Until now, Non-Banking Financing Companies (NBFCs) had only been permitted to issue co-branded credit cards. According to certain sources, the RBI may enable non-bank financial institutions (NBFIs) to issue credit cards. According to sources, the RBI is in talks with NBFCs about allowing a handful of them to issue credit cards on their own without the necessity for co-branding. So far, NBFCs may only offer credit cards in collaboration with banks. However, following this conversation, it is possible that NBFCs may issue credit cards on their own.
Is this the first instance that NBFCs have been discussed as potential credit card issuers?
18 years previously, the RBI and several NBFCs considered the possibility of allowing NBFCs to create credit cards independently, without co-branding with financial institutions. The discussions focused on the subject of permitting a non-deposit taking corporation to begin the business of providing credit cards after completing the necessary registrations, in addition to meeting other specified requirements such as having net owned funds of Rs. 100 crores.
It is worth noting that, despite its considerations, the RBI never imposed a regulatory restriction on NBFCs issuing credit cards. Instead, the circular noted that the RBI may impose terms and conditions from time to time in order to manage this procedure.
Guidelines for NBFCs issuing debit cards
Consumer needs, on the other hand, have shifted from where they were eighteen years ago.
The RBI may examine and reconsider its discussions from eighteen years ago, attempting to contrast them with the remarks made by the RBI in the paper titled ‘Report of the Working Group on Digital Lending via Online Platforms and Mobile Apps.’ In November of last year, this study was made available to the public for feedback and suggestions.
The argument given is that it will aid in the achievement of the high aim of financial intermediation.
Last year, Mastercard and the Government of India’s research tank NITI Aayog released a joint paper highlighting the fact that NBFCs account for 20% to 30% of total lending in the system.
This demonstrates the importance of NBFCs in the formal lending market, and by allowing NBFCs to issue credit cards, this proportion might greatly increase, attracting those who do not have access to proper banking facilities and contributing to the goal of financial inclusiveness.
The present position of RBI
Presently, mainly two NBFCs are active in the business of providing credit cards, SBI Card and BoB Card, both of which operate under the government’s auspices. Some private players petitioned the RBI, citing an RBI circular published eighteen years ago, expecting to get its approval to allow those NBFCs to offer credit cards and other related services. These NBFCs include Reliance Capital, TATA Capital, and Bajaj Finance, who recommended that they be permitted to issue credit cards on their own on the VISA network.
By the end of November of last year, there were 67 million credit cards on the market, even with credit histories of 550 million users available. This implies a significant need in the market for more lending, and enabling NBFCs to offer credit cards will go a long way toward addressing the need.
Credit Card: Defining features
In Indian rules and regulations established by the RBI, there is no formal definition of the credit card. This is because, prior to the introduction of new technologies that resulted in new goods, it was commonly understood what a credit card service signified. A card was a piece of plastic that looked like a card and was kept in one’s pocket or wallet. However, technological progress has radically altered that perspective.
The Credit Cards (Merchant Acquisition) Order 1990 in the United Kingdom contains a definition of a credit card. This rule states:
“Credit card” means a payment card holder’s contract with the card’s issuer allows him to discharge less than the entire outstanding balance on his payment card account on or before the expiry of a specified period (subject to any contractual requirements regarding minimum or fixed amounts of payment), other than
(a) a payment card issued with respect to the purchase of only one good, service, accommodation, or facility; or
(b) a payment card issued with respect to the purchase of goods, services, accommodation,
A credit card is thus characterized by an exclusion concept: it is any payment card that a user may use to ‘discharge obligations’ (i.e. make transactions), excluding debit cards, checks, and cards that can only be used at a particular brand/store outlet.
Therefore, the credit card appeared to have been established by its capacity to claim credit from the issuer and utilise it to make payments to a third party.
This description looks to be fairly applicable to the Indian financial industry.
Conclusion
The data on credit scores accessible plainly shows that there is a credit need. As a result, the government must redirect credit demand towards the formal sector rather than relying on the informal sector, where creditors are abused with excessive rates of interest. Because banks do not have the chance to access areas where credit is needed, NBFCs step in to fill the need. To facilitate loan availability in areas where banks are not present, NBFCs must be able to provide credit in order to achieve the financial inclusiveness of such under-banked or unbanked groups. Allowing NBFCs to offer credit cards without the necessity for co-branding with other banks will go a long way toward providing low-interest financing to such people. NBFCs with net owned funds of greater above 100 crores are going to start credit card services. The list of interested NBFCs is lengthy, and they are closely monitoring RBI guidelines. If adopted quickly, it will have a significant influence on credit card services as well as the financial development of NBFCs. Let us wait for the RBI’s long-awaited judgement on credit cards. According to our estimate, it will have a significant influence on the credit card business. This industry is expected to flourish.
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