Banks remain optimistic with credit card transactions

Banks are optimistic about their credit card business and believe that the latest guidelines from the Reserve Bank of India (RBI) on credit and debit cards will not affect their business.

The guidelines indicate that large NBFCs with a minimum net fund of ₹100 crore may be able to enter the company with the prior approval of the RBI.

“Banks’ credit card business will not be affected given the market’s enormous potential. Banks will continue to have first-mover advantage and may also continue to engage with NBFCs and fintechs for such cards,” said one banker.

Master Direction – Credit and Debit Cards – Issuance and Conduct, 2022, issued by the RBI last week, has thrilled NBFCs. A number of these lenders had previously engaged with RBI to allow them to engage in credit card business on their own.

Co-branded cards

For co-branded cards, the RBI has stated that the role of the co-branding partner unit during the tie-up event should be limited to marketing and distributing the cards and providing access to the cardholder for the goods and services offered. The co-branding partner would not have access to information regarding transactions made through the co-branded card.

ICICI Bank, which has issued over 30 lakhs of Amazon Pay credit cards, said after its fourth-quarter result that the RBI circular would have no bearing on it.

“Management has also indicated that immediately having RBI’s recently issued rules on issuing credit and debit cards (along with co-branded cards) have no significant negative impact on the bank,” Axis Securities said in a recent note.

However, a recent note from Macquarie said that on the Zomato app, all credit card transactions performed on RBL-Zomato credit cards are shared and this will not be allowed under the RBI rules as RBI clearly wants to limit the co-branded cards for distribution and marketing.

“So there could possibly be data sharing schemes between Bajaj Finance and RBL or with Amazon-ICICI and HDFC Bank-PayTM and other cobranded cards that we are not fully aware of right now,” it said.

Until now, NBFCs and fintechs have had to work with banks to roll out co-branded cards. Previously, only a handful of selected bank-backed NBFCs have been granted credit card licenses, including those granted for SBI cards, BoB cards and, more recently, PNB cards.

Gets traction

The credit card business has gained considerable traction in the last few years, with a number of new banks entering the space, while many others such as ICICI Bank and Axis Bank are seeking to expand their presence in the segment.

In February 2022, the total number of outstanding credit cards was 7.17 crore, up from 6.16 crore in February 2021.

“The financial year 2021-22 is set to be a good year with a total consumption of 9.7 lakh crore. Revival in air travel, the hospitality sector and the rising inflation outlook puts positive prospects for credit card expenses as well as receivables,” said a recent report from ICICI Securities .

Published on

April 25, 2022

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