's response

• Product restructuring plans

• Loan growth trends

• Margin performance

• Asset quality indicators

Any modification to the draft guidelines during the consultation process could significantly alter market expectations.

Long-Term Fundamentals Remain Strong

Despite the recent correction, Bajaj Finance continues to possess several competitive strengths that support its long-term investment case.

These include:

• Diversified lending portfolio

• Strong digital capabilities

• Extensive customer franchise

• Consistent earnings growth

• Healthy capital position

• Excellent asset quality

• Proven execution track record

Many analysts believe these structural advantages position the company well to adapt to evolving regulatory requirements over time.

Outlook

The sharp correction in Bajaj Finance shares highlights how regulatory developments can significantly influence market sentiment even when a company continues to deliver strong financial performance. While the RBI's proposed restrictions on revolving credit products have raised legitimate concerns regarding future loan growth and profitability, the framework remains at the draft stage and may undergo revisions following industry consultations.

Although near-term volatility is likely to persist until greater regulatory clarity emerges, Bajaj Finance continues to remain one of India's strongest retail lending franchises with a robust balance sheet, healthy asset quality, strong capital adequacy, and a diversified customer base. Investors will closely track the RBI's final decision and the company's strategic response, both of which will play a critical role in shaping its long-term growth trajectory in an evolving regulatory environment.