RBI Rejects Canara Bank's Credit Card Subsidiary Plan

1. Canara Bank’s Ambitions
Canara Bank, currently issuing credit cards on its own, sought RBI’s permission for a Non-Banking Financial Service (NBFC) licence to house its credit card business separately. The goal was to put a special focus on its credit card business by leveraging its existing customer base of over 11 crore.

2. The Rejection Reason
The Reserve Bank of India seems to be cautious about granting NBFC licences to public sector banks at this time. A shift in regulatory thinking may be at play, particularly in light of the strong growth in unsecured lending through credit cards. SBI Cards and BOB Cards received NBFC status long ago, which may reflect the changing regulatory mindset.

3. Rising Credit Card Usage
With the growth of digital payments, improved internet infrastructure, and booming e-commerce, credit cards are becoming increasingly popular. Canara Bank’s credit cards in circulation grew by 37% in just one year, reaching 9 lakh cards by June 2024.

4. Conversion of Existing Subsidiary
Rather than forming a new company, Canara Bank aimed to convert its existing IT services subsidiary—Canbank Computer Services—into a credit card unit. Currently, Canara Bank owns 69.14% of Canbank Computer Services, with other stakeholders like Bank of Baroda (18.52%), DBS Bank (6.17%), and Karur Vysya (6.17%).

5. What’s Next?
Though Canara Bank’s plan has hit a roadblock, the bank may look for other ways to grow its credit card business. The increasing popularity of credit cards and strong customer demand will likely continue to drive the bank’s ambitions.