PB Fintech shares fall 23%; Bajaj Finance, L&T Finance also take hit; here's why

Shares of PB Fintech Ltd plunged 23 per cent in Thursday's trade, the worst-day fall since November 2021, while those of NBFCs such as Bajaj Finance Ltd, L&T Finance Ltd, Mahindra & Mahindra Financial Services (MMFSL) and Cholamandalam Investment and Finance Company Ltd, among others, declined up to 15 per cent as IRDAI's much-awaited consultation paper on commissions, Expenses of Management (EoM), and distribution, if implemented, is seen hitting earnings sharply.

IIFL Securities said IRDAI's draft reforms propose hard, all-inclusive commission caps that would be a fraction of current payouts: 2 per cent on credit life versus 28 per cent currently, nil on loan-packaged motor TP versus 16 per cent, 5 per cent on OD versus 16 per cent, and 5 per cent on health versus 40 per cent. The draft also proposes an outright prohibition on compulsory bundling of insurance with loans and volume-linked incentives for staff selling insurance, it said.

PB Fintech Ltd crashed 23 per cent to hit a low of Rs 1,455.30. The proposed take-rate caps could materially pressure PB Fintech's unit economics, Bernstein said today.

Emkay Global said PB Fintech's business model will come under question as it faces a sharp cut in health renewal and porting commissions, first-year term life commissions, and Motor OD and TP commissions.

"NBFCs with higher dependency on insurance commissions (LTF, CIFC, MMFS, BAF, etc) will see a material impact on their earnings, if the regulations come in the current form. We will revise our estimates for the insurers and NBFCs once we have more clarity," said Emkay Global

Bajaj Finance Ltd fell 3.91 per cent and was trading at Rs 999.30 at 9.42 am. L&T Finance Ltd was quoting 7.53 per cent lower at Rs 287.30. MMFSL was down 2.60 per cent at Rs 339.60.    
 
"Considering the credit-life/non-life mix and assuming 50 per cent mitigation via associated opex/fee/ROI, we estimate a 1-12 per cent PBT impact for NBFCs – it is highest for L&T Finance (12 per cent), least for SHFL (1 per cent) and 4-8 per cent for most other NBFCs if the proposed draft is implemented as is," IIFL Securities said.