The Reserve Bank of India (RBI) has issued directions about credit and debit cards, which will apply to all registered non-banking financial companies (NBFCs) and scheduled banks. The current guidelines by the RBI have come in the wake of heightened risks around credit cards and will be effective from July 1.
In its master directions on credit card and debit card issuance and conduct of NBFCs and banks, the central bank has said NBFCs can't undertake credit card business without its prior approval.
"Non-Banking Financial Companies registered with the Reserve Bank shall not undertake credit card business without prior approval of the Reserve Bank," the RBI said.
It said if any company wants to engage in this activity, it'll require a certificate of registration, apart from specific permission to enter into this business. The pre-requisite for this is a minimum net owned fund of ₹100 crore, the RBI said.
"Without obtaining prior approval from the Reserve Bank, NBFCs shall not issue debit cards, credit cards, charge cards, or similar products virtually or physically," the RBI said.
These guidelines will particularly benefit large NBFCs as they were already issuing credit cards but in association with scheduled banks. For example, Bajaj Finance, which is a big NBFC, currently issues co-branded credit cards with RBL Bank.
The current guidelines for NBFCs have come following rounds of talks by NBFCs with the central bank.
SCBs need approval
The scheduled commercial banks (SCBs), other than regional rural banks (RRBs), with a net worth of ₹100 crore and above can do credit card business either independently or in tie-up arrangement with other card-issuing banks or NBFCs with their board approvals.
The RBI said SCBs, excluding small finance banks and regional rural banks, who want to set up separate subsidiaries for credit card business will also need the RBI nod.
Some restrictions on RRBs
Regional rural banks can issue credit cards but with their sponsor bank or other banks. The "financially sound and well managed" CBS-enabled scheduled urban cooperative banks, with a minimum of ₹100 crore net worth, can issue credit cards under certain conditions.
They need to submit an application to the concerned RBI regional office with a copy of the board resolution. After assessing the findings of the last RBI inspection, their application will be processed.
They can issue credit cards to regular members and nominal members but not to non-members. They can't issue co-branded credit cards as well.
Rules to issue debit cards
Banks will formulate a comprehensive debit cards issuance policy, with its board approval. Prior approval from the RBI is not necessary for banks to issue debit cards. Debit cards will only be issued to customers having savings bank/current accounts. These cards can't be issued to cash credit or loan account holders. However, banks can link the overdraft facility provided along with Pradhan Mantri Jan Dhan Yojana accounts with a debit card. Banks also can't force a customer to avail debit card facility and will not link it with availment of any other facility offered by it, the guidelines said.
Interest rates on credit cards
The central bank has said for instructions on the interest rate, card-issuers will be guided by the RBI from time to time. "Interest charged on credit cards shall be justifiable having regard to the cost incurred and the extent of return that could be reasonably expected by the card-issuer," the RBI said.
Card-issuers will also prescribe an interest rate ceiling, which will be in line with other unsecured loans, including processing and other charges, as part of their board-approved policy, the guidelines said.
In the case of card issuers charging interest rates, which vary based on the payment or default history of the cardholder, there should be transparency in levying such differential interest rates. "The interest rates as prescribed in the board approved policy and the rationale for the same shall be auditable," the guidelines said.
Besides, card-issuers will indicate upfront to the credit cardholder, the methodology of calculation of finance charges, with illustrative examples, the RBI said.
