Public sector banks are exploring partnerships to issue co-branded credit cards, as smaller state-owned lenders seek to tap the scale, technology and distribution networks of peers with established presence in the fast-growing business. Under the proposed strategy, smaller PSBs could partner with larger state-owned banks that already have credit-card capabilities, enabling them to access established customer networks and distribution channels without having to build the entire infrastructure themselves. The proposal was discussed with Finance Minister Nirmala Sitharaman and other finance ministry officials during the two-day PSB Confluence organised by the Department of Financial Services in New Delhi, according to government officials.
Public sector banks have rapidly lost market share in the higher value segment of the industry, particularly in credit cards business where they are offering lower range card variants and in global capability centres (GCCs) to private and foreign banks, according to deliberations at the finance ministry conclave. Bankers discussed how government-controlled lenders are "structurally under-represented" in the higher value cohorts of the credit card business and majority of them offer a "static", one size fits all rewards catalogue that does not communicate value effectively. As reported by The Times of India, corporate travel & expense cards, HNI metal/premium cards and MSME business cards are segments where private and foreign banks have built dedicated sales, underwriting and servicing capability that most PSBs have not yet replicated at scale.
To strengthen their presence in the credit-card business, PSBs have proposed using Unified Payments Interface (UPI) and goods and services tax (GST) transaction data to identify and acquire digitally active new-to-credit (NTC) and new-to-bank (NTB) customers. Under the proposal, they plan to offer pre-qualified, differentiated card propositions to potential customers based on their transaction behaviour. According to the state-owned banks, corporate customers, high-net-worth individuals (HNIs), micro, small and medium enterprises (MSMEs), and new-to-bank customers are segments that remain relatively untapped. For MSMEs and self-employed customers, PSBs plan to offer dedicated business credit cards and systematically cross-sell them to their existing customer base.
For young customers, banks have proposed a 'campus-to-career credit passport', under which cards could be offered on campuses and linked to education loans. The lenders have also proposed linking card limits and banking facilities to income growth and repayment behaviour to build longer-term banking relationships with students. This strategy could also help lenders deepen their engagement with Gen Z, a task recently assigned to them by the finance minister. To reduce uncertainty for prospective customers, PSBs have proposed a pre-application eligibility checker that would allow applicants to assess their chances of approval for a specific card and their indicative credit limit without submitting a formal application.
Recognising the need to address limited understanding of credit-card terms and conditions among first-time users, PSBs have proposed making financial literacy a mandatory step before the activation of a first credit card. The proposal envisages a 5-10-minute gamified financial literacy video in regional languages as a mandatory requirement before first-card activation. The meeting also discussed the falling share of current account and savings accounts (CASA) in total deposits of PSBs over the past four years, with CASA representing the lowest cost source of funds that their erosion increases dependence on higher cost deposits. The combined credit card base of American Express, HSBC India, Standard Chartered Bank, DBS Bank India and SBM Bank India declined 7.1% year-on-year to 3.99 million as of June end.
According to the latest RBI data, private banks in India outpace PSBs by a wide margin in the credit-card business, with a total card base of 86.91 million, compared with 29.40 million for PSBs. Of the 12 PSBs in the country, four have negligible operations in the credit-card segment. The conclave suggested opening dedicated GCC desks within each PSB and public financial institution in the next six months, along with designating branch level relationship managers in tier II/III cities like Varanasi, Chandigarh, Mysore and Vizag. The strategic recommendations come as GCCs are expected to reach around 5,000 by 2030 from 2,100 at present and contribute around $150-200 billion to the Indian economy.
