Federal Bank, South Indian Bank shares plunge up to 5% on RBI action
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Shares of Federal Bank and South Indian Bank plunged up to 5% on Thursday after the Reserve Bank of India barred both banks from issuing co-branded credit cards.
Federal Bank informed exchanges that it is in the process of rectifying areas that are deficient and will seek regulatory clearance prior to the resumption of new issuance.
"The bank continues to offer credit cards to new and existing customers in the non-co-branded segment and will also continue to service the existing customers who currently hold co-branded credit cards issued by the bank," said the bank.
Meanwhile, South Indian Bank said in an exchange filing that it will not on-board any fresh customers for co-branded credit cards until it fully complies with the regulatory guidelines issued in this regard. "The bank would however continue to service the existing customers who hold co-branded credit cards issued by the bank," said South Indian Bank.
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Triggered by the development, the share price of Federal Bank plunged as much as 5.50% to hit an intraday low of ₹139.80 apiece on the BSE. The share price of South Indian Bank Ltd plunged as much as 3.57% to hit an intraday low of ₹25.27 apiece on the BSE. At 11:23 am, the share price of Federal Bank was trading 1.15% lower at ₹146.25. On the other hand, the share price of South Indian Bank recovered and traded 3.70% higher at ₹27.18. This was in line with the broader BSE Sensex, which was up 186.59 points at 72,948.48.
The banking regulator, in a circular dated March 12, said that a card issuer can partner with more than one co-branding partner (CBP) for one card. "However, a CBP shall not have access to card transaction data irrespective of any other service offered by them to the card issuer. For the purpose of customer convenience, card transaction-related data may be drawn directly from the card issuer’s system in an encrypted form and displayed in the CBP's platform with robust security. The information displayed through the CBP’s platform shall be visible only to the cardholder and shall neither be accessed nor be stored by the CBP," said RBI.
Last week, the banking regulator told business card issuers to put in place an effective mechanism to monitor the end use of funds. The central bank said that card issuers shall not share card data (including transaction data) of the cardholders with the outsourcing partners unless the sharing of such data is essential to discharge the functions assigned to the latter.
Meanwhile, the apex bank also directed banks to give options to customers to choose from multiple card networks.
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