RBL Bank Shares Slide 5% as Bajaj Finance Exits Co-Branded Card Partnership
In a surprising move that sent shockwaves across the market, RBL Bank’s shares tumbled nearly 5% to ₹147.55 on Monday after Bajaj Finance decided to step away from the co-branded credit card business. This marks the end of an eight-year partnership that had been a cornerstone of RBL Bank’s credit card portfolio.
But what does this mean for RBL Bank, its investors, and the credit card industry at large? Let’s unpack the story.
Bajaj Finance’s Big Exit: What’s the Deal?
Bajaj Finance, a major player in the Indian financial landscape, has decided to pull out of the co-branded credit card business altogether. This decision impacts not only its partnership with RBL Bank but also potentially its tie-up with DBS Bank.
- RBL Bank’s Statement: Despite the exit, RBL Bank clarified it would continue to service the existing portfolio of 3.4 million co-branded credit cards.
- Decline in New Issuances: Dependence on the partnership had already reduced, with new card issuances dropping from 1.26 lakh in September 2022 to just 37,000 in September 2024.
This raises a key question: Why would Bajaj Finance step away from a business that once aligned with its ambition to become a top credit card issuer?
What Analysts Are Saying
Motilal Oswal
- Called the move “puzzling” given Bajaj Finance’s earlier growth aspirations in the credit card space.
- Speculated that this could signal broader strategic changes for Bajaj Finance, possibly impacting its partnership with DBS Bank.
Emkay Global
- Slashed RBL Bank’s target price by 23% to ₹250, citing slower growth and lower returns in the short term.
- Adjusted earnings estimates for FY25-FY27, reflecting challenges in transitioning towards a higher share of secured loans.
- Despite short-term hurdles, retained a “Buy” rating, emphasizing strong long-term potential for investors.
What’s Next for RBL Bank?
Opportunities for Growth
- Independence in Operations: Managing the portfolio without a co-branding partner allows RBL Bank to innovate and directly engage with customers.
- Shift to Secured Loans: This strategic transition could help the bank stabilize its revenue streams and mitigate risks.
Challenges on the Horizon
- Short-Term Revenue Impact: Loss of fee income from Bajaj Finance will likely affect profitability.
- Scaling Up Operations: RBL Bank must now enhance its own credit card issuance and marketing capabilities to fill the void.
Investor Reaction: Is the Slide Justified?
The market reacted swiftly to the news, with investors questioning RBL Bank’s ability to sustain growth in the credit card segment. However, experts believe this could be a short-term blip:
- The bank’s robust portfolio of 3.4 million cards provides a strong foundation.
- Its focus on secured loans may open up new avenues for steady growth.
For savvy investors, this might present a buying opportunity, especially with brokerage firms maintaining a positive long-term outlook.
Why Does This Matter?
Bajaj Finance’s decision to exit the co-branded card business reflects changing dynamics in the financial sector. For RBL Bank, this is both a challenge and an opportunity—a chance to redefine its credit card business while mitigating the immediate revenue impact.
Key Takeaways
- For Customers: Your co-branded cards will continue to work as RBL Bank assumes full management of the portfolio.
- For Investors: Short-term volatility aside, RBL Bank’s long-term growth strategy could pay off.
- For the Industry: This signals a possible shift in the co-branded card business model, with other players likely to reevaluate their strategies.
Conclusion: A Turning Point
While the end of this partnership may seem like a setback, it could mark the beginning of a new era for RBL Bank. By embracing operational independence and focusing on diversified revenue streams, the bank has the potential to emerge stronger.
For investors and industry watchers, this is a story worth keeping an eye on.
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