Behind Bajaj Finserv's Credit Card Walk Out

Over November, the two partners had held discussions on the future of the partnership, which first began in 2017. This was particularly surprising since in December 2021, both lenders had agreed to continue the partnership at least till 2026.

The RBL Bank-Bajaj Finserv co-branded credit card is sold through Bajaj Finance Ltd. It has been one of the more successful credit cards in India, as customers received rewards up to nearly Rs 18,000 annually, for a fee of Rs 1,999 per year. It was also a rather popular product to buy white goods on equated monthly installments.

"What is puzzling is that BAF (Bajaj Finance), which had once articulated its aspirations to become one of the largest card issuers in the country, has now decided to exit the co-branded card distribution entirely," Motilal Oswal analysts said on Monday.

At its peak, Bajaj Finance sold over 19 lakh co-branded credit cards in a year, with RBL Bank accounting for most. Reports had also surfaced that Bajaj Finance might announce its own credit card product, as the regulator was seen to be accepting applications for a licence.

Over November, the two partners had held discussions on the future of the partnership, which first began in 2017. This was particularly surprising since in December 2021, both lenders had agreed to continue the partnership at least till 2026.

The RBL Bank-Bajaj Finserv co-branded credit card is sold through Bajaj Finance Ltd. It has been one of the more successful credit cards in India, as customers received rewards up to nearly Rs 18,000 annually, for a fee of Rs 1,999 per year. It was also a rather popular product to buy white goods on equated monthly installments.

"What is puzzling is that BAF (Bajaj Finance), which had once articulated its aspirations to become one of the largest card issuers in the country, has now decided to exit the co-branded card distribution entirely," Motilal Oswal analysts said on Monday.

At its peak, Bajaj Finance sold over 19 lakh co-branded credit cards in a year, with RBL Bank accounting for most. Reports had also surfaced that Bajaj Finance might announce its own credit card product, as the regulator was seen to be accepting applications for a licence.

As of September 2024, the Bajaj Finance partnership accounted for 41% of RBL Bank's 52 lakh credit card book. Through the co-branded partnership, RBL Bank got access to some of the best affluent customers, while Bajaj Finance earned revenue in terms of origination and collection fee over the years.

Bajaj Finance's prime position in the consumer goods market allowed it to select great customers, who could then be cross-sold other banking products, a person with direct knowledge of the matter said. Top lenders like Bajaj Finance and HDFC Bank Ltd. have the right of first refusal in the consumer goods market, owing to their distribution network and strong underwriting.

RBL Bank benefitted more than the non-bank in this equation the person added. This was evident as RBL Bank's stock fell nearly 5% in early trade on Monday, while Bajaj Finance shares were down about 1%. By the end of the trading day, both stocks were in the green.

Going ahead, RBL Bank will focus on other credit card partnerships, with the likes of Paisabazaar, Bankbazaar, MoneyTap, LazyPay, SalarySe, Credilo, Indian Oil, BookMyShow, TVS Credit, IRCTC and Patanjali.

Over a call on Friday, Bikram Yadav, head, credit cards at RBL Bank, explained that Bajaj Finance accounted for about 25-30% of incremental card additions for RBL Bank. Over the next few months, RBL Bank would be able to cover any shortfall in card additions, with the partnership having ended.

RBL Bank aims to have a diversified base of co-branded credit card partners, where individual partners account for not more than 10-15% of outstanding cards, Yadav said. The bank would be the largest card acquirer in its book, he said.

Bajaj Finserv's decision to end the partnership with RBL Bank is being followed up with a complete end to all credit card partnerships, according to analysts.

Bajaj Finserv has also severed its co-branded card partnership with DBS Bank India, the international bank told NDTV Profit in a statement.

"For the existing customers of the Bajaj Finserv DBS Bank SuperCard, there is no disruption of services. They continue to access all existing benefits, privileges, and services that they enjoy with the current card," DBS Bank India said.

Currently, Bajaj Finserv and DBS Bank India's partnership has issued nearly 5 lakh credit cards, the India subsidiary of the Singapore bank said.

A second person in the know says that Bajaj Finance is likely exiting the co-branded credit card market, as regulatory strictures have made the business less revenue accretive.

RBI released its credit card master directions in March, where it imposed stricter rules for credit card partnerships. Post issuance of the card, the co-branded partner shall not be involved in any of the processes or the controls relating to the co-branded card except for being the initial point of contact in case of grievances, RBI norms said.

Owing to these rules, Bajaj Finserv was unable to add any incremental collection revenue, which accounted for a major chunk of the fees from such cards.

"...Incrementally, starting quarter 2, that activity (collection) has moved to RBL (Bank), rightfully so. And that has an impact in terms of overall fee income for the quarter," Sandeep Jain, chief operating officer and chief financial officer, Bajaj Finance told analysts on a conference call in October.

It became increasingly clear that for the non-bank lender, revenue addition was becoming less attractive, while regulatory burden of a credit card partnership was becoming too high.

Another reason behind this is also RBI's approach toward non-bank card issuers. According to the second person quoted above, the regulator is concerned with too many non-bank finance companies issuing credit cards. This is why the regulator brought out tighter norms for co-branded cards and is also not approving credit card licences for non-bank lenders.

For a lender like Bajaj Finance, it made more sense to cut out the business, than continue with the uncertainty, this person said.

A third person with direct knowledge of the matter said that Bajaj Finance is open to starting its own credit card operations, if RBI allows it. Currently, the non-bank lender is awaiting final guidelines in the matter.

According to Motilal Oswal's calculations, Bajaj Finance’s fee income would decline by approximately Rs 47 crore in fiscal 2025 and about Rs 140 crore in fiscal 2026. This translates into approximately 0.6% and 1.4% of the pre-provisioning operating profit in FY25 and FY26, respectively.

"Income from the trail fee stream will continue to accrue for at least the next 2-3 years, as there is no sunset clause in place for the sharing of trail fee income," the analysts said, adding that they do not expect any material earnings impact for Bajaj Finance.