Federal Bank Plans for Co-Branded Credit Cards due to RBI restrictions

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Private sector lender Federal Bank is planning to make significant changes to its credit card business following restrictions imposed by the Reserve Bank of India (RBI). Chitrabhanu KG, senior vice-president and country head for retail assets and cards at Federal Bank, provided insights into the bank’s plans and strategies in response to the regulatory constraints.

Addressing Regulatory Concerns and Business Enhancements

Federal Bank has been actively working to address the concerns raised by the RBI regarding its credit card business. Chitrabhanu KG mentioned that the bank is intensively focusing on regulatory compliance and internal improvements to ensure adherence to the RBI’s requirements. Additionally, the bank is seeking to collaborate with non-fintech partners for co-branded credit cards, aiming to enhance its business within the next four to five months.

Expansion and Hiring Plans

In line with its efforts to strengthen its credit card vertical, Federal Bank is planning to hire approximately 300 individuals for its organic credit card business. The bank has already bolstered its salesforce by recruiting 140-150 employees in the past few months, with a focus on expanding its presence in various regions, including Tamil Nadu, Karnataka, Maharashtra, Hyderabad, and Delhi. Furthermore, the bank is considering further expansion in Gujarat based on the potential it observes in that region.

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Business Growth and Regulatory Engagement

Despite the regulatory actions taken by the RBI, Federal Bank is aggressively pursuing the growth of its organic credit card business. The regulatory constraints have prompted an urgent focus on expanding the bank’s business, leading to the implementation of various strategies that have resulted in increased numbers and business performance.

Impact of Regulatory Actions and Future Plans

The latest investor presentation for Q4FY24 revealed that Federal Bank’s credit card business experienced significant growth, with a 101 percent increase in year-on-year credit card business. The bank’s total credit card spends also saw a substantial rise, reaching Rs 1,701 crore in March 2024. Despite the regulatory restrictions, Federal Bank remains optimistic about its business and plans to re-launch its co-branded cards business in the coming months, following necessary regulatory approvals.

RBI’s Regulatory Directives and Impact on Co-Branded Cards

The RBI’s Master Direction on Amendment to the Master Direction — Credit Card and Debit Card — Issuance and Conduct Directions, 2022, has imposed specific guidelines for co-branded cards. These guidelines emphasize the explicit indication of co-branded cards as part of a co-branding arrangement, with clear mention of the card-issuer. Federal Bank has existing co-branded cards with Fi, Scapia, and One Card, and has faced regulatory restrictions related to its co-branded credit card partnerships.

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Responses from Federal Bank’s Leadership

Federal Bank’s Managing Director and Chief Executive Officer, Shyam Srinivasan, expressed confidence in the bank’s ability to address the regulatory concerns and re-launch its co-branded cards business in the next three to four months. Additionally, Executive Director Shalini Warrier highlighted that the bank does not anticipate a significant impact on its fee income due to the regulatory actions, and the bank is actively working on addressing the RBI’s requirements and presenting its plan for necessary corrections.

These developments reflect Federal Bank’s proactive approach to navigate regulatory challenges and drive growth in its credit card business.

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