Banking & Finance: RBI tightens the noose on co-branded cards

14 Mar 2024 , 10:40 AM

Recent regulatory changes pertaining to credit cards

 

The RBI has barred Federal (FB) and South Indian Bank (SIB) from issuing new co-branded credit cards. This follows the recent regulatory changes viz. (1) restrictions on commercial credit cards (2) shift from ‘penal interest’ to ‘penal charge’ regime (3) data accessibility by co-brand partners (CBP). Analysts of IIFL Capital Services believe that the restrictions on FB/SIB are mainly due to a lapse in the data ownership and sharing with their fintech partner(s); whereas the RBL-BAF partnership is under scrutiny mainly due to collection issues. While prior RBI approval is no longer required for co-branded partnerships, analysts of IIFL Capital Services think the regulator wants CBP’s role limited to sourcing and distribution only. Other co-branded card partnerships can also come under scrutiny with CSB, Indian Bank, BOB Card and SBM Bank also having a tie-up with the same fintech under the radar. With credit cards constituting 1-20% of banks’ total loans, 30-80% of the cards being co-branded, and the recent increase in risk-weights — analysts of IIFL Capital Services expect the revenue to be impacted — less for large banks, but more for smaller banks and select NBFCs.