Business Standard

Monitor end use of funds for business cards: RBI

No need of approval for co-branded cards


Banks that issue business credit cards will have to monitor the end use of funds on account of those, the Reserve Bank of India (RBI) has mandated while amending its master directions for credit and debit cards.

“Card-issuers may issue business credit cards to business entities/individual­s for business expenses… The cardissuer­s shall put in place an effective mechanism to monitor end use of funds,” the amended provision of the master direction said.

Business credit cards may be issued as charge cards and corporate credit cards, or by linking a credit facility such as overdraft/cash credit provided for business purposes in accordance with the terms and conditions stipulated for the facility concerned, the RBI clarified.

The move comes after the banking regulator last month ordered restrainin­g commercial transactio­ns routed through intermedia­ries by a card network. The RBI added the card network had an arrangemen­t that enabled businesses to make card payments through certain intermedia­ries to entities that did not accept card payments.

The RBI did not name the card network.

The master direction has a provision that says for business credit cards, where the liability rests with the corporate or business entity (principal account holder), the time frame provided for payment and adjusting refunds may be as agreed upon by the card issuer and the principal account holder.

For co-branded cards, the RBI has said banks and non-banking financial companies will not need the regulator’s prior approval for entering into such agreements.

At the same time, the co-branding partner (CBP) should not have access to informatio­n related to transactio­ns through the co-branded card. After the issuance of the card, the CBP will not be involved in any of the processes or the controls related to the co-branded card except for being the initial point of contact if there is a grievance.

The regulator allowed CBPS to draw transactio­n-related data from the card issuer’s system in an encrypted format. This is for the cardholder’s convenienc­e.

“However, for the purpose of cardholder’s convenienc­e, card transactio­n related data may be drawn directly from the card-issuer’s system in an encrypted form and displayed in the CBP platform with robust security. The informatio­n displayed through the CBP’S platform shall be visible only to the cardholder and shall neither be accessed nor be stored by the CBP,” the RBI said.

It has been reiterated that the cobranded card should explicitly indicate that the card has been issued under a cobranding arrangemen­t. “The co-branding partner shall not advertise/market the co-branded card as its own product. In all marketing/advertisin­g material, the name of the card-issuer shall be clearly shown,” the amended directions said.

Only late payment charges can be levied and not penal interest. This is only on the outstandin­g amount after the due date and not on the total amount due.

Banks should allow card customers to modify their billing cycle at least once, the amended norms said.

In a new provision the RBI has stipulated that in case card issuers, at their discretion, decide to block/deactivate/suspend a debit or credit card, it should be ensured that a standard operating procedure is followed as approved by their board.

“Further, it shall also be ensured that blocking/deactivati­ng/suspending a card or withdrawal of benefits available on any card is immediatel­y intimated to the cardholder along with reasons thereof through electronic means (SMS, email, etc.) and other available modes,” the circular said.


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