­Improving financial performance, along with benefits emanating from the parentage of Federal Bank
 
FOSL was incorporated in October 2018 as a wholly owned subsidiary of FBL. FOSL is strategically important to FBL and is significantly aligned with FBL’s banking operations. As of March 31, 2025, FOSL was handling 240 activities, compared to 127 activities as of March 31, 2024.These activities include contact centre, account opening, and trade finance activities. It operates as a captive vehicle for FBL and is required to maintain exclusivity with FBL. It operates from its four offices located in Kochi, Bangalore, Vizag and Indore. The financial performance of FOSL witnessed improvement in terms of an increase in revenue of ~34% to Rs. 102.86 crore in FY2025 over Rs. 76.47 crore in FY2024. The net profitability margin stood at 7.69% in FY25. The increase in financial performance is due to FOSL acquiring more and more activities from its parent company (FBL) every year. FOSL has the target of acquiring all remaining activities in the near to medium term. In line with the increase in its scale of operations, FOSL is also gradually increasing its workforce. As per the arrangement with FBL, FOSL carries out several activities that are considered important from a customer service standpoint. Since the operational risks in banking are significantly high, FBL maintains considerable oversight over the operations of FOSL. FOSL has integrated with the bank's tech platform and aids the bank in improving its operating efficiency through lower costs of operations and better productivity. The Board of Directors of FOSL comprises nominees from FBL and experienced professionals. Mr. Siddhartha Sengupta, Independent Director of FBL, is the Chairman and Director of FOSL. Besides the managerial support, FBL has infused funds by way of equity and preference shares to support the business operations of FOSL. The company’s operations are managed by Mr. Prashant Preman, President and full-time Executive Director. He has been associated with FedServ since August 2019. He has been appointed as Whole-Time Director (as Key Managerial Personnel) of FedServ with effect from April 16, 2021. Mr. Prashant has been key to FedServ in setting up and rolling out successful long-term and short-term strategic programmes and successfully reengineering various operations, including consumer asset products including ATMs, debit cards, contact centre operations, CASA and KYC operations, trade finance operations, and various other activities. FOSL has also received support from other key employees of FBL who are assisting in the smooth migration of systems to FOSL. Acuité believes that FOSL will continue to derive significant benefits from FBL and augment its scale of operations through the gradual migration of the processes as envisaged under their mutual arrangement. The continued support and ownership of FOSL by FBL will be central to the rating.

­Initial stage of operations; susceptible to operational and regulatory risks
 
Since FOSL was incorporated in 2018, it is in its initial stage of operations. Though the plan of activities for migration is going as planned, the gradual takeover of activities by FOSL is done in close coordination with the employees of FBL. As of March 31, 2025, FOSL manages 240 activities of FBL. The operations of FOSL are dependent on FBL’s systems and databases, which exposes FOSL to operational risks. The risks are expected to multiply once additional processes are added to FOSL’s portfolio. Hence, continuous management of operational risks is crucial for the smooth running of this arrangement. Besides operational risks, the growth trajectory of FOSL will also depend on the regulatory environment. Any changes in the regulatory framework restricting or curtailing banks from outsourcing their activities will impinge on the performance of FOSL. Acuité believes that the success of FOSL’s business model will depend on its ability to manage the various operational aspects and enhance its linkages with FBL within the regulatory paradigm.