RBL Bank shares fell by 4.06% to ₹148.70 on the Bombay Stock Exchange (BSE) on Monday, continuing a tough year for the bank, with its year-to-date losses hitting 47.71%. This sharp drop follows the announcement of Bajaj Finance Ltd. exiting the co-branded credit card business, a significant partnership for RBL Bank.
The end of this partnership means a shift in strategy for RBL Bank, which has relied heavily on Bajaj Finance for its credit card customer base. The bank has reduced its issuance of new credit cards from 2-2.5 lakh per month to approximately 1 lakh per month.
Why Did Bajaj Finance Exit?
Bajaj Finance’s decision to leave the co-branded credit card business is strategic. The company is moving away from this segment entirely, which has forced RBL Bank to rethink its approach to credit card issuance.
Key implications for RBL Bank:
- Loan Growth Impact: The bank’s loan growth is expected to decrease in the short term. Analysts have cut the FY25 loan growth estimate from 15.4% to 13.2%.
- Higher Origination Costs: With increased reliance on direct sourcing, the cost of acquiring new credit card customers is expected to rise.
- Customer Attrition: Existing customers holding co-branded cards may switch to other providers, further impacting revenues.
Analyst Insights: What Experts Say
Analysts have mixed views on RBL Bank’s future. Here’s a summary of notable opinions:
- Nirmal Bang Institutional Equities:
Revised RBL Bank’s valuation to 0.6 times September 2026 adjusted book value (ABV) from 0.75 times earlier. It also slashed the stock’s target price to ₹174 from ₹219, citing loan growth and earnings concerns. - Morgan Stanley:
Suggested a target price of ₹180, highlighting the significant role Bajaj Finance played in RBL Bank’s credit card issuance and market share. The brokerage anticipates challenges in maintaining this share in the medium term. - MOFSL (Motilal Oswal Financial Services):
Maintained a ‘Neutral’ rating with a revised target price of ₹170. While the brokerage noted that RBL Bank has made strides in its credit card business, it suggested that diversifying partnerships and focusing on direct sourcing would take time to yield results.
| Brokerage | Target Price | Reasoning |
|---|---|---|
| Nirmal Bang | ₹174 | Lower ABV valuation due to reduced loan growth |
| Morgan Stanley | ₹180 | Challenges in maintaining credit card market share |
| MOFSL | ₹170 | Optimistic about long-term recovery |
The Path Forward: What’s Next for RBL Bank?
RBL Bank is adopting a new strategy to reduce its reliance on third-party partnerships. The management aims to grow its credit card business by 10-15% annually and recover lost volumes by Q4FY25. Key elements of their strategy include:
- Direct Sourcing: Building a larger portfolio of directly sourced customers to reduce dependency on partnerships.
- New Partnerships: Exploring newer collaborations to expand the customer base.
- Improved Asset Quality: Management reports better asset quality in its credit card segment, indicating stability in its existing portfolio.
Despite these initiatives, analysts warn that higher acquisition costs and potential customer attrition may offset short-term gains.
Investment Outlook: Should You Buy, Hold, or Sell?
RBL Bank’s current challenges present a mixed bag for investors. While the bank’s strategic shift could yield long-term benefits, the short-term outlook remains uncertain. For investors:
- Short-term Risks: Reduced loan growth and increased costs may weigh on profitability in the next few quarters.
- Long-term Potential: Improved return on assets (RoA) and equity (RoE) are expected by FY27, driven by loan and earnings growth, better cost ratios, and lower credit costs.
If you are a conservative investor, holding the stock might be prudent until there are clearer signs of recovery. For aggressive investors, the current dip could be an opportunity to accumulate, given the optimistic long-term projections.
Conclusion: A Crucial Turning Point
RBL Bank’s decision to part ways with Bajaj Finance marks a pivotal moment in its journey. While this shift creates immediate challenges, it also opens doors for diversification and self-reliance in the long term. Investors should keep a close watch on the bank’s progress in achieving its growth and profitability goals.
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