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Punjab National Bank incorporates new credit card services subsidiary

Punjab National Bank (PNB) has created a separate credit card subsidiary called PNB Cards and Services Ltd. The new entity will provide “non-financial support services” related to the banks’ credit card business, PNB said in an exchange notification.

PNB is a relatively small player in the Indian credit card market with only 3.63 million credit cards in force, compared to HDFC Banks‘ 15 million credit cards and State Bank of India‘s 11.5 million credit cards. Effectively, HDFC Bank, SBI, Axis Bank and ICICI Bank together dominate the credit card space having issued over 72% of all credit cards in force as of March 2020.

Back in 1998, SBI created SBI Cards and Payment Services as a separate non-banking finance company (NBFC) which could issue credit cards on its own balance sheet. The move allowed the country’s largest bank to issue credit cards to not only SBI depositors but also to customers of other banks. In early March 2020, SBI listed SBI Cards on both stock exchanges which raised over Rs 10,340 crore in equity capital for the company. Nearly a year later, SBI Cards has a market capitalisation of over Rs 94,000 crore as of date.

Under the RBI’s regulations, NBFCs cannot issue credit cards. However in the case of SBI Cards, the Reserve Bank of India (RBI) made an exception to its rules in 1998, allowing SBI to run a step-down NBFC subsidiary which would issue credit cards and provide credit limits on its own balance sheet.

PNB and its new subsidiary PNB Cards and Services have not been provided with the same exception, which is why it will stick to non-financial support services for the credit card business. This would mean that PNB Cards’ revenue depends on the services it provides to the parent bank, unlike SBI Cards’ which earns interest income and fee income directly from its credit card borrowers. The authorised capital of the new entity is Rs 25 crore, the bank said.

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As a non-financial entity, PNB Cards could focus on the following:

  • Managing credit card repayments
  • Sourcing and on-boarding new retail clients
  • Build new products on the corporate side
  • Growing merchant partnerships and co-branded cards

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