RBI asks Federal Bank, South Indian Bank to stop new co-branded credit card issuances

  • Both banks will rectify the deficiencies, and await regulatory approval before issuing new cards

Gopika Gopakumar
Updated13 Mar 2024
Federal Bank said it is rectifying the deficiencies, and will await regulatory approval before issuing new cards.
Federal Bank said it is rectifying the deficiencies, and will await regulatory approval before issuing new cards.

Mumbai: The Reserve Bank of India has asked Federal Bank and South Indian Bank to stop issuing new co-branded credit cards, marking a step towards increased regulatory scrutiny.

In a stock exchange filing on Wednesday, Federal Bank said it is rectifying the deficiencies, and will await regulatory approval before issuing new cards. Nevertheless, the bank will continue offering credit cards to both new and existing customers in the non-co-branded segment.

Likewise, South Indian Bank also informed the stock exchanges that it will not enroll new customers for its co-branded products till regulatory requirements are complied with.

Both banks also clarified that they will continue to serve existing customers with co-branded credit cards.

Co-branded credit cards have witnessed significant growth in recent years, with most banks entering into arrangements with merchants and fintech companies. As of January, the number of credit cards in circulation reached 99 million, up from 97.9 million in December 2023.

On 7 March, RBI revised the master direction on credit and debit cards, simplifying the process for NBFCs and banks to become co-branded partners of card issuers without prior approval.

Additionally, the central bank said that for cardholder convenience, transaction data may be securely retrieved from a card issuer's system in an encrypted form and displayed on a co-branding partner (CBP)'s platform.

In another circular on 6 March, RBI prohibited banks from entering into exclusive arrangements with card networks such as Visa, American Express, and Mastercard, to ensure customers have access to multiple card network options.

Customers will now have the opportunity to select from multiple card networks during the issuance process. Existing cardholders may be offered a choice at the time of renewal.

In February, the central bank had instructed a card network to temporarily halt commercial payments made via credit cards. 

Business-to-business vendor payments through credit cards amounted to 20,000 crore per month, or about 12.5% of total credit card spending.

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