RBI to Allow NBFCs to Issue Credit Cards

If the latest move by the RBI is through, we could see a surge in credit card issuances in India. For a debt averse culture like India, the number of credit cards have lagged the number of debit cards but a huge margin. This is in contrast to the trends in other countries wherein it is the credit cards that lead the way. RBI is currently in discussion with some leading NBFCs on allowing them to issue credit cards on a standalone basis. 

It is not that NBFC cards do not exist. Currently, NBFCs can issue credit cards, but these can only be co-branded credit cards with banks. Under the new system, the NBFCs will be allowed to originate the credit cards and also directly tie up with Visa or MasterCard or RuPay for processing and transaction back office for these credit cards. This will ensure that the customer ownership stays with the NBFCs and they don’t need to share it with banks.

The idea of allowing NBFCs with a certain minimum net worth was first mooted by the RBI in the year 2004, but the debate has not been pushed further except for allowing co-branded credit cards by NBFCs. However, a lot has changed in the last few years with the new age Fintech players and digital lenders redefining financial intermediation in a big way. In this light, an additional facility will allow NBFCs to offer a better palate to customers.

The role of the NBFCs cannot be over emphasized in the Indian context. A joint report by the NITI Aayog and Mastercard had clearly highlighted that the NBFCs accounted for almost 20% to 30% of the total credit given in the system. With the emergence of digital credit cards in vogue in most places. It is time to do a rethink on who can really issue credit cards.

As of now only two NBFCs are permitted to issue cards viz. SBI Cards and BOB Cards. However, both are subsidiaries of large public sector banks. In the private sector, large NBFCs like Reliance Capital, Tata Capital and Bajaj Finance had approached the RBI for issue of credit cards, citing its July 2004 circular. These players wanted to issue standalone credit cards on the Visa network, so that the entire customer ownership can rest with them.

As per data put out by the latest RBI Bulletin, there are a total of 6.70 crore credit cards in India as compared to 93.40 crore debit cards. This is all the more surprising since more than 55 crore Indians already have an existing credit bureau history, which should easily make them eligible for credit cards. It is this massive opportunity that the NBFCs are looking to tap with their more flexible and decentralized network.

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