Mumbai: Banks looking to get into the credit card business in association with non-banking companies are in for a struggle with India’s banking regulator frowning on such alliances after the country’s second largest credit card issuer SBI Cards and Payment Services Ltd, a joint venture of State Bank of India (SBI) and GE Money, ran up huge non-performing assets, or NPAs.
“Banks partnering with non-banking companies for credit card ventures is not acceptable. It is important that the joint venture partner is regulated by a banking regulator in the geography it comes from,” said a top Reserve Bank of India (RBI) official, who didn’t wish to be identified.
Earlier this year, RBI rejected Punjab National Bank’s proposal to float a credit card joint venture with insurer American International Group Inc. (AIG) and Venture Infotek Global Pvt. Ltd, a third-party processor for credit card companies.
However, the banking regulator has not issued any notification to this effect.
“We do not want any bank to come to us and clarify that the rising non-performing assets and customer complaints in the business is on account of the joint venture partner and not the bank. Banks should have full control in the day-to-day running of the business,” added the RBI official.
In another instance last year, RBI did not clear Standard Chartered Plc.’s acquisition of American Express Bank in India, as the US bank’s parent American Express Co. (Amex) had wanted to retain the credit card and travel businesses by transferring them to a non-banking finance company (NBFC). RBI was not comfortable with an NBFC operating a credit card business without a bank as a partner. Amex eventually approached the regulator with a suggestion that it be issued a restricted banking licence to conduct credit card and travel-related businesses, which RBI accepted. It was the first such licence issued by the central bank.
People familiar with the thinking at RBI say that the regulator’s discomfort with non-banking companies entering the credit cards businesses has heightened after cracks developed in the SBI Cards-GE Money venture.
Mint had reported in April that the credit card firm’s NPAs as of 31 December stood at 16.28%. In other words, 16.28% of the total outstandings of its customers could not be collected by the company.
“SBI was under pressure from RBI to rectify its systems and processes as customer complaints against SBI Cards were rising. The mounting pressure forced SBI to take management control in its credit card joint venture,” said a person familiar with this issue, who did not wish to be identified.
In May, SBI and GE Money split their credit card business into two separate ventures, with a chief executive officer in each venture “to enable a higher level of responsiveness to customer needs”. SBI took control of the cards business. Another JV, GE Capital Business Processes Management Services Pvt. Ltd, will handle the technology and processing needs of the business.
RBI is more comfortable with credit card ventures that have banks running the back-end operations, or servicing of customer accounts. Cards issued by such companies are known as white-labelled cards.
For instance, Development Credit Bank Ltd launched its credit card business in association with ICICI Bank Ltd, where ICICI is in charge of servicing the cards. Similarly, the Reliance-Anil Dhirubhai Ambani Group (R-Adag) started a credit card venture in partnership with Citibank India where Citibank will handle the back-end operations of the card business for R-Adag.