The proposed deal between Standard Chartered Bank and American Express seems to have run into a bit of a bother with the regulatory authorities in India.

As per the deal, AmEx was to sell it’s banking operations to StanChart for around $ 860 million, while retaining and running it’s travel and credit card business as a NBFC (Non Banking Finance Company). However, the hitch in this move comes from the reluctance of the Reserve Bank of India (RBI) to allow an NBFC to issue credit cards. According to the RBI, there has to be a tie-up with a bank which holds the credit risk.

As per RBI rules, registered NBFCs can issue co-branded credit cards with scheduled commercial banks, without risk sharing, with prior approval of the central bank. Under the set-up, the role of the NBFC should be limited to marketing and distribution of the co-branded credit cards. The risks, if any, involved in co-branded credit cards business should not get transferred to the business of the NBFC. This would mean that Amex will have to tie up with a bank if it continues to issue credit cards after the deal.

 

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