Recently, the Reserve Bank of India (RBI) turned down Canara Bank’s proposal to set up a separate credit card subsidiary. Canara Bank, a government-owned lender, was hoping this move would give a boost to its growing credit card business.
Canara Bank’s Current Credit Card Operations
At present, Canara Bank issues credit cards directly under its own name. The bank had approached the RBI to get permission to set up a non-banking financial company (NBFC) to manage its credit card business. By doing this, the bank aimed to bring more focus and specialization to its credit card offerings, helping it to compete better in the market.
However, the RBI seems hesitant to grant NBFC licenses to public sector banks for such purposes. A source close to the situation mentioned that the regulator is not in favor of public sector banks setting up separate subsidiaries for their credit card businesses.
Comparison with Other Public Sector Banks
Interestingly, some other public sector banks already have similar subsidiaries. For example, State Bank of India (SBI) has a separate credit card subsidiary called SBI Cards and Payment Services, which is one of the leading credit card issuers in the country. Bank of Baroda also has its own credit card subsidiary, BOB Cards. These subsidiaries were established long ago, and it seems the RBI’s thinking on such matters has changed since then.
RBI’s Concerns Over Unsecured Loans
The RBI’s rejection comes at a time when there is growing concern about the rise in unsecured loans. Credit card loans are a type of unsecured loan, meaning that borrowers receive credit without providing any collateral. With the rapid growth of unsecured loans, the regulator might be exercising more caution in approving new subsidiaries for credit cards.
Canara Bank’s Growing Credit Card Business
Despite the RBI’s decision, Canara Bank’s credit card business has been expanding. By the end of June 2024, the bank had around 9 lakh credit cards in circulation, which is a 37% increase compared to the previous year. The bank’s Managing Director, K. Satyanarayana Raju, had hoped that a separate subsidiary would help the bank focus more on this growing segment. With over 11 crore customers, the bank was looking to tap into its existing base to expand its credit card business further.
The growth of digital payments, internet usage, and e-commerce in India has created a favorable environment for the credit card industry. Canara Bank wanted to take advantage of this by focusing more on its credit card business through a dedicated subsidiary.
Plans to Convert an IT Subsidiary
Instead of creating an entirely new company for the credit card business, Canara Bank had planned to convert an existing subsidiary into a credit card unit. The bank was preparing to transform its IT services subsidiary, Canbank Computer Services, into the credit card division. This process started last year, with Canara Bank already holding a 69.14% stake in the subsidiary. The remaining shares are held by Bank of Baroda (18.52%), DBS Bank, and Karur Vysya Bank (6.17% each).
Canbank Computer Services currently provides IT and software development services, business process outsourcing (BPO), ATM services, and consultancy. The bank’s plan was to use this subsidiary as a foundation for building its credit card business.
What’s Next for Canara Bank?
Although the RBI’s rejection has halted Canara Bank’s plans for now, the bank remains focused on growing its credit card operations. With a rapidly expanding customer base and increasing digital payment usage, Canara Bank is still well-positioned to grow in this space, even without a dedicated subsidiary.
For now, the bank will need to continue managing its credit card business under its own banner while exploring other ways to strengthen its presence in the market.
One of the good decision by RBI