Federal Bank experienced a significant drop of more than 5 percent in its share value on March 14th following the decision to halt the issuance of co-branded credit cards, as directed by the Reserve Bank of India (RBI).
So far this year, Federal Bank has faced a decline exceeding 5 percent, a contrast to the 2 percent drop observed in the Bank Nifty index. The bank had reached a 52-week high of Rs 166 on February 19th.
Federal Bank has announced a pivotal decision to suspend the issuance of new co-branded credit cards, aligning with directives from the Reserve Bank of India (RBI). Despite this pause, the bank assures its existing cardholders of uninterrupted service and support.
Co-branded credit cards, formed through collaborations between financial institutions and various businesses such as retailers, airlines, or hotel chains, are recognized by the logos of both entities. These cards offer tailored benefits and rewards, enhancing customer loyalty and engagement through unique perks associated with partner companies.
This strategic move by Federal Bank reflects its proactive stance in adhering to regulatory guidelines while prioritizing customer satisfaction. By focusing on maintaining service continuity for existing cardholders, the bank aims to uphold its reputation for reliability and customer-centricity amidst evolving market dynamics.
As per Reserve Bank of India (RBI) regulations, the co-branding partner is restricted from accessing information pertaining to transactions conducted using the co-branded card. Following the card’s issuance, the co-branding partner is prohibited from participating in any processes or controls related to the co-branded card, with the exception of serving as the primary contact point for addressing grievances.
According to analysis conducted by Nomura, the recent directives issued by the Reserve Bank of India (RBI) are not expected to immediately impact the Net Interest Margin (NIM). However, Nomura analysts underscore the significance of sustainable expansion in unsecured retail loans, particularly through fintech partnerships, as a critical driver for incremental loan growth and NIM expansion throughout fiscal years 2024 to 2026.
Nomura further emphasizes the attractive valuation of Federal Bank, which is currently trading at a compelling 0.9 times the Book Value Per Share (BVPS) for fiscal year 2026. With a positive outlook on the bank’s prospects, Nomura values Federal Bank at 1.2 times the BVPS projected for December 2025, setting a target price of Rs 190 per share.
Despite the aforementioned insights, Federal Bank’s stock witnessed a slight decline, trading at Rs 146.35 on the National Stock Exchange (NSE) as of 12:15 pm, representing a decrease of 1.45 percent from the previous close. Nevertheless, Nomura’s analysis suggests a potential for substantial growth and value appreciation in the foreseeable future, given the bank’s strategic positioning and growth prospects.
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