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The guidelines by the Reserve Bank of India (RBI) on credit and debit cards will protect consumers and could potentially pave the way for non-banking finance companies (NBFCs) to engage in the business, players and experts said.
“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, MD, Poonawalla Fincorp.
For many years, NBFCs have been playing an important role in boosting financial inclusion through outreach across the length and breadth of the country where traditional financial institutions have not reached, and this product as an offering increases the segment coverage further, he said.
Issuing credit cards
Macquarie Research in a note on Friday said the new circular does state that NBFCs can apply for a credit card issuance license with approval from RBI. This is similar to the earlier circular where NBFCs were always allowed to apply to RBI for issuing credit cards.
“However, our conversations with bankers reveal that as sharing of data is now prohibited, RBI will now be more open to granting licenses to various large players and NBFCs like Bajaj Finance, who have a tie-up with RBL bank currently, could apply, thereby increasing competitive intensity,” it said.
“Since data sharing is now stopped, 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, as per bankers,” it said.
Emkay Global Financial Services noted that select NBFCs backed by banks have been given credit card licenses in the past such as SBI Card, BoB Card and recently PNB Card. But, the agency believes that the RBI is unlikely to change its stance anytime soon given concerns around its risk management practices and potential systemic risk. The guidelines will protect the interest of consumers, it said.
“The RBI’s guidelines have come at a time when there is increased noise around misselling of cards, ultimately putting customers in a debt trap. These guidelines will help protect cardholders’ interest and regulate the conduct of card companies that are aggressively pushing cards,” it said in a note.
Bringing more transparency
Sucheta Mahapatra, Managing Director, Branch Personal Finance App, said, the guidelines will bring more transparency to the system and benefit customers.
“The circular makes it mandatory for card issuers to provide ‘Key Fact Statement’. Credit card issuers will be required to ensure complete transparency regarding EMI charges, no-cost EMI, late payment fees, penalty, minimum amount payment, balance transfer charges, rate of interest, different kinds of charges,” she said.
Mumbai-based fintech start-up BridgeUp said the announcement could also help fintechs.
“This is positive news for NBFCs but even better for fintech companies that issue credit cards. Partnering with the right NBFCs will allow these companies to provide credit to millions of customers on their platforms, which did not meet the stringent requirements set by banks,” said Zeus Dhanbhura, Co-founder and CEO, BridgeUp.
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