For the first time, the Reserve Bank of India (RBI) is discussing with a few non-banking financial companies (NBFCs) the possibility to allow them to issue credit cards on a standalone basis, states a recent report by Business Standard. To date, NBFCs have the permission to issue co-branded credit cards with banks.
NBFCs have been constrained from the credit card market due to several high-access barriers, especially regarding the issuance of general credit cards. They could not even issue other cards, like charge cards, debit cards, and stored-value cards.
Previously, 18 years ago, the RBI had issued a circular on July 7, 2004 stating that any company along with non-deposit-taking company, needs to fulfill certain eligibility criteria prescribed by the RBI, have the required permission and a certificate of registration to enter into the business. One of the major pre-requisites included having a minimum net-owned fund of Rs 100 crore.
The specifications have been changed and the terms and conditions related to this has been modified over the time
The consumer credit landscape has now undergone several changes and authorities may need to revisit this area. The circular of July 7, 2004, is being re-read 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 comments in November last year.
The report pointed out that 44 per cent of fintech funding in 2020 were for various digital lending startups, and thus, there has been a positive outlook in this sector as more funds are coming to this sector and there has been increased collaboration between established and new players in the digital lending market.
Moreover, with the growing practice of buy now pay later (BNPL), more people have started using a credit card. As Redseer, a research firm, estimates, India's BNPL market is likely to rocket to $45-50 billion by 2026 from $3-3.5 billion now, with the growing number of BNPL users in the country.
It was further mentioned in the report that digital credit cards and lines of credit should be allowed to operate without a license to further improve financial inclusion.
Also, a joint report by the government's think-tank NITI Aayog and Mastercard last year highlighted NBFCs account for 20-30 per cent of the overall credit given in the system.
