Highlights:
• According to the RBI’s credit card guidelines, registered NBFCs cannot issue credit cards
• Only two public sector NBFCs have been approved by the RBI to issue credit cards
Non-Banking Financial Companies (NBFCs) have long awaited the Reserve Bank of India’s (RBI) approval to issue credit cards without partnering with any banks.
Until now, only two public sector NBFCs – SBI Cards and BoB Cards – have been permitted to issue credit cards by the RBI. The regulator issued a Master Direction on credit and debit cards on April 21, a document that combines instructions on rules and regulations.
While prior Master Directions have always included NBFCs, this time the regulator has provided additional details, giving institutions some hope, but not without raising some concerns.
This is especially relevant in the current context when fintech startups with their own NBFC licenses are providing prepaid cards in collaboration with banks. On the other hand, prominent NBFCs like Bajaj Finance are waiting for the green light to enter the credit card market.
What does the Master Direction have to say about it?
“Non-Banking Financial Companies registered with the Reserve Bank shall not undertake credit card business without the Reserve Bank’s prior consent,” the paper states.
The good news is that NBFCs can now issue credit cards if they can secure the regulator’s approval. Furthermore, the RBI mandates that these organizations obtain a Certificate of Registration, which requires a minimum net owned fund of Rs 100 crore.
The RBI has stated that the co-branding partner entity’s engagement in co-branded cards will be confined to marketing and distribution. In addition, the co-branding partner will not have access to information about transactions made with the card.
What does this signify for large NBFCs?
Before permitting NBFCs to offer credit cards, the RBI is likely to impose strict conditions, such as a minimum net worth requirement, liquidity requirements, and acceptable cybersecurity. “The RBI monitors roughly 15 significant NBFCs in the country regularly.”
“They could be among the first five institutions to be considered,” a source added. Apart from Bajaj Finance, which has the greatest net worth among NBFCs, Aditya Birla Capital, M&M Financial Services, Sundaram Finance, L&T Finance Holdings, IDFC Ltd, Tata Investment Corp, and others may be eligible for RBI approval.
Allowing NBFCs to issue credit cards will boost financial inclusion in the country and increase the pool of credit cardholders in a country where credit card penetration is abysmally low at only 3-4 percent.
