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India to worry (Pic By Amit Verma)
There is a new banking licence in town. It’s called a ‘limited banking licence’. In a first of its kind move, the Reserve Bank of India (RBI) has issued such a licence to American Express Company (AmEx), which will enable AmEx to carry on with its cards business in the country despite having sold American Express Bank to Standard Chartered Bank (StanChart) for $860 million last year. Under current RBI guidelines, only banks can issue plastic, be it credit or charge. Non-bank finance companies (NBFCs) can only issue co-branded cards with banks. The central bank allowed this in December 2006 so that NBFCs could widen their business footprint. Now, with AmEx, things have taken a new twist.
AmEx will continue with its cards business through its 100 per cent subsidiary, American Express Banking Corporation (AEBC). AmEx’s Consumer Card, Global Commercial Card, Merchant Services International, and travellers’ cheques businesses will be run under the umbrella of AEBC India. AmEx also has co-branded consumer and corporate cards with Kingfisher Airlines.
The RBI has made an exception for AmEx after having initially indicated that the company cannot issue cards following the sale to StanChart. An RBI official in Mumbai while confirming the development explained that it should be seen in the context of the fact that had it not accommodated AmEx, scores of cardholders would have been inconvenienced. “We have accommodated AmEx in the light of current regulations so that the merger with StanChart can go ahead,” he says.
AmEx does not give out numbers, but sources indicate that there are about 500,000 AmEx card holders in India. The company has been in the country for over a century and has a lot at stake in the sub-continent. AmEx’s country manager for India, Rob Hennin, said that “over the years, we have invested heavily in strengthening our presence and our offerings to realise the opportunities presented by the fast growing Indian market.”
RBI And Foreign Banks
As on date, India issues a universal banking licence, and a bank after having received the central bank’s go-ahead is free to offer all kinds of services, be it in retail or corporate banking. This is not the case with many countries where there are different kinds of banking licences. There is also the issue of reciprocity. ICICI Bank and State Bank of India (SBI) had to wait for years to get the regulatory approval to start operations in the US and Singapore.
During 2003 to October 2007, India granted 19 authorisations to US-based banks, most of which stand utilised. “However, during the same period, the US did not authorise any office of the Indian banks in US territory vis-à-vis the requests from the Indian banks for setting up three branches, two subsidiaries and nine representative offices. Some of the requests have been pending with the US authorities for more than five years,” said RBI’s Deputy Governor V. Leeladhar last December defending its stance on operational freedoms for foreign banks. The RBI has, thus, been considerate towards AmEx, a huge Yankee financial services brand.
Setting A Precedent?
The larger issue is that it now remains to be seen how the RBI will now handle the clamour from numerous non-bank players that have huge retail ambitions — such as, the Future Group, Reliance Industries, and the Mittal-Wal-Mart combine. Future Capital Holdings (FCH) has promoted an integrated retail financial distribution company, Money Bazaar. This is to be set up within the portals of Future Group outlets and will hawk credit cards, personal loans, mortgages and consumer loans.
Sanjay Kapoor, president of mobile services at Bharti Airtel, gives a guarded reply when queried on his company’s ambitions: “We have no plans to get into banking operations as of now for our m-commerce applications,” he says. “We are looking to build a robust ecosystem through our partner banks to take the initiatives forward in the m-commerce arena, which we think, hold huge potential for future growth.” When asked specifically on the AmEx model, he says, “If it is indeed true, then yes, we would be interested.”
The AEBC model shows that banks can be forgotten while issuing cards. As on date, cards issued by banks or the co-branded version are either on Visa International’s or MasterCard International’s payment loops. For instance, the Reliance Anil Ambani group has launched a co-branded card with Citibank that is on the Visa network. But there is also a white label card between SBI and Tatas. (In a white label card, the logo of the issuer does not feature on it. Marketers rebrand the original to make it look their own. The origin of the white label can be traced back to vinyl records when DJs would remove the label from a popular record so other DJs would not be able to know who made the track!) The Tata credit card, which has been launched by SBI Cards — a JV between SBI and GE Capital Services that was set up in 1998 — is an indicator that given a chance, companies will not share space with a bank.
Piyush Khaitan, managing director of Venture Infotek, a transaction processing company, feels that the RBI issued a limited banking licence to the AmEx Group because it had a bank and has been a card issuer for long. “The issue before the RBI will now be how it treats non-bank players, such as Life Insurance Corporation, which has inked a deal to create a credit card company with GE Money (India), Corporation Bank, LIC Housing Finance and LIC Mutual Fund.” With AmEx, the RBI has perhaps given an indication of things to come. Non-banks can cheer.