Mastercard ban: RBI seeks action plan from banks – The Economic Times

Clipped from: https://economictimes.indiatimes.com/industry/banking/finance/banking/mastercard-ban-rbi-seeks-action-plan-from-banks/articleshow/84744882.cmsSynopsis

The Reserve Bank of India has also reached out to various lenders on the problems being faced by the broader banking system after it barred the US payments major from issuing new cards for its alleged failure to comply with data localisation rules.

India’s central bank has asked lenders to put in place business continuity plans (BCP) after it ordered operational curbs, effective last week, on Mastercard. It has also sought details on their preparedness to regularise the issuance of credit and debit cards on alternative payments platforms, such as Visa and RuPay, three people aware of the development told ET.

The Reserve Bank of India (RBI) has also reached out to various lenders on the problems being faced by the broader banking system after it barred the US payments major from issuing new cards for its alleged failure to comply with data localisation rules. “The regulator has been actively pursuing banks to activate BCPs after it banned Mastercard,” a top executive at a lender told ET. “We have also been asked to update the RBI on the impact this move is having on the banking system and what measures banks are taking to plug a possible system-wide impact. There is a dearth of plastic and the on-boarding process will take time.”

The RBI, which ordered the curbs on July 14, did not respond to ET’s mailed query.

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Besides credit cards, even opening of new savings accounts could be hit as the process will have to be migrated to either Visa or RuPay. Industry insiders also pointed out thatState Bank of IndiaNSE -1.31 % (SBI), HDFC Bank, ICICI Bank and Axis Bank could be the worst hit as they generally open hundreds of thousands of accounts every month. For instance, HDFC Bank added 1.64 million current and savings bank accounts in the June quarter alone.

Banks are hopeful that the curbs on Mastercard would be lifted soon but a section of the industry feels it could take nearly three months to return to normal. “While we are migrating to Visa and RuPay, the system will be hit for at least 10-12 weeks before it normalises,” said a top executive at another lender.

As per a report by Nomura, whileRBL BankNSE -2.96 % and Yes Bank have all their credit card schemes on the Mastercard platform, for HDFC Bank it is 45%, ICICI Bank 36% and Axis Bank 35%.

Curbs on On-boarding New Customers
RBL Bank and Yes Bank have since tied up with Visa for their credit card requirements.

On its part, Mastercard has been engaging with the regulator and submitted additional clarifications on its data localisation framework to the RBI on July 20.

The regulator imposed restrictions that prevent Mastercard from on-boarding new domestic debit, credit, or prepaid customers on its network from July 22. The central bank’s supervisory action cited “non-compliance with directions on Payment System Data”.

As per this rule, all foreign payment operators storing card and customer-related data must do so in servers physically present in India. This rule was introduced by the RBI through a circular issued in April 2018.

To be sure, these restrictions apply only to Mastercard’s new cards.

As per industry sources, Visa and Mastercard together process a significant chunk — over 70% — of India’s credit cards. National Payments Corporation of India’s (NPCI) RuPay is said to be the largest debit card issuer. The central bank doesn’t disclose the break-up of the cards issued by the respective platforms.

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