RBI Restricts Federal Bank & South Indian Bank From Issuing New Co-branded Credit Card

The Reserve Bank of India (RBI) has recently directed Federal Bank and South Indian Bank to halt the issuance of new co-branded credit cards. This move signifies an increase in regulatory oversight. In a stock exchange filing on Wednesday, Federal Bank stated that it is currently addressing the issues and will await regulatory approval before issuing new cards. However, the bank will continue to provide credit cards to new and existing customers in the non-co-branded segment. Similarly, South Indian Bank also reported that it will not sign up new customers for its co-branded products until it complies with regulatory requirements. Both banks also confirmed that they will continue serving existing customers with co-branded credit cards.

Co-branded credit cards have experienced significant growth in recent years, with most banks partnering with merchants and fintech companies. As of January, the number of credit cards in circulation had risen to 99 million, up from 97.9 million in December 2023. On 7 March, the RBI revised the master directive 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 stated that, for cardholder convenience, transaction data could 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, the RBI prohibited banks from entering into exclusive agreements 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 instructed a card network to temporarily suspend commercial payments made through credit cards. Business-to-business vendor payments using credit cards accounted for Rs 20,000 crore per month or about 12.5 per cent of total credit card spending.