Synopsis: RBL Bank's shares experienced a significant drop of nearly 5% after the bank announced the end of its eight-year-long partnership with Bajaj Finance for co-branded credit cards. This move has led to a downgrade in the target price for RBL Bank's stock by multiple brokerages, including Emkay Global, which slashed its target price by 23%.
RBL Bank saw its shares fall by nearly 5% on Monday, dropping to Rs 147.55 on the BSE, following the announcement that it would be ending its long-standing partnership with Bajaj Finance for co-branded credit cards.
This partnership, which began in 2016, was mutually dissolved after the two firms concluded that the synergies that once existed between them had changed significantly over time.
As a result, RBL Bank and Bajaj Finance have agreed to terminate the agreement, with Bajaj Finance exiting the co-branded card distribution business entirely.
Despite the termination of the partnership, RBL Bank will continue to service its existing portfolio of nearly 3.4 million co-branded credit cards.
The bank announced that customers whose cards are up for renewal will receive RBL-branded credit cards instead.
Notably, the dependence on the partnership had already dwindled significantly, with RBL Bank's reliance on the collaboration falling from 1.26 lakh co-branded cards in September last year to just 37,000 in September 2024.
The decision comes as a surprise to many in the industry, especially as Bajaj Finance had once aspired to become one of the largest card issuers in the country.
Brokerage firm Motilal Oswal noted that Bajaj Finance’s move to exit the co-branded card space was puzzling, particularly given its earlier ambitions.
Brokerage Reactions:
Brokerages have reacted sharply to the news. Emkay Global downgraded its target price for RBL Bank by 23% to Rs 250 and lowered its earnings forecast for FY25, FY26, and FY27 by 18%, 3%, and 6%, respectively.
Despite the reduction in the target price, Emkay Global retained a "Buy" rating on the stock, citing a better long-term risk-reward profile for the bank.
The downgrade reflects concerns over slower growth and returns on assets, as the bank shifts its focus toward secured loans.
Motilal Oswal, on the other hand, suggested that the RBI's role in influencing the termination decision was important, highlighting that the move was in response to changing market conditions.
The brokerage, however, maintained a "neutral" stance on Bajaj Finance with a target price of Rs 7,250, noting that the company's performance may face challenges until it successfully addresses asset quality issues and increases its proportion of secured loans.
Bajaj Finance's Response:
Bajaj Finance also saw its stock price dip by 1.3% to Rs 6,493 on Monday.
The company’s exit from the co-branded credit card business has raised questions about its future strategy, especially after it had expressed ambitions to become a leading card issuer.
Brokerages are closely monitoring Bajaj Finance's ability to navigate asset quality challenges and shift its loan mix toward more secured loans.
In conclusion, the end of the partnership between RBL Bank and Bajaj Finance has raised concerns in the financial markets, leading to a decline in the share prices of both companies.
Brokerages have lowered their target prices for RBL Bank, while maintaining a cautious stance on Bajaj Finance.
While RBL Bank is expected to continue to service its existing cardholder base, its future growth trajectory may face challenges in the short term.
On the other hand, Bajaj Finance’s exit from the co-branded card market raises questions about its future strategy in the competitive financial services sector.
Investors are advised to monitor the companies' future moves and the broader market trends before making any investment decisions.
Disclaimer: This article is for informational purposes only and should not be construed as investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions.
