Explained — How Bajaj Finance, Shriram Finance could be the most impacted if RBI changes this rule

Brokerage firm Macquarie believes that Bajaj Finance Ltd. and Shriram Finance Ltd. could be the most impacted in case the non-bank lenders end up losing their regulatory arbitrage that they currently enjoy over their private banking peers.As per the current rule, NBFCs in India have a regulatory arbitrage when it comes to appoints of Managing Directors and Executive Directors on the company’s boards, as well as the compensation for them.

While private sector banks in India have a cap of 15 years for EDs on the board, as well as an age cap of 70 years, along with the need to seek RBI approval for their compensation, NBFCs do not need any such regulatory approval, and their boards can also decide the tenure, compensation and have a policy as well.
According to news reports, the RBI is trying to plug this gap, particularly with regards to upper layer NBFCs.
As a result, both Bajaj Finance and Shriram Finance will have to plan for leadership transitions in the near-to-medium term, Macquarie in its note.For Shriram Finance, Executive Vice Chairman Umesh Revankar has served for 14 years on the company’s board, and his current tenure comes to an end in October 2029. For Bajaj Finance, Rajeev Jain has served for 11 years on the company’s board and his current tenure ends in March 2028.

Shares of Bajaj Finance are among the top losers on the Nifty 50 index, trading 4.5% lower at ₹897, while those of Shriram Finance are also down 2.6% on Wednesday at ₹1,034.9.

Also Read: Bajaj Finance shares give up all post-budget gains, extend March losses to 10%