NBFCs can not undertake credit card business without prior RBI approval

Non-banking financial companies registered with the RBI will not undertake credit card business without prior approval from the Reserve Bank of India.

In Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022, the RBI has said that any company, including a non-deposit taking company, will need a Certificate of Registration, apart from specific permission to enter into this business. It has also set a prerequisite of minimum net-owned fund of ₹100 crore, and other terms and conditions it may specify in this regard.

“Any company, including a non-deposit taking company, intending to engage in this activity shall require a Certificate of Registration, apart from specific permission to enter into this business, the prerequisite for which is a minimum net-owned fund of ₹100 crore and subject to such terms and conditions as the Reserve Bank may specify in this regard from time-to-time,” the direction said.

“Without obtaining prior approval from the Reserve Bank, NBFCs shall not issue debit cards, credit cards, charge cards or similar products, virtually or physically,” it added.

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The directions will be effective from July 1, 2022.

Large NBFCs may win

Experts say the move could help large NBFCs.

“This is a positive move for large NBFCs that may wish to enter the credit card business on their own. They can do so with prior approval from the RBI. Fintechs have already been working with banks to issue cards — both co-branded and prepaid — and most will continue to do so,” said Anuj Kacker, Co-Founder, Freo.

A number of NBFCs had been in talks with the RBI to receive permission to issue credit cards.

“It’s a welcome move for large NBFCs. They may now be able to enter the credit card space on their own, with prior approval of and registration with RBI. But it has to be seen what kind of terms and conditions the RBI sets in terms of risk weighted assets, NPAs and unsecured lending, and any provisioning needs that it might expect from those NBFCs,” said Srinath Sridharan, corporate advisor and independent markets commentator.

“It could also help fintechs with large balancesheets. It will be interesting to see how the BNPL space evolves amongst those lenders who will also have credit card business,” he added.

SCBs need approval

As part of the eligibility criteria, the RBI has said that scheduled commercial banks (SCBs), other than regional rural banks (RRBs) with net worth of ₹100 crore and above, can undertake credit card business either independently or in tie-up arrangement with other card issuing banks or NBFCs with the approval of their boards.

“SCBs (excluding small finance banks and RRBs) desirous of setting up separate subsidiaries for undertaking credit card business will need prior RBI approval. RRBs can issue credit cards in collaboration with their sponsor bank or other banks,” it said.

On interest rates, RBI said card issuers can be guided by instructions on interest rate on advances. Card-issuers should also inform cardholders of the implications of paying only “the minimum amount due”, the RBI added.

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