Banks are optismistic about their credit card business and believe that the recent guidelines by the Reserve Bank of India (RBI) on credit and debit cards will not impact their business.

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

“Credit card business of banks will not be impacted given the huge potential of the market. Banks will continue to have the first-mover advantage and can also continue to participate with NBFCs and fintechs for such cards,” said a banker.

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

Co-branded cards

For co-branded cards, the RBI has said that the role of the co-branding partner entity under the tie-up arrangement should be limited to marketing and distribution of the cards and providing access to the cardholder for the goods and services that are offered. The co-branding partner would not have access to information relating to transactions undertaken through the co-branded card.

ICICI Bank, which has issued over 30 lakh Amazon Pay credit cards, said after its fourth quarter results that the RBI circular would not have an impact on it.

“The management has also indicated that prima facie, the RBI’s recently issued regulations on the issuance of credit and debit cards (along with co-branded cards) has no significant negative impact on the bank,” Axis Securities said in a recent note.

A recent note by Macquarie, however, said that on the Zomato App, all credit card transactions done on RBL-Zomato credit cards are shared, and this won’t be allowed as per RBI rules, as RBI clearly wants the co-branded cards to restrict themselves to distribution and marketing.

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

Until now, NBFCs and fintechs have had to partner with banks to roll out co-branded cards. In the past, just a handful of select NBFCs backed by banks have been given credit card licences, including those given to SBI Cards, BoB Card and recently PNB Card.

Gaining traction

The credit card business has been gaining significant 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 looking to expand their presence in the segment.

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

“The fiscal year 2021-22 is set to be a good year with an overall spend of ₹9.7 lakh crore. Revival in air travel, hospitality sector, and the increasing inflation outlook set a positive outlook on credit card spending as well as receivables,” said a recent report by ICICI Securities.

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