The Reserve Bank of India (RBI) has directed Federal Bank and South Indian Bank to stop issuing new co-branded credit cards, a move that will halt their expansion drives in that growing space.

The two Kerala-headquartered private banks in separate stock exchange filings today stated that the regulator had asked them to stop adding new customers to their co-branded cards, considered to be a high-margin business.

The directive follows a recent change in rules for credit and debit cards, the banks said without disclosing the reasons cited by the RBI.

As per the RBI rules, 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.

The banks, in their filings to the exchanges, did not specify whether the RBI acted on them because of violation of this provision or for other reasons.

Federal Bank has three co-branded credit cards, partnering OneCard Scapia Technology and FI Brand. These cards mainly target the new generation customers.

Federal Bank said it is in the process of rectifying the areas that are deficient and will await regulatory approval before resuming issuance of new cards. 

For existing customers holding co-branded credit cards, the bank will continue to service them.

In the non-co-branded segment, the bank will continue to offer credit cards to new and existing customers.

South Indian Bank also informed the stock exchanges that it will not add new customers for its co-branded products till regulatory requirements are complied with.

It will, however, continue to serve existing customers with co-branded credit cards.