Scramble among shadow banks for credit card licences likely

The latest Reserve Bank of India (RBI) decision allowing non-banking finance companies (NBFCs) to offer credit cards without a banking partner could spark a scramble for these licences, though only a few are expected to make the cut.

On Thursday, the RBI said in a master circular that a non-deposit taking company looking to issue cards would require a certificate of registration from the regulator and minimum net-owned funds of ₹100 crore.

Many non-banking finance companies (NBFCs) will be interested, said Vijay Jasuja, director of PNB Cards.

“Credit cards are a lucrative business, returns are high, and the Indian market is under-penetrated. There will be many companies which will apply. That said, existing NBFCs will not be able then to maintain the card relationship with their banking partners. They have to choose either one,” he added.

So far, the central bank has allowed only two NBFCs to issue credit cards without banking partners: SBI Cards and BoB Cards.

Analysts believe the biggest beneficiary of the change will be Bajaj Finserv Ltd, which already issues a series of co-branded credit cards in partnership with RBL Bank.

As of December 2021, the Bajaj Finserv-RBL co-branded credit card base stood at 2.59 million. In 2021, Bajaj Finserv extended its RBL partnership by another five years till 2026.

“RBI will now be more open to granting licences to various large players, and NBFCs like Bajaj Finance, who have a tie-up with RBL Bank currently, could apply, thereby increasing competitive intensity,” a Macquarie report said on Friday.

“The interpretation is that RBI will be more open for a liberal credit card licensing regime and will be fine with NBFCs retaining risk on the balance sheet,” it added.

“The Reserve Bank of India’s recent guidelines to allow NBFCs to issue credit cards after prior approval from the central bank is a welcome step. It will provide an opportunity to serve credit-worthy individuals using new-age data analytics, which are being leveraged exponentially by NBFC companies like ours,” said Abhay Bhutada, managing director of Poonawalla Fincorp Ltd (previously Magma Fincorp).

Separately, the Reserve Bank also said information relating to revenue sharing between the card-issuer (bank) and the co-branding partner entity (NBFC) should be indicated to the cardholder and also displayed on the website of the card issuer.

Some industry players find this irrational.

“Customer is getting ‘X’ benefit; why should he bother about the revenue-sharing arrangement between the partners is beyond understanding. I don’t think it has any meaning. What benefit will the customer get?” a senior industry executive said.

The Reserve Bank circular also stated that the co-branding partner would not have access to information relating to transactions undertaken through the co-branded card.

“Post issuance of the card, the co-branding partner, shall not be involved in any of the processes or the controls relating to the co-branded card except for being the initial point of contact in case of grievances,” the Reserve Bank added.