Federal Bank eyes long-term value creation from SCB Card portfolio acquisition

ET Intelligence Group: Federal Bank is set to gain from a high-quality customer base through its acquisition of Standard Chartered Bank’s (SCB) credit card portfolio, with 95% of incoming customers holding a credit score of 700 or above. This ensures relatively low-risk, creditworthy additions to the bank’s books. The new portfolio also brings a younger demographic, with 25-30% of customers in the 25-35 age bracket and 35-40% in the 35-45 range, giving the bank a long runway to deepen relationships over time. However, customer attrition will be a challenge as seen during the Axis Bank-Citi deal.

On April 30, Federal Bank said it would acquire a select credit card portfolio from Standard Chartered Bank, with nearly 75% of the card base concentrated in India’s top eight cities.

Since most of these customers currently hold only a single product, Federal Bank will explore opportunities to cross-sell by offering services such as savings account, personal loans, investment products, and other banking services.

“These are emerging affluent and affluent customers. Even converting a portion of these 4.5 lakh cardholders into savings account holders or cross-selling assets and investment products presents a huge opportunity,” Virat Diwanji, national head of consumer banking, Federal Bank told ET. Over 60% of these customers have a relationship of more than three years, he said.

History however shows that cross-selling may not be an easy task. For instance, during the HDFC Bank-HDFC merger, nearly 70% of HDFC customers did not have a banking relationship with HDFC Bank. This highlighted the execution challenge in converting single-product customers into multi-product relationships.

Federal Bank will also face the challenge of retaining Standard Chartered customers and the costs associated with it. After the Axis Bank-Citibank deal was announced, a portion of customers chose not to migrate, highlighting the risk of attrition in such transactions. Similarly, to retain Standard Chartered customers, Federal Bank may need to offer certain incentives, which could put pressure on its profitability. The bank’s management has said that customer attrition has been considered as a key factor, and it remains optimistic that the level of attrition will not be high. The limited geographic presence of Kochi-headquartered Federal Bank could be another concern in the minds of Standard Chartered customers. While Federal Bank has a strong presence in southern India, its footprint is not as prominent in other parts of the country. In FY25, 1,099 or over two-third of its total 1,589 branches including extension counters were located in the southern states of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh and Telangana.

Once signed, the deal is expected to be complete in five-six months. Federal Bank announced better than expected results in the March quarter with net profit beating analysts estimates. Net profit jumped 22% to Rs 1,259 crore while net interest income rose 33% to ‘3,174 crore.