Why the credit cards market is on RBI radar

The Reserve Bank of India (RBI) has intensified its scrutiny of the credit card industry. Recently, it asked Federal Bank and South Indian Bank to stop issuing new co-branded credit cards, reportedly worried over the access their fintech partner, OneCard, had to customer data. Earlier this year, RBI had come down heavily on Paytm for not complying with its KYC rules and sharing of data with non-regulated entities, and shut down its payments bank. This also highlighted RBI’s concerns about digital lending. Its recent move on co-branded cards showed that credit cards are also on its radar.

In November 2023, RBI increased the risk weightage for credit cards from 125% to 150%, effectively increasing the minimum capital banks have to hold to cover their credit risk from the instrument. Responding to an RTI query by The Indian Express last year, RBI said defaults in credit cards were at 2.2% of the total outstanding amount in April-December 2022.

However, banks’ exposure to credit cards has expanded aggressively, growing 31% in each of the previous two annual periods to January, according to RBI data. This was the highest among nine retail lending segments in the 2022-23 period and the second-highest in the 2023-24 period.

RBI has also been concerned about growing fraud. It’s a reason why it cracked down on digital lending earlier and took action against entities that were lax on KYC norms. Both online and card-related frauds have jumped in recent years, according to the National Crime Records Bureau.