RBI Implements New Norms For Credit, Debit And Co-Branded Cards – All You Need To Know

The Reserve Bank of India (RBI) has issued new directions, known as ‘The Reserve Bank of India (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022. These updated guidelines highlight the new rules surrounding the issue and conduct of debit, credit, and co-branded cards. This blog will discuss all the key highlights concerning card issuance and conduct announced by the RBI. Read on!

The Reserve Bank of India, back in April 2022, released a new set of guidelines called ‘The Reserve Bank of India (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022. This circular provides a set of instructions for card issuers about credit cards, debit cards, as well as co-branded cards and acts as a guide for their issuance and conduct.

The Master Directions Application

• Debit Card Directions – will apply to every bank operating in the country. 
• Credit Card and Co-Branding Directions – will apply to every Scheduled Bank and Non-Banking Financial Companies (NBFCs) operating in India.

These guidelines do not apply to payment banks, state co-operative banks, and district central co-operative banks. 

This article will discuss the key highlights from the Reserve Bank’s Master Direction regarding credit, debit, and co-branding cards’ issuance and conduct. Before we discuss this, let’s discuss a few definitions released by the Reserve Bank of India, which will help us understand the new set of rules and regulations. 

• Credit card: Credit card is a virtual payment card that contains a set of numbers as a means of identification. It is issued with a pre-approved credit limit. This means that a credit card can be used to purchase goods, avail services, and even withdraw cash. Every month, or at the end of every credit cycle, you will have to make the payment to the bank. 

• Debit card: A debit card is linked to a Savings or Current bank account and can be used for making purchases, online payments, fund transfers, cash withdrawals and more. Unlike a credit card, money will be instantly debited from the cardholder’s account. 

Also check:- Advantages and Disadvantages of Online Payments

• Co-branded card: It is a card that is jointly issued by a card issuer in partnership with a particular merchant. The merchant, often a retailer, issuing the co-branded card in partnership with a bank must also be associated with the bank.

• Card issuers: Card issuers are banks which are authorised to issue debit or credit cards to people who have an account in the bank. Debit or credit cards can also be issued by those Non-Banking Financial Companies (NBFCs) that are permitted to do so in India by the Reserve Bank of India.

• Cardholders: A card holder is a person who seeks and gets credit, debit or co-branded cards from card issuers or banks and NBFCs.

These are a few basic terms that will help you navigate through the RBI’s latest guidelines 2022 on credit, debit, and co-branded cards. The coming sections will highlight the takeaways from the RBI guidelines for debit, credit and co-branded card issuance and conduct. Keep reading! 

Key highlights: RBI’s new norms for credit cards

The Reserve Bank of India, in its Master Direction for the issuance and conduct of credit, debit, and co-branded cards, has highlighted a vast set of guidelines for credit card issuers. We will take a look at some of the most important highlights from the Master Direction Circular in this section.

Firstly, who are all eligible to issue credit cards? Commercial banks with a net worth of over Rs 100 crores can take up credit card issuance. They can do this either independently or by tying up with other banks and NBFCs that issue credit cards. Regional rural banks are also eligible to issue credit cards, but in collaboration with other sponsor banks.

When it comes to Non-Banking Financial Companies (NBFCs), they cannot indulge in issuing credit cards without the RBI’s approval. 

Other highlights of credit card issuance – 

1. Card issuers should provide card applicants with a one-page Key Fact Statement along with their credit card application, which will keep them informed about various factors related to the card, including interest rates, the quantum of charges, etc. 

2. In case the card application is rejected, the card issuer must send across a written statement about why the card application was rejected. Banks can also not issue unsolicited credit cards and upgrade an existing card without consent from the customer. If this happens, the card issuer will not only have to reverse the same but should also bear a penalty charge, double the bill amount. 

3. Banks and lenders cannot resort to harassment during the recovery of dues. They must strictly adopt fair practices and maintain customer confidentiality. This must be the case even when they appoint third-party vendors for debt collection. 

4. Card issuers must ensure complete transparency in the process of converting credit card-based transactions to EMI. They must separately and clearly highlight important points like the principal, interest, and any discount provided by the merchant/card issuer.

5. The credit limit approved for a cardholder’s credit card should not be breached at any given point in time. Issuers can also approve credit cards or other charge cards for personal use along with add-on cards if required. 

6. Banks can also issue credit cards to businesses or individuals purely for business purposes. These business credit cards can be charge cards or corporate credit cards. This can even be linked to an overdraft or cash credit provided for business expenses. 

7. All requests for closure of cards should be fulfilled by the card issuer within 7 business days if cardholders have cleared all dues. Card closure applications shall be received through various channels, including dedicated e-mail IDs, helplines, Interactive Voice Response or IVR, the website wherein the link is prominently displayed, internet banking, mobile apps, and more. 

8. Failure to close the card as requested by the customer within 7 working days will lead to a penalty of Rs 500 per day, payable to the customer by the issuing bank.

These are some of the key highlights of the Master Directions announced for credit cards by the Reserve Bank of India. In the next section, we will discuss the guidelines issued for debit card issuances. 

Key highlights: RBI’s new norms for debit cards

1. A debit card issuance policy must be formulated by banks with the approval of their respective Boards. Debit cards shall be issued to customers in accordance with this policy. 

2. Prior approval from the Reserve Bank of India is not necessary for banks that want to issue debit cards to their customers. 

3. Banks and other debit card issuers cannot issue debit cards to customers who hold a cash credit or loan account. Debit cards must only be issued to those customers who hold Savings or Current Bank Accounts.

4. Customers should not be forced to avail debit cards, and most importantly, the issuance of debit cards shall not be linked to the customers’ availing other facilities from the bank.

These are the guidelines announced by the Reserve Bank of India for debit card issuers to follow strictly. The next section will discuss RBI’s new norms for co-branded cards. 

Key highlights: RBI’s new norms for co-branded cards

Co-branded cards, as discussed initially, are cards that are jointly issued by both the card issuer and a merchant who is associated with the bank. The merchant is often a retailer. The guidelines provided by the Reserve Bank of India for co-branded cards are as follows:

1. Banks and card issuers do not need prior approval from the Reserve Bank to issue co-branded debit, credit, and prepaid cards. However, United Community Banks (UBCs) cannot partner with non-banking entities and issue debit or credit cards. 

2. The co-branding of credit or debit cards will have to adhere to all the conditions that are applicable to such cards. 

3. Co-branded cards, both debit and credit cards, should have an explicit indication of the co-branding arrangement. The merchant who is the co-branding partner is not allowed to advertise or market the co-branded card as their own product under any circumstance. The physical copy of the co-branded card must carry the name and branding of the card-issuing bank clearly. 

These are the key highlights of the guidelines provided for co-branded cards. 

Conclusion

The Reserve Bank of India (Credit Card and Debit Card – Issuance and Conduct) Directions, 2022, released by the Reserve Bank to regulate the issuance and conduct of debit, credit, and co-branded cards, places emphasis on the treatment of the customer and has been crafted carefully keeping their welfare in mind. According to the circular, the new norms have been effective from July 1st, 2022.