The Reserve Bank of India (RBI) has rejected Canara Bank’s proposal to create a credit card subsidiary, a step the government-owned lender had hoped would enhance its expanding card business, according to The Economic Times.

At present, Canara Bank issues credit cards directly but had sought regulatory approval to establish a non-banking financial company (NBFC) to manage its credit card operations.

“The RBI seems reluctant to grant an NBFC licence to a public sector bank,” a source familiar with the matter told The Economic Times.

This decision contrasts with other public sector banks such as the State Bank of India (SBI) and Bank of Baroda, both of which have subsidiaries for their credit card operations. SBI Cards and Payment Services is a major credit card issuer in India, while Bank of Baroda runs BOB Cards. However, these NBFC licenses were granted years ago. “It seems the regulator’s approach to such approvals has changed over time,” the source noted.

The RBI’s rejection coincides with increasing concerns about the rising volume of unsecured loans held by banks. Credit card loans, which are typically unsecured and issued without collateral, may have played a role in the regulator’s decision.

Also read | RBL BANK LAUNCHES FUEL CREDIT CARD IN PARTNERSHIP WITH IOCL

Despite this setback, Canara Bank’s credit card business is growing swiftly. As of June, the Bengaluru-based bank had 900,000 credit cards in circulation, marking a 37 percent increase year-on-year.

Canara Bank has been working on a strategy to convert its IT services subsidiary, Canbank Computer Services, into a dedicated credit card unit, rather than setting up a new entity. This transition was initiated last year. Canara Bank holds a 69.14 percent stake in Canbank Computer, while Bank of Baroda owns 18.52 percent, and DBS Bank and Karur Vysya Bank each hold 6.17 percent.

Currently, Canbank Computer Services specializes in IT and software development, BPO services, ATM services, and consultancy.

The push for a dedicated credit card subsidiary arose amid a surge in digital payments, enhanced internet infrastructure, and the growth of e-commerce, all of which have fueled the robust expansion of the card industry. Managing Director K Satyanarayana Raju explained that the subsidiary was intended to leverage the bank’s large customer base of over 11 crore to drive the growth of its card business.

For more updates, click here.