The Reserve Bank of India (RBI), the central bank of India, has instructed South Indian Bank and Federal Bank to halt the issuance of new co-branded credit cards to customers.
How Did This Happen?
The directive was communicated by the banks in separate filings to the stock exchanges on Wednesday.
While confirming the news, South Indian Bank stated that the bank has been asked by the RBI to stop on-boarding any fresh customers in its co-branded credit cards until it complies with regulator guidelines.
It is noteworthy here that the banks will continue servicing existing customers, as per the statement.
Similar to South Indian Bank, the Federal Bank also confirmed the news saying it has been asked to halt the issuance of new co-branded credit cards by the Reserve Bank of India (RBI).
Further adding,”The Bank is in the process of rectifying the areas that are deficient and will seek regulatory clearance prior to resumption of new issuance.”
Although, these private sector lenders did not disclose any information regarding the reasons cited by the central bank for these actions.
According to them, the directive follows a recent change in rules for credit and debit cards.
Under these rules, the RBI reiterated that co-branding partners of credit cards cannot access customer data or be involved in any of the processes after the initial issuance of the cards.
Here, the situation gets interesting for these banks as they did not specify whether the restrictions placed on them were due to a breach of this provision or another condition, in their filings to the exchanges.
Penalty On Bank of India & Bandhan Bank
In another such development, the Reserve Bank of India (RBI) has imposed a penalty of Rs 1.4 crore on Bank of India for non-compliance with certain regulatory norms on Wednesday.
Similarly, RBI has also imposed a penalty of Rs 29.55 lakh on private sector lender Bandhan Bank, this was also for the non-compliance with certain directions.
The penalty imposed on Bank of India is due to its failure to comply with various directions issued by the Reserve Bank of India (RBI).
These directions pertain to matters such as interest rates on deposits and advances, customer service in banks, as well as contravention of provisions outlined in the Credit Information Companies Rules, 2006.
According to RBI, the statutory inspection for supervisory evaluation of the bank was conducted by it with reference to its financial position as on March 31, 2021 and March 31, 2022.
Besides this, the central bank of the country also imposed a penalty of Rs 13.60 lakh on Indostar Capital Finance Ltd for non-compliance with the ‘Monitoring of Frauds in NBFCs (Reserve Bank) Directions, 2016’ and with certain provisions of KYC directions.
Notably the penalties were imposed for deficiencies in regulatory compliance in all these cases.
According to RBI, they are not intended to pronounce upon the validity of any transaction or agreement entered into by the entities with their customers.
