The Reserve Bank of India (RBI) has cracked down on “sweetheart” arrangements between credit card issuers and card networks as these limit choices for customers.

It has now directed banks that issue credit cards to give their eligible customers the option of choosing from multiple card networks.

The banking regulator has also asked the issuers not to enter into any arrangement or agreement with the card networks that restrains customers from availing the services of other networks.

In India, the major card networks include Visa, MasterCard, Rupay, Diners Club and American Express.

“On a review, it is observed that some arrangements existing between card networks and card issuers are not conducive to the availability of choice for customers,” the RBI said in a notification while explaining the rationale behind this customer-friendly move.

This comes after the draft rules in July: the RBI had then proposed that card issuers such as banks and non-banking finance companies should issue cards on more than one card network and they should give customers the facility to choose any one among the multiple card networks.

It said the authorised card networks tie up with banks and non-banks for the issuance of debit, credit and prepaid cards.

However, the choice of the affiliated network for a card issued to a customer is decided by the issuer and is linked to the arrangements that the bank or the NBFC have with the networks in terms of their bilateral agreements.

Barring card issuers from entering into any arrangement or agreement with card networks that restrain customers from availing the services of another card network, the RBI said for existing cardholders, this option of choosing from multiple card networks may be provided at the time of the next renewal.

However, these directions would not apply to credit card issuers where the number of active cards issued is 10 lakh or less in number. ``Card issuers who issue credit cards on their authorised card network are excluded from the applicability of the circular,” it added.

Card issuers and networks will have to ensure adherence to the RBI’s guidelines in existing agreements at the time of amendment or renewal and when fresh agreements are executed. These directions will be effective six months from the date of this circular.

The change is likely to impact large partnerships, where both the issuer and the network contribute towards rewards or incentives, an executive with a card network said.