The Reserve Bank of India has rejected Canara Bank‘s proposal to set up a credit card subsidiary, which the government-owned lender thought would give fillip to its fledgling card business.
At present, Canara Bank issues credit cards on its own while it had sought the regulator’s permission for a non-banking financial service licence to house the credit card business.
“The RBI seems not in favour of granting an NBFC (non-banking financial service) licence to a public sector bank,” a person familiar with the development said.
Interestingly, the State Bank of India has a separate subsidiary for its credit card business — SBI Cards and Payment Services is a non-banking financial company and is a leading credit card issuer in the country. Similarly, Bank of Baroda has a subsidiary called BOB Cards.
“These NBFCs were given permission long back. The regulator’s thought-process has perhaps changed now,” the person cited above said.
RBI did not respond to ET’s queries on the matter till the press time.
Incidentally, the regulator’s rejection came at a time amid concerns over strong growth in lenders’ unsecured loans. Loans issued through credit cards are typically unsecured in nature, which means that card holders get the credit without any collateral.
The bengaluru-headquartered Canara Bank bank had 9 lakh credit cards in circulation at the end of June, around 37% more than what it had a year back.
ET was first to highlight Canara Bank’s plan related to the credit card subsidiary. Bank managing director K Satyanarayana Raju had said that the separate subsidiary was envisaged to put special focus on credit card business and to leverage the bank’s existing customer base of over 11 crore.
Rising usage of digital payment infrastructure, improved internet and payments services, and popularity of e-commerce have created a favourable platform for the growth of the card industry.
The bank was however not looking to create a new company, instead it was planning to convert an existing IT services subsidiary to a credit card unit.
The preparation to convert the IT subsidiary — Canbank Computer Services — into a credit card unit began last year. Canara Bank holds 69.14% stake in the subsidiary, while Bank of Baroda owns 18.52% while DBS Bank and Karur Vysya hold 6.17% each. As a part of the preparation, Canara Bank had requested all the other stakeholders to sell their respective holdings to it.
Canbank Computer is mainly engaged in IT and software development services, BPO services, ATM services and consultancy.
