RBL Bank, Yes Bank, Bajaj Finserv Most Impacted By Mastercard Restrictions: Nomura

A customer uses a credit card to make a contactless payment. (Photographer: Simon Dawson/Bloomberg)

RBL Bank, Yes Bank, Bajaj Finserv Most Impacted By Mastercard Restrictions: Nomura

The Reserve Bank of India's decision to stop Mastercard from onboarding new customers for its inability to meet data localisation rules will hurt some banks more than others.

While most banks work with both card networks, some specific credit cards, mostly co-branded cards, are issued only in partnership with one or the other. As such, banks and non-banks with a greater reliance on such co-branded cards, based on the Mastercard network, will be hurt most.

In a report on Thursday, Nomura said among credit card issuers, RBL Bank Ltd., Yes Bank Ltd. and Bajaj Finserv Ltd. lending are likely to be most impacted. "Their entire card schemes are allied with Mastercard," the research house said.

HDFC Bank Ltd. has 60% of its card schemes tied to Mastercard, Amex and Diners, while for Axis Bank Ltd. and ICICI Bank Ltd. this is 35-36%. Kotak Mahindra Bank Ltd.'s card portfolio is entirely allied to Visa and hence won’t face any issues.

Nomura, however, said contribution of individual card schemes to overall profitability is not known. Since HDFC Bank is already restricted from issuing new cards, it is not incrementally impacted.

Banks have started to forge tie-ups with Visa to replace Mastercard linkages.

In a notification to exchanges on Thursday, RBL Bank said it has entered into an agreement with Visa to issue credit cards to its customers. But the technology integration could take 8-10 weeks.

Two of the fastest growing credit cards in the market are the Axis-Flipkart card and the ICICI Bank-Amazon card. These card schemes are 14% and 15% of outstanding cards for Axis Bank and ICICI Bank, respectively, Nomura said.

While Amazon-ICICI card is allied to Visa, the Flipkart-Axis card is allied to Mastercard, and hence is a potential medium-term risk, should the current status-quo continue, the brokerage said.

Macquarie Securities, in a note on Wednesday, said it expects new credit card issuances to slow as a consequence of the RBI's restrictions.

"The key concern is that credit cards, a profitable product for banks and earn post-tax return on assets of 5-6%, could get impacted as banks now will have to transition to a Visa or a Rupay platform which will take time," Macquarie wrote. Conversations with bankers, it said, revealed that it could take two months for the new payment platform (say Visa) to issue new plastics and take up the additional capacity vacated by Mastercard.

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