RBI Master Circular on Credit and Debit Cards – Smart Money News

Cards, both credit and debit, are extremely convenient. However, there are instances where these can cause headaches and extreme stress. Think about when your card went wrong when booking an important plane ticket or paying school fees or when you found transactions you hadn’t made that needed to be rectified. From time to time, the RBI steps in to bring order to the chaotic card ecosystem which includes banks, NBFCs (non-bank financial companies), card accepting merchants and card users. A recent 26-page RBI circular attempts to bring some order and address several user concerns. It will come into effect on July 1.

Cards, both credit and debit, are extremely convenient. However, there are instances where these can cause headaches and extreme stress. Think about when your card went wrong when booking an important plane ticket or paying school fees or when you found transactions you hadn’t made that needed to be rectified. From time to time, the RBI steps in to bring order to the chaotic card ecosystem which includes banks, NBFCs (non-bank financial companies), card accepting merchants and card users. A recent 26-page RBI circular attempts to bring some order and address several user concerns. It will come into effect on July 1.

Unsolicited Cards: It is common for banks to issue credit cards and sometimes upgrade an existing card without their consent. This will no longer be the case in the future. If a card is issued without consent, banks will have to pay double the amount charged as a penalty.

Application sheet: Card issuers will need to provide a one-page information sheet with a credit card application detailing important aspects of the card, in particular the interest rate charged and other fees that come into play with explanation. Additionally, if the application is rejected, the applicant must be informed of the reason for the rejection.

Recovery mechanics: Whenever a cardholder delays and fails to pay, debt collectors or the card issuer start harassing the cardholder. This will no longer be possible as issuers and third-party agents will have to follow a code of best practice when collecting fees from cardholders. It will also now be the duty of debt collectors to maintain strict client confidentiality.

Fees and costs: Card issuers will need to specify annualized percentage rates (APRs) on credit cards for different situations such as retail purchases, balance transfer, cash advances, non-payment of minimum amount due and payment late, especially if the fees are different for each of these cases. Also, there can be no hidden charges when issuing free credit cards.

Issuer credentials: Only commercial banks with a net worth above Rs 100 crore can undertake credit card business, either independently or in partnership with other card issuing banks or NBFCs. Similarly, Regional Rural Banks (RRBs) can only issue credit cards in conjunction with their sponsor bank or other banks. It is important to note that NBFC will not undertake card issuance (credit and debit) without prior approval from RBI.

Card activation: Card issuers will need to obtain OTP-based consent from cardholders to activate a credit card. However, if the card is not activated by the cardholder for more than 30 days from the date of issue; the card issuer will close the credit card account at no cost to the customer. But in the event of a renewed or replaced card, the closure of an inactivated card is subject to payment of all rights by the card holder.

Insurance cover: Card issuers will have the option to introduce insurance coverage to cover liabilities arising from lost cards, card fraud, etc. However, if card issuers offer insurance coverage to cardholders in connection with insurance companies, the card issuer must obtain written or digital consent from cardholders and the contact details of the or nominees.

Card in circulation with EMI: The trend of converting outstanding credit cards to EMI will not be easy for card issuers. They will need to provide transparency when converting credit card transactions to EMI by clearly indicating the principal, interest and initial discount provided by the merchant or issuer to make it free of charge prior to conversion. This detail should also be shown on the credit card statement. Conversion of EMIs with an interest component should not be disguised as interest-free or no-charge EMIs.

Credit limit: Card issuers cannot change the sanctioned credit limit for cardholders without asking the cardholder’s consent.

Closing the card: A request to close a credit card must be honored within seven business days by the credit card issuer, subject to payment of all fees by the cardholder. Following the closure of the credit card, the cardholder will be immediately notified of the closure by e-mail and other forms of communication. Failure on the part of the card issuers to complete the closing process within seven working days will result in a penalty of Rs 500 per day of delay payable to the customer, until the account is closed, provided that there is no have no outstanding balance on the account. .

Dormant card: If a credit card has not been used for more than a year, the process of closing the card must be initiated after notifying the cardholder. In the absence of a response from the cardholder within 30 days, the card account will be closed by the card issuer, subject to payment of all fees by the cardholder.

Prepare for an increase in NDEs



Changes in interest rates, especially lending rates, are a source of concern for borrowers when they rise. Banks have started to slowly increase their marginal cost of funds-based lending rate (MCLR) by 5 to 10 basis points, which has a direct impact on EMIs. The RBI, in its monetary policy review on April 8, signaled a shift in focus from boosting growth to controlling inflation. Since then, the yield on benchmark 10-year government securities has been above 7%.


The MCLR was introduced in 2016 and is calculated based on the marginal cost of funds, including the deposit rate and the repo rate. This is an internal benchmark that determines the interest rate for loans based on CRR (cash reserve ratio), loan term and operating costs. Thus, any change in the repo rate changes the MCLR, impacting all categories of borrowers.


Thus, a 10 basis point increase in the MCLR of 7.35% for a 20-year home loan can increase the EMI by Rs 8 per lakh. On a Rs 50 lakh home loan, this will amount to an additional Rs 400 every month for the remaining repayment period. With further hikes expected this year, each spike can offset the best repayment plans. Borrowers have the choice of increasing the EMI or increasing the term of the loan to maintain the same EMI. If possible, pay the higher EMI and not the term, as this will increase the overall cost of borrowing. However, if increased NDEs are a burden; opt for increasing the term of the loan and look for ways to repay a lump sum from time to time to reduce the principal component of the loan.