NBFC

RBI may permit NBFCs to issue credit cards: Reports

Till date Non-Banking Financing Companies (NBFCs) have the permission of only issuing co-branded credit cards. According to some reports, RBI may allow NBFCs to issue credit cards. The reports suggest that, RBI is in discussions with the NBFCs to allow a few of them to issue credit cards on a standalone basis without the need of co-branding. So far, the NBFCs can issue credit cards only with the co-branding with the banks. But after this discussion, there is a possibility that NBFCs will issue credit cards on their own.

Is it the first time that the discussion of NBFCs to issue credit cards is taking place?

Eighteen years before, discussions took place between the RBI and with a few NBFCs over the possibility of allowing the NBFCs to issue credit cards independently without co-branding with the banks. The discussions deliberated on the issue of allowing the non-deposit taking company to initiate the business of issuing credit cards after getting the registrations done apart from satisfying other specific conditions such as possession of net owned funds of Rupees 100 crores.

A peculiar thing to be noted here is that under the deliberations made, the RBI never put a regulatory ban over NBFCs to issue credit cards. Instead the circular stated that RBI may from time to time put terms and conditions in order to regulate this process.

Recommendations regarding NBFCs to issue debit cards

However, the demands of consumers have undergone a paradigm shift from what they were eighteen years ago. The RBI may revisit and rethink about its deliberations done eighteen years ago allowing and try to juxtapose them with the observations made by RBI^[1] in the report titled ‘Report of the working group on digital lending through Online Platforms and Mobile Apps’. This report was put out in the public for their opinion and suggestions if any in last November.

Findings of the report highlighted the fact that forty four percent of funding in the fintech sector in 2020s was routed to digital lending start-ups and as more and more new as well as old players try to enter the digital lending market, it reflects a positive outlook from the fintech sector.

One of the recommendation of the report included removing the requirement of obtaining a license to operate the business of issuing digital credit cards and lines of credit. The reason cited that it will help achieve the lofty goal of financial inclusion.

Last year, both Matercard and the Government of India’s think tank NITI Aayog came out with a joint report which highlighted the fact that NBFCs account twenty percent to thirty percent in the overall lending given in the system. This reflects the importance of NBFCs in formal lending space and by giving freedom to NBFCs to issue credit cards, this percentage could significantly go up and the people who do not have access to formal lending services would be attracted towards achieving the target of financial inclusion.

Present position of RBI

Currently, only two NBFCs are involved in the business of issuing credit cards which include SBI Card and BoB Card which operate under the aegis of the government. Citing the circular issued by RBI issued eighteen years ago, some private players had approached the RBI hoping to receive its assent to allow those NBFCs to issue credit cards and other associated services. These NBFCs include Reliance Capital, TATA Capital and Bajaj Finance which proposed that they should be allowed to issue credit card on a standalone basis on the network of VISA.

By the end of November last year, there were sixty seven million credit cards that are operating in the market currently that too when credit histories of five hundred and fifty million customers is available. This reflects a great need for increased lending in the market and allowing the NBFCs to issue credit card would go a long way in meeting this demand.

Conclusion

It is clearly visible that the need of credit is present from the data on credit histories available. Therefore, it becomes imperative on the part of the government to channelize the demand of credit towards the formal sector instead of reliance on informal sector where the creditors are exploited with high rates of interest. Since, banks do not get the opportunity to penetrate in places where the demand of credit is required, the NBFCs make their way in to fulfil the demand. In order to ease the process of credit availability to such places where banks’ presence is not there, NBFCs must be equipped to provide the credit to achieve financial inclusion of such under-banked or unbanked communities. Allowing the NBFCs to issue credit cards without the need to co-brand with other banks will go a long way in giving credit at low rates to such people.

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