The Reserve Bank of India issued the Master Direction – Credit Card and Debit Card – Issuance and Conduct Directions, 2022[1] (“Master Directions”) which is to be effective from July 1, 2022. These Master Directions set out the eligibility criteria that a bank must meet in order to issue credit cards and debit cards along with other provisions on the governance framework and guidelines that need to be followed in this sector. The issue of cards as a payment mechanism shall also be subject to relevant instructions issued by the Department of Payment and Settlement Systems, Reserve Bank of India under the Payment and Settlement Systems Act, 2007, and the Foreign Exchange Department, Reserve Bank of India under Foreign Exchange Management Act, 1999, as amended from time to time. The provisions of the Master Directions have been discussed in detail below.

 

1. Eligibility: The following categories of banks and financial institutions are eligible to conduct credit card business:

1. Scheduled Commercial Banks (“SCBs”) with a net worth of Rs. 100 crores.
2. Urban Cooperative Banks (“UCBs”) with a net worth of more than Rs. 100 crores.
3. Non-Banking Financial Companies (“NBFCs”) with a minimum net owned fund of Rs 100 crores.

• SCBs do not include Payments Banks, State Co-operative Banks and District Central Cooperative Banks and Regional Rural Banks (“RRBs”). However, RRBs are permitted to issue credit cards in collaboration with their sponsor bank or other banks after obtaining prior approval of the RBI.
• UCBs need to apply to the concerned Regional Office of the Reserve Bank to seek specific permission for issuing of credit cards. UCBs can get permission to issue credit cards to their regular members and nominal members only, but not to non-members. Further, UCBs are not allowed to issue co-branded credit cards in tie-up with non-bank entities.
• NBFCs should be registered with the RBI and must seek prior approval from the RBI for issuing debit cards, credit cards, charge cards, or similar products virtually or physically.

2. Issue of Credit Cards
   1. Customer Acquisition

The Master Directions lay down guidelines that must be followed by a card-issuer while marketing their products and services to prospective customers and when issuing/dispatching credit cards and debit cards to its customer. The card-issuer must provide a one-page Key Fact Statement containing the important aspects of the card. Reasons for rejection of an application must be set out in writing.

The telemarketer engaged by the card-issuer must comply with directions/regulations issued by the Telecom Regulatory Authority of India (TRAI) on this subject from time to time including the guidelines issued on “Unsolicited Commercial Communications – National Customer Preference Register (NCPR)”. In case an unsolicited credit facility is extended without the written/explicit consent of the cardholder and the latter objects to the same, the card-issuer shall not only withdraw the facility, but also be liable to pay such penalty as may be considered appropriate by the RBI Ombudsman, if approached.

The customer can be given an option to cover the c­ard with insurance cover against the liabilities arising out of lost cards, card frauds, etc. The card-issuer must obtain the explicit consent of the card-holder before taking any insurance cover for any card-holder. The obligation to provide insurance cover to the credit card holders is not mandatory. The card-issuer is, however, mandatorily obligated to assume the risk of misuse etc. before the card reaches the customer once the same has been dispatched by the card-issuer. The card-issuer is not allowed to pass on the information of the holder to any Credit Information Companies.

Card-issuers shall ensure that their employees/agents do not indulge in mis-selling of credit cards by providing incomplete or incorrect information to the customers.

                b.   Underwriting Standards

In cases where an applicant holds more than one credit card, the credit limit of the applicant must be considered and the credit risk must be assed taking into account the independent financial means of the applicant. In case the applicant is a corporate/business entity the card-issuer must adhere to the instructions issued by the Reserve Bank on Exposure Norms as well as Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances while making the credit risk assessment.

The card-issuer shall adhere to the RBI guidelines on ‘Managing Risks and Code of Conduct in Outsourcing of Financial Services by banks’.

3. Interest Rates/charges 

There must be complete transparency regarding the interest rates charged by the card-issuer on credit card dues and the card-issuer must publish the different rates charged to different categories of customers. The board of directors of the card-issuer must clearly set out the rationale and methodology of calculation of interest rates which shall be auditable by the RBI. Any changes to the charges must be made only with one-month prior notice to the cardholder and the card-issuer is not permitted to make any change to the charges with retrospective effect.

