A representation made by Indian Banks Association (IBA) to the government is likely to trigger a Competition Commission of India (CCI) probe into alleged cartelization by chip suppliers, which is seen to be hampering card issuance by banks.

The trigger for the representation arose out of the difficulty faced by banks in providing RuPay cards to account holders under Pradhan Mantri Jan Dhan Yojana (PMJDY) which aims to expand affordable access to financial services such as bank accounts, remittances, credit, insurance and pensions. 

CCI is likely to take up the matter suo motu and initiate a probe, as such “shortage” has the potential to derail the flagship programme of the government for financial inclusion, sources close to the developments said.

Banks are learned to have conveyed to the government that supply shortages have pushed up prices of chips globally, which has prompted local vendors to increase prices despite existing supply contracts.

“Government intervention has been sought on this matter,” sources added. “The current shortage of cards is on account of a shortage of chips due to Ukraine issues. The vendors are exaggerating the issues and are quoting high prices for priority supply.”

The Competition Act, 2002 enables CCI to examine anti-competitive practices including cartelization. Agreements entered between suppliers for fixing prices or for limiting supplies are presumed to have an appreciable adverse effect on competition. Apart from initiating probes suo motu, CCI can also take up the matter on information filed by IBA or on a reference being made by the government. 

Global impact since Covid-19

The present global chip shortage is an outcome of global supply chain disruptions wrought by Covid-19 and has been further accentuated by the China-US trade war.

The demand for semiconductor chips is exceeding supplies, affecting many industries, particularly automobiles, graphics cards, video game consoles, computers, and others. The shortage has led to major price increases as suppliers are alleged to be seizing the opportunity to jack up the prices. 

“The increase in prices of semiconductor chips appears to be an outcome of market forces due to mismatch in demand-supply, though cartelization by suppliers in such situation to earn super normal profits by limiting supplies and increasing prices cannot be ruled out,” a competition law practitioner told BusinessLine

If found guilty of cartelization by CCI, chip suppliers may face heavy monetary penalties which may extend up to 10 per cent of their average turnover for the preceding three financial years; or up to three times of their profits for each year of the continuance of cartel or 10 per cent of their turnover for each year of the continuance of cartel, whichever is higher.