RBI rejects Canara Bank's bid for credit card subsidiary amid concerns

The decision by the Reserve Bank of India comes amid increasing concerns over the growing volume of unsecured loans in the banking sector

The Reserve Bank of India (RBI) has turned down Canara Bank’s proposal to establish a credit card subsidiary, a move that the government-owned lender believed would boost its growing card business, reported The Economic Times.

Currently, Canara Bank issues credit cards directly but sought the regulator’s approval to set up a non-banking financial company (NBFC) to house its credit card operations. “The RBI seems reluctant to grant an NBFC licence to a public sector bank,” a source familiar with the matter told The Economic Times.

This decision comes in contrast to other public sector banks like the State Bank of India (SBI) and Bank of Baroda, both of which have subsidiaries for their credit card businesses. SBI Cards and Payment Services is a leading credit card issuer in India, while Bank of Baroda operates BOB Cards. However, these NBFC licences were issued years ago. “It appears the regulator’s stance on such approvals has shifted over time,” the source added.

The rejection from the RBI coincides with growing concern over the rising unsecured loan portfolios of banks. Credit card loans are typically unsecured, meaning they are issued without any collateral, a factor that may have influenced the regulator’s decision.

Despite the setback, Canara Bank’s credit card business has been expanding rapidly. The Bengaluru-based bank had 900,000 credit cards in circulation as of June, a year-on-year growth of 37 per cent.

Canara Bank has been developing a strategy to transform its IT services subsidiary, Canbank Computer Services, into a dedicated credit card unit, opting against establishing a new entity. The groundwork for this conversion was laid last year. Canara Bank owns a 69.14 percent stake in Canbank Computer, while Bank of Baroda holds 18.52 per cent, with DBS Bank and Karur Vysya Bank each holding 6.17 per cent.

Canbank Computer Services currently focuses on IT and software development, BPO services, ATM services, and consultancy.

The push for a dedicated credit card subsidiary came amidst a surge in digital payments, improved internet infrastructure, and the rise of e-commerce, which have all contributed to the robust growth of the card industry. Managing Director K Satyanarayana Raju had said the creation of the subsidiary was intended to focus on leveraging the bank’s extensive customer base of over 11 crore to expand its card business.