India’s approach to financial inclusion has been exciting, frustrating, and novel, all at the same time.
Prime Minister Modi shocked the world when he announced “50 days of pain” as the second largest country on the planet upgraded their currency, mandating that the old money be brought to banks for exchange. The message was that the 500 rupee ($7.50) and 1000 rupee ($15) notes were prone to counterfeit and graft.
CNN reported that more than 200,000 Indian ATMs had to be refitted so they could dispense the new notes. Failure to exchange the notes meant you were holding invalid currency, making compliance a use-it-or-lose-it proposition. The move was forceful but successful.
Next was the new data protection law, causing angst for Mastercard, Visa, and fraud management systems throughout the world. The New York Times reported in late 2018:
- The spark for the current fight is a new regulation, issued in April and in effect starting Tuesday, that requires payments companies to store all information about transactions involving Indians solely on computers in the country.
- The rule and the hubbub over it are part of a debate over a concept known as “data localization,” in which a country places restriction on data as a way to gain better control over it and potentially curb the power of international companies.
The mandate was either conform or freeze your account activity.
- But the R.B.I. would have none of it. In recent phone calls to the top Indian executives of the major payments’ companies and in letters to the companies last week, the banking regulator warned that it would take action, including imposing fines, if they missed the Monday night deadline.
Now, the third big deal. The Reserve Bank of India (RBI) is now doing an Initial Purchase Offering (IPO) on the state-owned credit card business. In contrast to the currency issue, which was forceful yet impressive, or the data protection issue, which was more of flexing regulatory muscle than it was to protect data, this IPO is genius. Bloomberg reports:
- The State Bank of India on Wednesday said it is planning to dilute stake in its card business through the initial public offer route.
- The country’s largest lender currently holds 74 percent stake in SBI Cards & Payment Services Private Limited.
- The bank had launched SBI Card in October 1998.
- In December 2017, SBI and the Carlyle Group acquired GE Capital’s stake in the joint venture. SBI holds 74 percent, while Carlyle holds 26 percent in the JV.
- Currently, the bank has a consumer base of about six million using its SBI Card services for payment of products and services.
Think about it for a moment. SBI owns a stake in the 20-year-old card business, in partnership with the Carlyle Group, a multinational private equity group with more than $200 billion in assets. The credit card business is starting to get traction but more than 190 million people in the country do not have bank accounts. There is a huge opportunity to generate revenue from the IPO and build a broader credit card.
Good for India. Good for SBI. Credit Card terms from SBI are fair, and go head-to-head with global banks like Citi.
All this, and certainly more to follow.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group