The Reserve Bank of India on April 21 issued a fresh set of directions for banks and other lending organisations regarding the issuance of debit and credit cards.
The provisions will be effective from July 1, 2022, and apply to every scheduled bank (excluding payments banks, state co-operative banks, and district central co-operative banks) and all non-banking financial companies (NBFCs) operating in India.
The RBI said in a statement: “The provisions of these directions relating to debit cards shall apply to every bank operating in India. These directions cover the general and conduct regulations relating to credit, debit and co-branded cards which shall be read along with prudential, payment and technology and cyber security related directions applicable to credit, debit and co-branded cards, as issued by the Reserve Bank.”
Who Can Issue Credit Cards?
Among other things, scheduled commercial banks other than regional rural banks (RRBs) with net worth of ₹100 crore and above can undertake credit card business either independently or in tie-up arrangement with other card issuing banks or non-banking financial companies (NBFCs) with the approval of their boards.
Scheduled commercial banks (excluding small finance banks and RRBs) desirous of setting up separate subsidiaries for undertaking credit card business need to take prior approval of the RBI.
RRBs are permitted to issue credit cards in collaboration with their sponsor bank or other banks.
Financially sound and well-managed scheduled urban co-operative banks (UCBs) can issue credit cards provided they have a minimum net worth of Rs. 100 crore, and if they are CBS enabled. In addition, UCBs can neither issue co-branded credit cards nor any credit card to non-members.
Importantly, NBFCs registered with the RBI will not undertake credit card business without prior approval of the RBI.
“Any company including a non-deposit taking company intending to engage in this activity shall require a Certificate of Registration, apart from specific permission to enter into this business, the pre-requisite for which is a minimum net owned fund of ₹100 crore and subject to such terms and conditions as the Reserve Bank may specify in this regard from time to time. 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 in its statement.
Card Issue Guidelines
The RBI also came out with a detailed list concerning the manner in which card-issuing companies should conduct their business of acquiring customers.
Card issuers have to provide a one-page Key Fact Statement along with the credit card application containing the important aspects of the card, such as rate of interest, quantum of charges, among others. In case of rejection of a credit card application, the card-issuer need to convey the same to the customer in writing the specific reason/s which led to the rejection of the application.
Where the card issuer introduces to the customer any insurance cover to take care of the liabilities arising out of lost cards, card frauds, etc, in tie-up with an insurance company, it must obtain the customer’s explicit consent in writing or in digital mode, along with details of nominee/s.
Card issuers are also strictly prohibited from issuing unsolicited cards/upgradation. If such card is issued, or an existing card upgraded and activated without the explicit consent of the recipient and the latter is billed for the same, the card issuer will have to forthwith reverse the charges as well as pay a penalty to the customer amounting to twice the value of the charges reversed.
Also, the customer, in whose name such unsolicited card has been issued can approach the RBI Ombudsman for compensation.
Besides, in instances where unsolicited cards have been misused before reaching the hands of the person in whose name it has been issued, the loss arising out of such misuse of shall be the responsibility of the card issuer and not that of the customer.
Further guidelines include that card issuers should independently assess the credit risk while issuing cards to persons, taking into account independent financial means of applicants.
Card issuers also need to ensure complete transparency in the conversion of credit card transactions to equated monthly instalments (EMIs) by clearly indicating the principal, interest and upfront discount provided by the merchant/card-issuer (to make it no cost), prior to the conversion. The same shall also be separately indicated in the credit card bill/statement.
EMI conversion with interest component are not be camouflaged as zero-interest/no-cost EMI.
Card issuers should also ensure that loans offered through credit cards are in compliance with the instructions on loans and advances issued by the RBI from time to time.
Lastly, there should not be any hidden charges while issuing credit cards free of charge.
