Bajaj Finance curtails Karnataka exposure by up to 50%, amid political, regulatory risk: MD Rajeev Jain

Karnataka accounted for 11 percent of the company’s balance sheet, making this a significant recalibration.

Bajaj Finance is finding it difficult to navigate the heightened regulatory uncertainty in Karnataka, Rajeev Jain, vice chairman and CEO, Bajaj Finance, said in a call with investors when asked about the situation in the state.

"For the first time, don’t know how to navigate...," Jain said, during the call, referring to the evolving situation in Karnataka following the enactment of a new state law earlier this year aimed at curbing coercive lending practices.

The move is quite significant given that Karnataka contributes roughly 11 percent to its total balance sheet.

Jain noted that the company has also become cautious in other major markets like Tamil Nadu and Maharashtra, where the risk of similar regulatory developments remains. The lack of clarity, he said, makes it difficult to operate with confidence under the current environment.

The Karnataka Micro Loan and Small Loan (Prevention of Coercive Actions) Act, 2025, passed by the state legislature in February, bans coercive recovery methods, such as harassment, threats, or the seizure of essential documents, and imposes steep penalties, including imprisonment of up to 10 years and fines up to Rs 5 lakh. It seeks to protect vulnerable borrowers such as women, farmers, self-help group members, migrant workers, and daily-wage earners.

The law, however, excludes RBI-regulated entities, such as banks and registered NBFCs, from its purview.

Despite being exempt under the law, Bajaj Finance said operational challenges persist due to confusion around enforcement and borrower perception. In rural areas, where formal and informal lending often overlap, field-level misinterpretation and borrower assumptions about blanket protections have made collections and compliance more difficult.

Jain said the lack of clarity around the law’s application and scope has made it difficult to continue business as usual in the state, and have affected operations across both urban and rural markets.