RBI Order Blocking Credit Card Issuers: American Express, HDFC & Diners Club

Disclaimer: The views expressed here are my personal opinions about recent RBI actions and may not be fully accurate.

The Reserve Bank of India (RBI) has recently barred several credit card issuers from onboarding new customers. Below is a clear, concise summary of the situation for each affected issuer, how customers are impacted, and what might happen next.

American Express

• The Ban: Prohibited from acquiring new customers from 1 May 2021.
• Reason: Payment system data not being stored locally in India.

RBI’s April 6, 2018 circular on Storage of Payment System Data requires payment system providers to store payments data in India. American Express appears to have missed the compliance deadline, prompting the restriction. Beyond regulatory compliance, local data storage also resolves timing mismatches tied to foreign time zones — for example, transaction timestamps based on EST can disadvantage cardholders who make late-night purchases to meet monthly thresholds.

When will the ban be lifted?

The timeline depends on how quickly American Express completes local data storage and submits required documentation to RBI. If they were already near completion, the ban could be lifted within a few weeks to a month after submission. If not, it could take several months to fully implement systems and receive RBI clearance. Given Amex’s primary focus on cards in India, a prolonged delay seems less likely.

HDFC Bank

• The Ban: Barred from acquiring new customers from 2 December 2020.
• Reason: Frequent outages in internet and mobile banking services and related infrastructure issues.
• Status: Under remediation and subject to lifting when RBI is satisfied.

HDFC Bank has been under this restriction for several months. The bank has been rebuilding and migrating systems to upgraded infrastructure to reduce outages and strengthen resilience. This remediation involves data migration, testing and third-party audits before RBI will consider reinstating new customer onboarding.

When will the ban be lifted?

Based on typical timelines for infrastructure migration and regulatory reporting, the process can take around six months from start to finish. Reports indicate third-party audits were underway as of mid-April 2021. If audits and RBI reviews conclude positively, HDFC could have restrictions eased once compliance and stability are demonstrated.

Diners Club

• The Ban: Prohibited from acquiring new customers from 1 May 2021.
• Reason: Payments data not stored locally.
• Status: Issue similar to American Express; subsequent updates indicate the ban was lifted on 9 November 2021.

Although Diners Club faced the same storage-related restriction as Amex, Diners cards in India are often issued in partnership with HDFC Bank, which does maintain local data. The RBI’s focus may have been on ensuring that processing and data flows for Diners payments are conducted within Indian jurisdiction. Diners Club was also the world’s first independent credit card company, a historical note that underscores the irony of such restrictions.

Customer Impact

1. New customers: Those planning to apply to Amex, HDFC or Diners after the ban dates cannot be onboarded during the restriction period, limiting options for mid- to high-end card seekers.
2. Existing customers: Current cardholders are largely unaffected in account functionality. They retain access to existing benefits and can typically upgrade or downgrade products within the issuer.

To retain existing customers and revenue, issuers often roll out targeted promotions or enhanced offers during such periods. HDFC has already taken this approach, and similar offers from other issuers could follow while onboarding is restricted.

Where will new customers go?

With HDFC and Amex temporarily out of the new-customer market, mass-market applicants are likely to turn to SBI Cards, ICICI Bank and other mainstream issuers. Premium customers seeking high-end products may consider Axis Bank, Standard Chartered, Citi (where available), and other banks that continue issuing premium cards. This gap creates an opportunity for active issuers to capture market share, provided they streamline onboarding and approval processes.

Why RBI is strict

RBI’s actions appear aimed at enforcing operational resilience and data sovereignty. Sudden decisions can seem harsh, particularly when they affect a primary revenue stream for banks and card issuers. Advance notices would help affected businesses prepare, but RBI seems focused on preventing systemic risks arising from outages, data jurisdiction issues, and fraud vulnerabilities. Some observers worry that tough regulation may discourage foreign issuers, while others view it as necessary oversight to protect consumers and the financial system.

Whether these measures favor any particular issuer is speculative; the stated objective is to improve stability, security, and compliance across payment systems in India. RBI likely expects faster remediation after high-impact incidents in the sector.

Final Thoughts

In summary, RBI has temporarily restricted new customer acquisition by notable issuers to enforce data localization and operational robustness. Existing customers remain serviced, while new applicants will shift to other banks and card networks in the short term. These actions are disruptive but intended to harden the payments ecosystem. Ideally, enforcement could be paired with clearer timelines and transitional measures, but once issuers complete required remediation and verifications, normal onboarding should resume.

Hopefully the pandemic situation stabilizes and affected issuers complete compliance soon so customers regain full choice in premium credit card options.