RBI in talks to allow NBFCs to issue credit cards: Report

The Reserve Bank of India (RBI) is said to be in
discussions with a few non-banking financial companies (NBFCs) over the
possibility of allowing the shadow banks to issue credit cards on a standalone
basis, according to a report by Business Standard. The move would be a
first-of-its-kind as NBFCs thus far are only allowed to issue co-branded credit cards with banks.

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The development may come 18 years after the RBI’s
circular of July 7, 2004, which stated that any company, including a
non-deposit taking company, intending to engage in the activity of issuing
credit cards needs a certificate of registration, along with specific permission to enter
into the business and a minimum net owned fund of Rs 100 crore.

According to the circular, RBI may specify the subject to
such terms and conditions from time to time. The circular did
not cite any regulatory ban over issuing of credit cards by NBFCs.

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NBFCs are barred from the credit card market on account
of high-access barriers. They are barred from issuing general credit cards,
charge cards, debit cards and stored-value cards.

The consumer credit landscape has now changed with huge
growth in the digital lending space with BNPL (buy-now-pay-later) capturing a
big share of the market. The authorities are re-reading the circular of July 7,
2004, along with the central bank’s observations in the ‘Report of the Working
Group on Digital Lending through Online Platforms and Mobile Apps’ – which was
put for public reactions in November 2021.

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The report stated that 44% of fintech funding in 2020
went to digital lending startups and the sector has a positive outlook with
more funding and collaboration of established and new players in the digital
lending market.

To improve financial inclusion, digital credit cards and
lines of credit should be allowed to operate without a license, said the
report.

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NITI Aayog and Mastercard released a joint report which
highlighted that NBFCs account for 20-30% of the overall credit given in the
system.

Among the state-run NBFCs, only SBI Card and BoB Card can
issue credit cards.

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Earlier, Reliance Capital, Tata Capital, and Bajaj
Finance had reached out to the central bank, citing its July 2004 circular, for
permission to issue credit cards on a standalone basis through the Visa
network.

According to the latest RBI Monthly Bulletin of January
2022, by the end of November 2021, there were 67 million credit cards, compared
to 934 million debit cards, which is to be seen against the nearly 550 million
customers with credit bureau histories.

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FinTech lenders operating in the BNPL space are now
issuing physical cards to customers to push usage in the offline mode. PayU
Finance, Slice, and Uni Cards have partnered with banks to issue BNPL cards,
which are essentially prepaid payment instruments (PPIs) bearing a credit line.