The card-issuer must inform the card-holder how retail purchases, cash advances, etc, affect the Annual Percentage Rates charged.  Annual Percentage Rate is the annual cost of credit to the cardholder which includes interest rate and all other charges associated with the credit card under different scenarios based on card features. The card-issuer must also clearly inform the card-holder about the implications of making payment of only ‘the minimum amount due’.

The cardholder must be given at least one fortnight for making payment of charges before interest starts getting charged. No charges shall be payable by a cardholder on transactions that are disputed as ‘fraud’ until the dispute is resolved.

4. Closure of Credit Cards

Credit cards must be cancelled/closed within seven working days from the date of request from the cardholder received through email, SMS, helpline/ Interactive Voice Response, etc. Closure of cards shall be subject to payments of due charges by the applicant. Charge of Rs. 500 will be levied on the card-issuer in case of failure to honour a closure request within seven days.

When a credit card is not used for more than a period of 1 year, closure of such cards will be processed within 30 days with condition of no-response from user.

5. Issue of Debit Card

Banks do not need prior approval from the RBI, for issuing of debit cards, however all Banks must comply with the conditions in the Master Direction. Debit cards can be issued only to customer having Savings/Current Accounts. No loans are allowed on these debit cards, but overdraft facility by Pradhan Mantri Jan Dhann Yojana will be applicable on such debit cards.

Banks (other than RRBs) may issue debit cards in any form factor besides plastic cards, such as wearables.

Banks shall not force a customer to avail debit card facility and shall not force a customer to avail any other facility as a pre-condition for issuing a debit card.

6. Co-branded Cards

A co-branded card is a card that is issued jointly by a card-issuer and a co-branding entity bearing the names of both the partnering entities. All Co-branded debit cards and credit cards must be issued after complying with the conditions set out in the Master Direction.

The card-issuer issuing a co-branded card should prominently display the details of the co-branding arrangement such as the revenue sharing between the partners, etc. The card-issuer must not share any information regarding the transactions or other financial information of a card-holder with its co-branding entity. The role of a co-branding entity is limited to marketing/distribution of the cards and providing goods/services to the card-holder. Card-issuers are liable for the acts of the co-branding partner.

NBFCs, opting for a co-branding arrangement for issue of credit cards with a card-issuer, will follow the Guidelines on issue of Co-Branded Credit Cards contained in the respective Master Directions applicable to NBFCs.

7. Grievance Redressal

1. The grievance redressal procedure of the card-issuer shall be displayed on the website of the card-issuer with a clearly visible link on the homepage. The details such as name, direct contact number, email-id and postal address of the grievance redressal officer of the card –issuer must be mentioned in the bills and account statements sent to the card-holder.
2. The grievance redressal procedure shall have a provision for automatic escalation of unresolved complaints from a call center/base level to higher authorities, if necessary. The process includes the system of acknowledging customers’ complaints for follow up, such as complaint number/docket number, even if the complaints are received over phone.
3. The card-issuer will be liable to compensate the complainant/ card-holder in situations of loss of finances/time or any other harassment/ anguish experienced by the card-holder due to untimely redressal. When the issues are not addressed within one month the complainant can approach the Office of the concerned RBI Ombudsman.

8. Confidential Information of Customers

No information of the card-holder can be shared with any third-party (including a Credit Information Company) without explicit consent of the card-holder. If the card-issuer has shared the card-holder’s information with credit-rating agencies, the card-issuer must promptly update the information regarding credit-worthiness of the card-holder as soon as defaults are cured by the card-holder.

Card-issuers will have to ensure strict compliance with the extent legal framework on data protection. Card- issuers will be responsible for any data leaked about the customers. Card-issuers shall also comply with the ‘Master Direction on Know Your Customer’, as amended from time to time.

If the card-issuer engages third-party agencies for recovery of dues, the card-issuer must ensure that there is no damage to the card-holder’s reputation, strict confidentiality is observed and that such third party engages in fair practices for debt-collection or recovery of dues.

9. Review of compliance with the Master Circular

Card-issuers shall put in place a mechanism for review of their credit card operations on half-yearly basis by the Audit Committee of the Board of Directors. The review shall include, inter-alia, customer service, frauds, complaints and grievance redressal, card usage analysis including cards not used for long durations and the inherent risks therein.

 

[1] RBI/2022-23/92 DoR.AUT.REC.No.27/24.01.041/2022-23